Legislature(2015 - 2016)BILL RAY CENTER 208

06/01/2016 03:00 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB4003 MOTOR FUEL TAX TELECONFERENCED
Heard & Held
+= HB4005 MINING: LICENSE,TAX, FEES; EXPLOR. CREDIT TELECONFERENCED
Heard & Held
+= HB4006 FISHERIES: TAXES; PERMITS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                   FOURTH SPECIAL SESSION                                                                                       
                        June 1, 2016                                                                                            
                         3:08 p.m.                                                                                              
                                                                                                                                
3:08:24 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair   Thompson  called  the   House  Finance   Committee                                                                   
meeting to order at 3:08 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mark Neuman, Co-Chair                                                                                            
Representative Steve Thompson, Co-Chair                                                                                         
Representative Dan Saddler, Vice-Chair                                                                                          
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lynn Gattis                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Lance Pruitt                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Jerry  Burnett,   Deputy  Commissioner,  Treasury   Division,                                                                   
Department  of Revenue;  Ken Alper,  Director, Tax  Division,                                                                   
Department  of   Revenue;  Randall  Hoffbeck,   Commissioner,                                                                   
Department of  Revenue; Benjamin Brown, Commissioner,  Alaska                                                                   
Commercial  Fisheries Entry  Commission,  Department of  Fish                                                                   
and  Game;   Bruce  Twomley,   Chairman,  Alaska   Commercial                                                                   
Fisheries  Entry Commission,  Department  of  Fish and  Game;                                                                   
Brandon   S.   Spanos,   Deputy   Director,   Tax   Division,                                                                   
Department   of  Revenue;   Representative   Louise   Stutes;                                                                   
Representative  Sam  Kito III,  Representative  Liz  Vasquez;                                                                   
Representative  Andy Josephson;  Representative Paul  Seaton;                                                                   
Representative Gabriele LeDoux.                                                                                                 
                                                                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 4003   MOTOR FUEL TAX                                                                                                        
                                                                                                                                
          HB 4003 was HEARD and HELD in committee for                                                                           
          further consideration.                                                                                                
                                                                                                                                
HB 4005   MINING: LICENSE,TAX, FEES; EXPLOR. CREDIT                                                                             
                                                                                                                                
          HB 4005 was HEARD and HELD in committee for                                                                           
          further consideration.                                                                                                
                                                                                                                                
HB 4006   FISHERIES: TAXES; PERMITS                                                                                             
                                                                                                                                
          HB 4006 was HEARD and HELD in committee for                                                                           
          further consideration.                                                                                                
                                                                                                                                
Co-Chair Thompson indicated that amendments would be taken                                                                      
up in the current meeting. If it was the will of the                                                                            
committee he intended to move the bills out. He stated//                                                                        
                                                                                                                                
3:09:26 PM                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 4003                                                                                                           
                                                                                                                                
     "An Act relating to the motor fuel tax; and providing                                                                      
     for an effective date."                                                                                                    
                                                                                                                                
Representative Wilson MOVED to ADOPT Amendment 1, 29-                                                                           
GH2458\A.1 (Shutts/Nauman, 5/28/16) (copy on file):                                                                             
                                                                                                                                
     Page 1, lines 11 - 12:                                                                                                     
     Delete all material and insert:                                                                                            
     "(3) the tax on all aviation fuel other than gasoline                                                                      
     sold or otherwise transferred                                                                                              
     (A) on the premises of an airport within the Alaska                                                                        
     international airport system, as that term is defined                                                                      
     in AS 44.42.290, is 3.2 cents a gallon;                                                                                    
     (B) outside the premises of an airport within the                                                                          
     Alaska international airport system, as that term is                                                                       
     defined in AS 44.42.290, is 6.5 [IS THREE AND TWO-                                                                         
     TENTHS] cents a gallon; and"                                                                                               
                                                                                                                                
Co-Chair Thompson OBJECTED for discussion.                                                                                      
                                                                                                                                
Representative  Wilson explained  the amendment would  exempt                                                                   
international  airports  [from   the  motor  fuel  tax].  She                                                                   
detailed   international   airports  were   currently   self-                                                                   
sustainable  and actually  gave  more money  than  necessary.                                                                   
She furthered that  with the 6.5 cent tax, there  would be 31                                                                   
states lower  than Alaska when it  came to jet fuel  tax. She                                                                   
continued  the airports  paid  leases and  landing fees.  She                                                                   
explained there had  been other increases at  the airports as                                                                   
well. She stressed  the airports paid for more  than just jet                                                                   
fuel.  She   noted  the   administration  had  not   provided                                                                   
information  on the impact  of a  1 cent or  2 cent  tax. She                                                                   
reasoned the  state could  continue to raise  the tax  all it                                                                   
wanted, but  she wondered what  would have been  accomplished                                                                   
if  companies  and  jobs  left.   The  amendment  would  help                                                                   
smaller  airports to  be a  bit more  self-sustainable -  she                                                                   
believed  they would  never be  completely  self-sustainable.                                                                   
She reminded  committee members a  meeting had been  held the                                                                   
prior  summer regarding  landing  fees for  smaller  airports                                                                   
where  it was  decided  to increase  taxes  on fuel  instead.                                                                   
Unfortunately, the  method taxed larger airports,  which were                                                                   
already  paying much more.  She expressed  concern about  the                                                                   
negative  impacts   the  tax  could  have   on  international                                                                   
airports,  which   included  Fairbanks  and   Anchorage  (the                                                                   
Juneau   airport  was   municipal  and   was  therefore   not                                                                   
included).                                                                                                                      
                                                                                                                                
3:11:18 PM                                                                                                                    
                                                                                                                                
Co-Chair  Thompson  relayed  that   Representative  Gara  had                                                                   
joined  the meeting.  He  asked  if the  governor's  original                                                                   
bill had proposed a 10 cent jet fuel tax.                                                                                       
                                                                                                                                
Representative Wilson replied in the affirmative.                                                                               
                                                                                                                                
Co-Chair  Thompson stated  the  current bill  included a  6.5                                                                   
cent tax. Representative Wilson affirmed.                                                                                       
                                                                                                                                
Representative  Gattis relayed  she had  not participated  in                                                                   
the committee meeting  when landing fees in  smaller airports                                                                   
had  been decided  against.  She recognized  a  fuel tax  was                                                                   
probably  more advantageous  than  trying  to monitor  runway                                                                   
landings.  She  believed it  was  not  reasonable to  hire  a                                                                   
person to collect  landing fees at every airport.  She shared                                                                   
that she  was a  private pilot  and was  not certain  how the                                                                   
fee was  paid with  the exception  of a  box used to  monitor                                                                   
landings.                                                                                                                       
                                                                                                                                
3:12:23 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler shared that  he was  a private  pilot and                                                                   
nationally  the decision  had been  made to  pay for many  of                                                                   
the services  provided  to the aviating  public through  fuel                                                                   
because all planes required fuel.                                                                                               
                                                                                                                                
Representative  Kawasaki shared that  his mom drove  from one                                                                   
side of  town to the  other to purchase  gasoline that  was 1                                                                   
cent cheaper. He  understood it did not logically  make sense                                                                   
to  drive   that  far.  He  reasoned   it  was  sort   of  an                                                                   
international market  and individuals gas up where  they felt                                                                   
they could get  the "best bang for their buck."  He continued                                                                   
that sometimes planes  had to gas up in Alaska  before flying                                                                   
internationally.  He wondered  about gas  prices compared  to                                                                   
other nearby airport jurisdictions.                                                                                             
                                                                                                                                
Co-Chair  Thompson   shared  he  had  done  a   tour  of  the                                                                   
Anchorage  International Airport  with  its airport  manager.                                                                   
He relayed  that no one  knew how much  each of the  airlines                                                                   
paid for their  fuel. He elaborated fuel arrived  at the port                                                                   
and  was  delivered  via  pipe   to  large  fuel  tanks.  The                                                                   
information was  proprietary - each  of the air  carriers had                                                                   
made a deal with different companies to purchase fuel.                                                                          
                                                                                                                                
Co-Chair  Neuman  indicate  he   had  also  spoken  with  the                                                                   
airport   manager.   He   detailed  the   airlines   had   an                                                                   
association where  they bought  their fuel. He  furthered the                                                                   
C-plan [contingency  plan] had to be redone for  Cook Inlet a                                                                   
couple  of  years  back  when tanks  had  been  expanded.  He                                                                   
believed the governor  had an equitably crafted  plan. He had                                                                   
heard from industry  on all three proposed taxes  that it was                                                                   
necessary  to tax  all  three industries  instead  of one  or                                                                   
two. It  was his understanding  the governor had  spoken with                                                                   
the  airline industry  and had  addressed  landing taxes.  He                                                                   
shared that  he had brought up  landing tax as an  issue when                                                                   
he  chaired the  House Transportation  Committee  due to  the                                                                   
cost  to airports.  He mentioned  people did  not believe  it                                                                   
was appropriate to  have extra landing fees  for bypass mail.                                                                   
He referred  to the state-owned  airport in Prudhoe  Bay that                                                                   
had  no landing  fees and  costs were  completely covered  by                                                                   
the  state.  He  asked  whether   that  was  appropriate.  He                                                                   
relayed that money  collected by the Anchorage  and Fairbanks                                                                   
International  Airports   stayed  within  their   own  units;                                                                   
however, the two  airports still had some large  expenses. He                                                                   
believed there were  probably still state matches  on federal                                                                   
funding  received  by  the  airports   for  improvements.  He                                                                   
believed the governor  had tried his best to craft  a plan on                                                                   
the taxes. He  would not be supporting the  amendment because                                                                   
he  did  not  know  how it  would  affect  the  whole  budget                                                                   
proposal. He  did have  some issues with  the motor  fuel tax                                                                   
related to how it would impact drivers.                                                                                         
                                                                                                                                
3:17:04 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler clarified  that  motor  fuel referred  to                                                                   
gasoline and  diesel used  on the road  for cars  and trucks.                                                                   
Alternatively,  aviation   gasoline  was  used   in  aviation                                                                   
aircrafts other than  jets (i.e. 80 leaded or  100 low-lead).                                                                   
Aviation  fuel other  than  gasoline  was kerosene  jet  fuel                                                                   
(i.e. JP-6  and JP-4). He assumed  motor fuel used in  and on                                                                   
water crafts was gasoline and diesel.                                                                                           
                                                                                                                                
Representative  Gara remarked  on the  long distance  between                                                                   
places like  Alaska and  New York,  New York and  California,                                                                   
and Hawaii  and Florida.  He did  not believe  the change  in                                                                   
jet fuel  taxes would have an  effect on the industry  - when                                                                   
the  state had  the  lowest fuel  taxes  in  the country.  He                                                                   
continued that jets  flew long distances to  places with much                                                                   
higher fuel  taxes. He  commented on  the state's $4  billion                                                                   
budget  deficit. He  did  not believe  the  tax would  impact                                                                   
business and had  not heard any evidence to  the contrary. He                                                                   
remarked that  no one liked  taxes, but he challenged  others                                                                   
to  come up  with  an alternative  plan  to  fill the  budget                                                                   
deficit.                                                                                                                        
                                                                                                                                
Representative   Guttenberg  understood  that   international                                                                   
flights did not pay taxes at airports.                                                                                          
                                                                                                                                
Co-Chair Thompson replied in the affirmative.                                                                                   
                                                                                                                                
Representative  Guttenberg wondered if  an analysis  had been                                                                   
done  breaking  out the  detail  on  cost burden  to  various                                                                   
types of aircrafts at different airports.                                                                                       
                                                                                                                                
Co-Chair  Thompson answered  there  had  been discussions  on                                                                   
the topic throughout the committee process.                                                                                     
                                                                                                                                
Representative  Guttenberg   surmised  the  burden   fell  on                                                                   
aircrafts besides  those on international flights  in regards                                                                   
to how much fuel was used.                                                                                                      
                                                                                                                                
3:19:56 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt spoke  in favor  of the amendment.  He                                                                   
relayed he  also had  amendments in  case the committee  felt                                                                   
the  tax was  higher than  it  should be.  He discussed  that                                                                   
one-eighth of  the Anchorage population  was employed  at its                                                                   
international  airport.  He  referred   to  a  recent  report                                                                   
listing   Providence   Hospital   as  the   state's   largest                                                                   
employer, but it  had been the airport the  previous year. He                                                                   
disclosed  he  had previously  worked  for  FedEx and  was  a                                                                   
shareholder.  He received the  company's reports  and relayed                                                                   
it was buying  777 aircrafts, which would  overfly Anchorage.                                                                   
He provided  a scenario  of a  flight plan  with a  departure                                                                   
from Memphis  where the  air carrier  paid the domestic  tax.                                                                   
When the  carrier filled  up in  Anchorage it  did not  pay a                                                                   
tax   on   its   way   to   an   international   destination.                                                                   
Alternatively,  when the carrier  flew from an  international                                                                   
location  to Anchorage it  would pay  the tax  on its  way to                                                                   
another  domestic city.  He was concerned  about the  company                                                                   
buying 777  aircrafts intentionally  to  fly from a  location                                                                   
like China  directly to  Memphis. He  reasoned at that  point                                                                   
it would  impact jobs  in Anchorage.  He asked  if the  state                                                                   
was more  concerned about  making a bit  more money  in taxes                                                                   
over   the   potential   job   opportunities   available   in                                                                   
Anchorage.  He  was  concerned  about  increasing  taxes  too                                                                   
much, too quickly.  He continued Anchorage was  constantly in                                                                   
competition   with   other  airports   such   as   Vancouver,                                                                   
Portland, and  Seattle. He had  spoken with the  commissioner                                                                   
of  the  Department   of  Administration  under   a  previous                                                                   
administration  and  they  had  agreed it  was  necessary  to                                                                   
market the  Anchorage airport  appropriately to maintain  the                                                                   
job  opportunities.  He  believed  it  was  important  to  be                                                                   
cautious about the  effect the tax would have on  jobs at one                                                                   
of the state's largest employers.                                                                                               
                                                                                                                                
Vice-Chair  Saddler commented  that  it would  be helpful  to                                                                   
have  better analysis  about  the  potential effects  of  the                                                                   
taxes.  He  stated the  committee  had  only heard  from  the                                                                   
administration  that   there  was  a  big  deficit   and  the                                                                   
proposed taxes  were the  needed amount.  He did not  believe                                                                   
the   information   provided   by  the   administration   was                                                                   
compelling  enough  when  considering   the  points  made  by                                                                   
Representative Pruitt.  He stressed that taxes  did influence                                                                   
corporations   and   business   decisions.  He   could   have                                                                   
considered  the  proposal more  with  additional  information                                                                   
about the  "sweet spot"  that would not  cause damage  to the                                                                   
private sector.                                                                                                                 
                                                                                                                                
3:23:58 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson  asked the Department  of Revenue  (DOR) to                                                                   
address  the   committee.  He  asked  for   clarification  on                                                                   
Representative Pruitt's  points. He wondered if  air carriers                                                                   
were  charged  tax when  coming  from  a foreign  country  on                                                                   
their way through Anchorage to another U.S. city.                                                                               
                                                                                                                                
3:24:18 PM                                                                                                                    
                                                                                                                                
JERRY  BURNETT,   DEPUTY  COMMISSIONER,  TREASURY   DIVISION,                                                                   
DEPARTMENT OF  REVENUE (DOR),  relayed intent to  provide the                                                                   
statutory language.                                                                                                             
                                                                                                                                
KEN  ALPER, DIRECTOR,  TAX DIVISION,  DEPARTMENT OF  REVENUE,                                                                   
stated  the topic  was  awkwardly  within the  definition  of                                                                   
motor fuel as it was an older law. He read from statute:                                                                        
                                                                                                                                
     Fuel sold in a jet propulsion aircraft, either A) two                                                                      
     foreign countries or that continue from foreign                                                                            
     countries.                                                                                                                 
                                                                                                                                
Mr.  Alper detailed  if the  same flight  was traveling  from                                                                   
China through  Anchorage to Memphis  it would not  be taxable                                                                   
fuel. He  expected for the  most part  the fuel would  not be                                                                   
taxable  in  the  scenario. He  elaborated  that  roughly  80                                                                   
percent of  the jet fuel sold  in Alaska was not  taxable. He                                                                   
specified that roughly  400 million gallons per  year of non-                                                                   
taxed jet  fuel was sold in  Alaska versus slightly  over 100                                                                   
million gallons of tax-on fuel.                                                                                                 
                                                                                                                                
3:25:32 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler   asked  if  the  same   exemptions  from                                                                   
foreign flights applied to federal fuel taxes.                                                                                  
                                                                                                                                
Mr. Alper  responded that he did  not know the nature  of the                                                                   
federal   taxation.   The  state   government   had   certain                                                                   
restrictions  (federal  constitutional  issues)  from  taxing                                                                   
international trade.  He did not know if the  U.S. government                                                                   
had a similar restriction.                                                                                                      
                                                                                                                                
Vice-Chair  Saddler added  that  the issue  was  moot at  the                                                                   
current point.                                                                                                                  
                                                                                                                                
3:26:16 PM                                                                                                                    
                                                                                                                                
Representative Gattis  shared that her husband  was a retired                                                                   
FedEx  captain.  She remarked  on  knowing  how much  fuel  a                                                                   
FedEx flight  used on trips  from Asia through  Anchorage and                                                                   
other  locations. She  thought the  issue may  play into  the                                                                   
reason FedEx had  not been involved. She surmised  that maybe                                                                   
the company  knew it was not paying  - she had not  been able                                                                   
to  get  the  company  involved  and  had  not  received  any                                                                   
response.  She added  that  it  was not  the  first time  the                                                                   
conversation  had  occurred.  She had  not  received  contact                                                                   
from  anyone with  FedEx. She  had  been a  proponent of  the                                                                   
amendment, but thought it may be moot after learning more.                                                                      
                                                                                                                                
Representative Pruitt  remarked that the committee  had heard                                                                   
concerns  from UPS.  He  surmised  the bill  would  adversely                                                                   
impact  the company  in some  capacity. He  discussed in  the                                                                   
past there  had been  a flight  from Taiwan  to Anchorage  to                                                                   
New  York.  He  detailed  that when  UPS  and  FedEx  flights                                                                   
landed  in  Anchorage  there was  a  complete  turnover  that                                                                   
occurred.  He  continued  that   UPS  and  FedEx  were  under                                                                   
totally separate  rules in  certain instances. He  elaborated                                                                   
that UPS  was under the  Railroad Act,  but it did  not apply                                                                   
to FedEx, which was largely a union issue.                                                                                      
                                                                                                                                
Co-Chair  Thompson added  that UPS flew  partial plane  loads                                                                   
from  Seattle  to  Fairbanks  to  Seattle.  He  surmised  the                                                                   
company would  pay the tax  under that situation  because the                                                                   
flights were not international.                                                                                                 
                                                                                                                                
Representative  Gattis  suspected  that  FedEx  and  UPS  had                                                                   
flights from  Seattle to Anchorage  and back. She  thought it                                                                   
may be the 20 percent or smaller portion.                                                                                       
                                                                                                                                
Representative  Wilson stated the  amendment related  to that                                                                   
two   airports   [Fairbanks   and   Anchorage   international                                                                   
airports] that  already paid their  way. She did  not support                                                                   
doubling  the fuel  tax on  the specific  airports. She  read                                                                   
from a prepared statement.                                                                                                      
                                                                                                                                
     It is  reported by  several air  carriers that  jet fuel                                                                   
     at  Anchorage   is  already  five  to  ten   cents  more                                                                   
     expensive  on average than  our West Coast  competitors.                                                                   
     Other airports  compete for  Alaska's business  but they                                                                   
     have   only  been   successful   when  offering   strong                                                                   
     incentive  packages.  These  incentives have  a  limited                                                                   
     duration  and  have had  a  relatively minor  effect  on                                                                   
     drawing business away from Alaska.                                                                                         
                                                                                                                                
Representative Wilson  referred to a question about  taxes in                                                                   
other  locations. She  shared that  the tax  in the State  of                                                                   
Washington was 0.04  - the proposed tax would  exceed the tax                                                                   
in  Washington.  She stressed  they  were not  talking  about                                                                   
California  or New  York  and noted  Washington  was not  far                                                                   
away.  She referenced  the  state's deficit.  She  emphasized                                                                   
the two airports  were paying their way. She  did not support                                                                   
asking them  for more money when  the increase did  not focus                                                                   
on looking  at the fact that  other airports were  not paying                                                                   
their  way.  She  was  fine  the  airports  were  not  paying                                                                   
landing  fees  and  she  thought it  was  great  they  wanted                                                                   
higher  jet fuel.  However, the  bill would  hit the  state's                                                                   
international  airports with  an increase  to 6.5 cents.  She                                                                   
detailed to  fill a  747 in Anchorage  would cost  $1,584 [in                                                                   
taxes],  which was  twice the  current  amount. She  stressed                                                                   
the  bill  would double  the  costs  for airports  that  were                                                                   
paying their  way. She remarked  she may  be off on  her math                                                                   
and noted  shaking heads in the  room. She had  verified that                                                                   
no   state  funding   was  provided   to  the   international                                                                   
airports.  She  remarked  on   fees,  leases,  and  taxes  on                                                                   
airports. She  did not support  increasing costs for  the two                                                                   
airports to pick up the slack for other airports.                                                                               
                                                                                                                                
Co-Chair  Thompson  recognized Representatives  Liz  Vazquez,                                                                   
Sam Kito, and Louise Stutes in the committee room.                                                                              
                                                                                                                                
Representative   Wilson   clarified   the  $1,584   she   had                                                                   
mentioned was how  much the tax on fuel [for a  747] would be                                                                   
under the legislation.                                                                                                          
                                                                                                                                
Co-Chair Thompson MAINTAINED his OBJECTION.                                                                                     
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gattis, Munoz, Pruitt, Saddler, Wilson, Neuman                                                                        
OPPOSED: Edgmon, Gara, Guttenberg, Kawasaki, Thompson                                                                           
                                                                                                                                
The MOTION  to Adopt  Amendment 1  PASSED (6/5). There  being                                                                   
NO further OBJECTION, Amendment 1 was ADOPTED.                                                                                  
                                                                                                                                
Representative Pruitt  WITHDREW Amendments 2 and  Amendment 3                                                                   
(copy on file).                                                                                                                 
                                                                                                                                
3:34:23 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:37:41 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Guttenberg  WITHDREW  Amendment  4  (copy  on                                                                   
file).                                                                                                                          
                                                                                                                                
3:38:14 PM                                                                                                                    
                                                                                                                                
Representative  Gara  MOVED to  ADOPT  Amendment  5 (copy  on                                                                   
file). [Note:  due to the length  of the amendment it  is not                                                                   
included in the minutes. See copy on file for detail.]                                                                          
                                                                                                                                
Co-Chair Thompson OBJECTED for discussion.                                                                                      
                                                                                                                                
Representative Gara explained  that the amendment was similar                                                                   
to  amendments  discussed  in  other  committees.  Under  the                                                                   
amendment when  the price  of oil was  low the price  of fuel                                                                   
would be lower;  when the price of oil was high  the price of                                                                   
fuel  would  be  higher.  He elaborated  that  the  fuel  tax                                                                   
addition in  the bill  started to  disappear when oil  prices                                                                   
were high  and the price of  fuel was high for  consumers and                                                                   
the state no longer needed the  revenue as much. The fuel tax                                                                   
would remain  the same up  to $100 per  barrel (a  price that                                                                   
high  was  not  included  in  any  near-term  forecasts).  He                                                                   
continued  that when  the state  started  receiving real  oil                                                                   
revenue, but when  consumers started paying very  high prices                                                                   
at the pump,  the fuel tax increase  of 8 cents would  be cut                                                                   
in  half to  4  cents.  When the  price  was above  $120  per                                                                   
barrel,  the   additional  8   cents  would  disappear.   The                                                                   
amendment  reflected what  the  state needed  in revenue  and                                                                   
what the costs of consumers would be at high prices.                                                                            
                                                                                                                                
Co-Chair Thompson asked DOR about  how it would handle making                                                                   
adjustments  whenever  the  oil  price changed.  He  did  not                                                                   
believe  prices  would be  as  high  as those  the  amendment                                                                   
addressed  for a  long  time. He  remarked  that the  current                                                                   
legislators  may not  have to  deal  with the  issue, but  he                                                                   
surmised someone  would have to  deal with it in  the future.                                                                   
He asked if  the amendment would be workable  for the state's                                                                   
IRIS [Integrated Resource Information System].                                                                                  
                                                                                                                                
Representative Gara  stated what he  tried to make  the issue                                                                   
workable.  The amendment  provided  a two-month  lag for  the                                                                   
department to  adjust the tax.  For example, if the  price of                                                                   
fuel  hit  $121 in  January  the  tax  could not  be  changed                                                                   
because  it   had  already  happened;  therefore,   the  fuel                                                                   
appropriate fuel tax would occur in March.                                                                                      
                                                                                                                                
3:41:50 PM                                                                                                                    
                                                                                                                                
RANDALL  HOFFBECK,   COMMISSIONER,  DEPARTMENT   OF  REVENUE,                                                                   
agreed the  amendment was doable,  but it would not  be easy.                                                                   
The practicality  of having to  do the programming  necessary                                                                   
to coordinate  two different  taxes with a  lag of  about one                                                                   
month in  which to  flip the fuel  price on  or off  when the                                                                   
price points  was possible, but  it was outside the  scope of                                                                   
the department's current work.                                                                                                  
                                                                                                                                
Co-Chair   Thompson  spoke   to  the   practicality  of   the                                                                   
amendment.                                                                                                                      
                                                                                                                                
Commissioner   Hoffbeck  remarked   the  changes  under   the                                                                   
amendment were not practical.                                                                                                   
                                                                                                                                
Mr.  Alper  elaborated  that  both taxes  would  have  to  be                                                                   
programmed into the system. The  calculation would have to be                                                                   
done by  a certain date.  He stated that  all the  motor fuel                                                                   
tax payers would receive a month-to-month  notice showing the                                                                   
rate; it would  be a new system DOR would need  to establish.                                                                   
He stated  the work would not  be impossible, but it  added a                                                                   
complexity to the current system.                                                                                               
                                                                                                                                
Commissioner  Hoffbeck added the  department would  also have                                                                   
to  notify entities  collecting motor  fuel tax  to flip  the                                                                   
rate back and forth.                                                                                                            
                                                                                                                                
Co-Chair Thompson  asked if the gasoline stations  would have                                                                   
to  send several  different  returns  to the  department  for                                                                   
different amounts.                                                                                                              
                                                                                                                                
Mr. Alper  answered that  the distributors  filling  tanks at                                                                   
gas stations were  generally the taxpayers (not  gas stations                                                                   
directly). When  a load was delivered  the tax was  built in.                                                                   
Part of the  problem was the tax  was paid at the  end of the                                                                   
following month after delivery  of the gas; therefore, it may                                                                   
be  hard for  them to  keep their  information straight.  For                                                                   
example, a distributor  did not know what the  price would be                                                                   
when they delivered a load at  the beginning of March and the                                                                   
tax was paid at the end of April.                                                                                               
                                                                                                                                
Co-Chair Thompson was worried about potential confusion.                                                                        
                                                                                                                                
3:43:57 PM                                                                                                                    
                                                                                                                                
Representative  Munoz  asked if  the  tax would  be  remitted                                                                   
monthly. Mr.  Alper replied in  the affirmative. The  tax was                                                                   
generally  paid  at  the  end  of the  month  for  the  prior                                                                   
month's sales. He referred to his previous example.                                                                             
                                                                                                                                
Representative  Gara stated the  tax was paid  at the  end of                                                                   
the month and  the amendment gave the department  an extra 30                                                                   
days  to  let  taxpayers  know  what the  tax  would  be.  He                                                                   
provided a  hypothetical scenario -  if the average  price of                                                                   
oil was determined  in January, the department  had until the                                                                   
end of  February to let  payers know  what the tax  would be.                                                                   
He wondered why it would be difficult.                                                                                          
                                                                                                                                
Mr. Alper  explained the department  would have  to determine                                                                   
the actual  average price  for the month  of January  and let                                                                   
taxpayers  know   by  the  end   of  February  so   that  any                                                                   
deliveries on  March 1 would  be recalibrated for  the higher                                                                   
or  lower  tax.  Additionally,   it  would  require  time  to                                                                   
communicate  with  the  tax  payers.  With  the  new  system,                                                                   
communications  with  the taxpayers  were  mostly  electronic                                                                   
and  could be  instantaneous.  He  stated anything  could  be                                                                   
done, but  anything that  added wrinkles  or complexity  gave                                                                   
the department a bit of anxiety.                                                                                                
                                                                                                                                
3:45:35 PM                                                                                                                    
                                                                                                                                
Representative  Gattis relayed  that she  had many  commuters                                                                   
in her  district. She  believed the  issue was important  and                                                                   
she understood  what Representative  Gara  was trying  to do.                                                                   
She  spoke  to  supporting  making the  price  of  fuel  less                                                                   
expensive [for  consumers]. She  wondered how the  department                                                                   
would suggest setting  the structure up. She  appreciated the                                                                   
amendment,   but  she   wondered  how   the  goal  could   be                                                                   
accomplished  without adding  complexity to  the system.  She                                                                   
asked if  the department would  look at the issue  quarterly,                                                                   
every six  months, or other.  She asked for the  department's                                                                   
recommendation.                                                                                                                 
                                                                                                                                
Mr.  Alper  suggested  that quarterly  taxes  would  be  more                                                                   
manageable.  The department currently  adjusted the  interest                                                                   
rate  on  taxes  every  quarter and  sent  out  notices.  The                                                                   
department  did not  forget there  was  no legal  requirement                                                                   
for  the price  of fuel  to move  up  and down  with the  tax                                                                   
rate. He furthered  just because someone may get  8 cents cut                                                                   
off the  tax rate  did not mean  they would immediately  pass                                                                   
it on  to their consumers.  He surmised  the tendency  may be                                                                   
to leave  the rate  higher, which would  mean a windfall  for                                                                   
the  distributor  in the  months  the  rates went  down.  The                                                                   
customer would not  know whether the tax went up  or down and                                                                   
would  therefore not  be looking  for  the price  of fuel  to                                                                   
increase or decrease.                                                                                                           
                                                                                                                                
3:47:23 PM                                                                                                                    
                                                                                                                                
Representative  Gattis  believed  in  the  free  market.  She                                                                   
remarked some companies  would not reduce the  price of fuel;                                                                   
however, she recognized  the ones that did reduce  the prices                                                                   
would probably  have more customers.  She stated  every penny                                                                   
added  up  after  a  while.  She  surmised  making  a  change                                                                   
quarterly would be more workable than monthly.                                                                                  
                                                                                                                                
Co-Chair  Thompson  noted  Representatives   Andy  Josephson,                                                                   
Paul Seaton, and Gabriele LeDoux were in the audience.                                                                          
                                                                                                                                
Representative Gara  disagreed that if the consumers  did not                                                                   
know the  price that  it did not  matter. He explained  there                                                                   
would  be  competition  between  suppliers.  He  asked  if  a                                                                   
three-month lag would be better.                                                                                                
                                                                                                                                
Mr.  Alper stated  that  it  was not  the  lag that  was  the                                                                   
issue.  He  explained  the amendment  could  still  mean  the                                                                   
potential  for 12  adjustments  over the  course  of a  year,                                                                   
which was where  a significant portion of the  workload would                                                                   
come  from.  He deferred  the  question  to a  colleague  for                                                                   
further detail.                                                                                                                 
                                                                                                                                
3:49:23 PM                                                                                                                    
                                                                                                                                
BRANDON   S.   SPANOS,   DEPUTY   DIRECTOR,   TAX   DIVISION,                                                                   
DEPARTMENT  OF REVENUE,  restated  his understanding  of  the                                                                   
question. He stated  that the first concern  was about making                                                                   
changes  to   the  form,  system,   and  online   system.  He                                                                   
discussed  changes that  would be  necessary to  the form  if                                                                   
there were two  different rates. He explained  the department                                                                   
would  need  to  time  to  notify  the  public  [Note:  audio                                                                   
quality  poor]. He  stated that  quarterly adjustments  would                                                                   
be  easier  from  an  administrative   standpoint;  it  would                                                                   
provide more time  to notify the public. He  commented on the                                                                   
ability for people to fill out the forms correctly.                                                                             
                                                                                                                                
Representative  Gara   would  be  happy  to  work   with  the                                                                   
administration to get the amendment language right.                                                                             
                                                                                                                                
Co-Chair  Thompson asked  if  Representative  Gara wanted  to                                                                   
make a conceptual amendment.                                                                                                    
                                                                                                                                
Representative Gara  was not sure how to make  changes to the                                                                   
amendment  to adjust taxes  quarterly because  it would  mean                                                                   
bulking four months  together. He did understand  providing a                                                                   
longer lag-time.                                                                                                                
                                                                                                                                
Mr. Alper  referred to page  4, lines  3 and 20 of  Amendment                                                                   
5. He suggested  the changing the language "the  second month                                                                   
following  a month"  to "following  a  quarter." He  believed                                                                   
the change would be sufficient.                                                                                                 
                                                                                                                                
Co-Chair  Thompson believed  the change  would apply  on page                                                                   
2, line 4 as well.                                                                                                              
                                                                                                                                
Representative Gara agreed.                                                                                                     
                                                                                                                                
Mr. Alper reiterated  the change would need to  be applied to                                                                   
page 2, lines 4 and 21; and page 4, lines 3 and 20.                                                                             
                                                                                                                                
Representative  Gara MOVED  to  AMEND proposed  Amendment  5.                                                                   
The  conceptual  amendment  would change  the  language  "the                                                                   
second  month  following  a  month"   to  "the  second  month                                                                   
following  a quarter." The  change would  be applied  to page                                                                   
2,  lines  4  and  21;  and page  4,  lines  3  and  20.  The                                                                   
amendment  to  Amendment  5  would   include  any  conforming                                                                   
language necessary.                                                                                                             
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
3:53:36 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:54:08 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Wilson  wanted  to  know  how  the  amendment                                                                   
would affect  the taxpayer.  She relayed  she had just  filed                                                                   
her sales  tax online for her  small business. She  noted she                                                                   
collected  the tax  all  month; therefore,  the  calculations                                                                   
were not  that difficult. She  wondered how the  change would                                                                   
work for a gas  station with automated systems.  She asked if                                                                   
the change  would impact the  quarter after it  occurred. She                                                                   
remarked  that  some  places had  sophisticated  systems  and                                                                   
others did not.                                                                                                                 
                                                                                                                                
Mr. Alper stated  that the taxpayer was the  distributor that                                                                   
brought gas  to stations. He provided  a scenario of  how the                                                                   
system  would work:  for the  first  quarter the  calculation                                                                   
would  be  done  sometime  during the  month  of  April.  The                                                                   
second  month meant  that  on  May 1  the gas  station  would                                                                   
receive a delivery  at the new tax rate (the  distributor was                                                                   
responsible  for paying the  tax). He  furthered the  new tax                                                                   
would be  built into  the price the  gas station  was paying.                                                                   
He understood  the gas  station business  adjusted its  rates                                                                   
whenever receiving  a new delivery. The change  in the market                                                                   
price and tax for  the fuel would be baked into  the delivery                                                                   
price.                                                                                                                          
                                                                                                                                
Co-Chair  Thompson asked  for  verification  the gas  station                                                                   
did not  pay the tax  to the state  and that the  distributor                                                                   
was responsible for paying the tax. Mr. Alper agreed.                                                                           
                                                                                                                                
Representative Wilson WITHREW her OBJECTION.                                                                                    
                                                                                                                                
Vice-Chair Saddler  OBJECTED for  discussion. He  referred to                                                                   
page 2,  line 21.  He wondered if  the proposed amendment  to                                                                   
Amendment  5 would properly  indicate the  tax would  proceed                                                                   
indefinitely after  the conditions were  met or only  for the                                                                   
one 30 or 31-day period after the quarter.                                                                                      
                                                                                                                                
Mr.  Alper  stated that  it  was  an awkwardness  that  would                                                                   
hopefully  be  resolved  through  conforming  amendments.  He                                                                   
detailed  the   intent  that   the  tax  rate   would  change                                                                   
quarterly  and remain  in effect  until the  next change  was                                                                   
triggered,  was  on the  record.  The department  would  make                                                                   
adjustments  in the  regulatory  process if  the actual  bill                                                                   
language did not properly clarify the issue.                                                                                    
                                                                                                                                
3:57:43 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler  added  that the  amendment  sponsor  had                                                                   
indicated  any necessary  conforming language  could be  made                                                                   
at a later time. He WITHDREW his OBJECTION.                                                                                     
                                                                                                                                
There being  NO OBJECTION, conceptual amendment  to Amendment                                                                   
5 was ADOPTED.                                                                                                                  
                                                                                                                                
Co-Chair Neuman  referred to  lines 14 through  20 on  page 2                                                                   
of  Amendment 5  related  to alcohol  and  blended fuels.  He                                                                   
asked if the language was included in the original bill.                                                                        
                                                                                                                                
Co-Chair Thompson believed it was page 3, line 4.                                                                               
                                                                                                                                
Representative  Gara relayed he  had asked Legislative  Legal                                                                   
Services  to change  only  the  motor fuel  tax  and not  the                                                                   
aviation, marine, or fuel blended with alcohol tax.                                                                             
                                                                                                                                
Co-Chair  Neuman asked  for verification  that all the  other                                                                   
taxes would remain the same.                                                                                                    
                                                                                                                                
Representative  Gara answered  the amendment  did not  intend                                                                   
to effect any of the other forms of fuel.                                                                                       
                                                                                                                                
Co-Chair  Thompson  WITHDREW  his OBJECTION  to  the  amended                                                                   
Amendment 5.  There being NO  further OBJECTION,  Amendment 5                                                                   
as amended was ADOPTED.                                                                                                         
                                                                                                                                
Representative  Gara remarked that  the motor fuel  tax issue                                                                   
had  been  addressed the  last  time  a major  fiscal  crisis                                                                   
occurred  (before   he  was  in  the  legislature).   He  had                                                                   
conceived  the  idea  for  the amendment  at  that  time.  He                                                                   
appreciated members' support.                                                                                                   
                                                                                                                                
Co-Chair  Thompson  planned to  bring  the bills  before  the                                                                   
committee  the following  day to  try to report  them out  of                                                                   
committee.                                                                                                                      
                                                                                                                                
HB  4003  was  HEARD  and  HELD   in  committee  for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
HOUSE BILL NO. 4005                                                                                                           
                                                                                                                                
     "An  Act relating  to the mining  license tax;  relating                                                                   
     to  the   exploration  incentive  credit;   relating  to                                                                   
     mining  license  application,  renewal,  and  fees;  and                                                                   
     providing for an effective date."                                                                                          
                                                                                                                                
4:00:27 PM                                                                                                                    
                                                                                                                                
Co-Chair  Thompson   noted  there   had  initially   been  an                                                                   
Amendment  1, but he  had determined  it to  be out  of order                                                                   
due to ongoing litigation.                                                                                                      
                                                                                                                                
Representative  Wilson  MOVED   to  ADOPT  Amendment  2,  29-                                                                   
GH2457\A.5 (Glover/Nauman, 5/28/16) (copy on file):                                                                             
                                                                                                                                
     Page 4, line 1:                                                                                                            
     Delete "2"                                                                                                                 
     Insert "8"                                                                                                                 
                                                                                                                                
Co-Chair Thompson OBJECTED for discussion.                                                                                      
                                                                                                                                
4:01:16 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:01:51 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Wilson explained  Amendment 2. She  discussed                                                                   
the committee had  heard plenty of testimony  from the mining                                                                   
community, which  was willing to do  its part, but felt  a 29                                                                   
percent increase  in taxes was too high. The  amendment would                                                                   
decrease  the  9  percent  back to  the  8  percent  multiple                                                                   
committees  had discussed.  She remarked  the increase  would                                                                   
still not  be a good  thing and its  impact was  unknown. She                                                                   
hoped reducing the  number to 8 percent would  have a reduced                                                                   
impact  on the  community. She  believed  everyone needed  to                                                                   
take part in making sure they  were paying for what was going                                                                   
forward.                                                                                                                        
                                                                                                                                
Co-Chair  Thompson  remarked that  "dueling  amendments"  had                                                                   
been submitted  - one  would increase the  tax and  the other                                                                   
would reduce it.                                                                                                                
                                                                                                                                
Vice-Chair  Saddler relayed  that he  had previously  chaired                                                                   
the  House  Resources  Committee.  He  knew  mining  provided                                                                   
numerous   benefits   to   rural   Alaska   including   jobs,                                                                   
infrastructure,  income,  tax-base,  a  way  to  keep  people                                                                   
anchored to their  lands, and other. He was  concerned he had                                                                   
not seen analysis  of what the governor's proposed  9 percent                                                                   
tax would  do to the benefits  of mining in rural  Alaska. In                                                                   
absence of  the analysis he could  not help but  be cautious,                                                                   
which meant supporting the amendment.                                                                                           
                                                                                                                                
Representative Gara spoke in opposition  to the amendment. He                                                                   
stated that at some none of the  bills under discussion would                                                                   
be worth passing. Currently there  was a profits-based mining                                                                   
tax  that had  not been  changed in  approximately 60  years.                                                                   
Companies were  given exploration  credits to help  develop a                                                                   
mine.  Additionally, taxes  only  came in  when profits  were                                                                   
made. Lastly,  the tax  only applied  to income levels  above                                                                   
$100,000  per  year.  He  discussed  that  at  profits  above                                                                   
$100,000 to  roll back $3.5 million  in tax revenue  that was                                                                   
needed  in  a state  with  a  $3.2 billion  to  $3.7  billion                                                                   
deficit. He  continued that every  time someone said no  to a                                                                   
tax on  a profitable  industry the money  would have  to come                                                                   
from somewhere else. He reasoned  if it was in the budget the                                                                   
money had to come from somewhere  - at times it had come from                                                                   
schools, the university, municipal  revenue sharing, seniors,                                                                   
or  other.  He stated  the  money  would  have to  come  from                                                                   
somewhere if  it they did  not determine  a way to  raise it.                                                                   
Alternatively,  there  were other  revenue  raising  options,                                                                   
which would  need to  be increased  (e.g. a larger  Permanent                                                                   
Fund Dividend cut or a larger  income tax). At higher profits                                                                   
he believed it was fair to adjust  the tax. He furthered that                                                                   
companies  were coming  to Alaska  for its  valuable ore.  He                                                                   
reiterated  the tax  only applied  if a  business was  making                                                                   
over $100,000 in profits.                                                                                                       
                                                                                                                                
4:06:45 PM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman  did  not  believe  the  state  paid  mining                                                                   
companies.  He detailed  there was  a "tax  holiday" for  the                                                                   
first two or three years on new mines.                                                                                          
                                                                                                                                
Vice-Chair Saddler stated that  in the mining industry he did                                                                   
not believe $100,000  in profits was substantial  relative to                                                                   
the  investment.  He  referenced  various  types  of  capital                                                                   
investment  mining companies  made  in order  to operate.  He                                                                   
referred to much  discussion about the need  to diversify the                                                                   
state's economy away from mining  and gas. He reasoned mining                                                                   
was a way to increase diversification.  He believed the state                                                                   
needed to do what it could to  support the mining industry in                                                                   
Alaska and not  use it as a "cash cow." He  elaborated mining                                                                   
already provided benefits to the  state well in excess of the                                                                   
amount the state spent to regulate  it. He did not believe it                                                                   
was the proper place to try to get revenue.                                                                                     
                                                                                                                                
4:08:07 PM                                                                                                                    
                                                                                                                                
Representative Edgmon spoke against  the amendment. He stated                                                                   
that if  there was ad  hoc feel to all  of the taxes,  all of                                                                   
the criticism the legislature  directed at the administration                                                                   
for bringing them forward with  not enough analysis, he could                                                                   
equally say there was an ad hoc  feel to the amendments being                                                                   
offered. He discussed the net  taxable income in 2014 for the                                                                   
six major  mines paying  95 percent of  the mining  taxes was                                                                   
$570 million  in total.  He reasoned  the proposed  9 percent                                                                   
tax  would be  $7  million -  when  divided  amongst 6  major                                                                   
multi-national  companies  was not  a significant  amount  of                                                                   
money. Additionally,  the companies  were able to  deduct the                                                                   
state taxes from federal taxes;  therefore, they were able to                                                                   
further  reduce the $7  million. He  addressed the  amendment                                                                   
which  would reduce  the tax  from  9 percent  to 8  percent,                                                                   
which left  him questioning  why the  committee was  "messing                                                                   
around with the  tax in the first place." He  stated if every                                                                   
tax the  state levied  was going  to be  counter to  industry                                                                   
investing in Alaska,  it should not be levying  any increases                                                                   
on the  resource-based companies.  He reiterated many  of the                                                                   
companies were very  large. He furthered that as  much as his                                                                   
enthusiasm  for  the  previous  version  of  taxes  had  been                                                                   
dampened  (if it  ever had  been called  enthusiasm), he  was                                                                   
uncertain  he could  support the  measures  if the  committee                                                                   
kept  chipping  away  at  all   of  the  proposed  taxes.  He                                                                   
explained  the impact  of the  proposed taxes  would go  from                                                                   
marginal to  negligible. He wondered  what the  committee was                                                                   
doing  messing  around  with  the taxes  for  the  amount  of                                                                   
political  dust the issues  were kicking  up. He referred  to                                                                   
discussion about  the cause  and effect relationship  between                                                                   
the  original  taxes  the governor  had  proposed.  When  the                                                                   
committee decided  whether it would  report the bills  out of                                                                   
committee he would  have to look at the issue  from an equity                                                                   
standpoint. He currently  did not see it. He  did not believe                                                                   
there  was an  analysis to  support the  amendment, which  he                                                                   
believed undermined the whole  intentions in the first place.                                                                   
                                                                                                                                
4:11:20 PM                                                                                                                    
                                                                                                                                
Representative  Munoz supported  the amendment  for a  number                                                                   
of   reasons.   One  of   her   concerns  that   during   the                                                                   
administration's  presentation  on the  bill comparisons  had                                                                   
been made  with other  states,  but the states  did not  have                                                                   
similar hard  rock mining  operations. She detailed  Arizona,                                                                   
Nevada,  and Alaska, had  similar operations  and Alaska  was                                                                   
the highest  taxing jurisdiction.  She discussed  that Juneau                                                                   
had two  of Alaska's  large mines -  the Kensington  Mine had                                                                   
taken over  20 years to  begin operation. She  continued that                                                                   
mining was  a capital intensive  industry and  added hundreds                                                                   
of  jobs to  the  state's  economy. She  believed  additional                                                                   
analysis was necessary on what  a tax increase from 7 percent                                                                   
to 9 percent would do.                                                                                                          
                                                                                                                                
4:12:43 PM                                                                                                                    
                                                                                                                                
Representative   Guttenberg  spoke   in  opposition   to  the                                                                   
amendment.  He  reported that  based  on information  in  the                                                                   
committee  packet, the  tax had  not changed  since 1955.  He                                                                   
stated it was possible  to say it was a 25  percent increase,                                                                   
but it  was also  a 2  percent increase.  In 2014 there  were                                                                   
only 14  taxpayers in the bracket  (5 of which were  the very                                                                   
large  mines  and  the  remaining   9  were  small  and  very                                                                   
profitable).  He reasoned  the  tax was  profit-based,  which                                                                   
companies only  paid when profitable.  He furthered  "mom and                                                                   
pop" companies would only pay  an annual license fee if their                                                                   
company earned less than $100,000.  He thought increasing the                                                                   
tax by 1 percent  after 55 years would do nothing  at all. He                                                                   
reasoned that some  of the mines were very  profitable and he                                                                   
believed  it was  completely  appropriate  to  implement a  2                                                                   
percent increase.                                                                                                               
                                                                                                                                
Representative Wilson  countered that it was not  a 2 percent                                                                   
tax, but a 29 percent increase.  She addressed the state cut.                                                                   
She had  asked the Fort Knox  mine (in her district)  what it                                                                   
paid; the mine had paid $7.6 million  to the borough and over                                                                   
$47 million  in revenue over the  past 10 years - it  was the                                                                   
largest property tax payer in  the borough. Additionally, the                                                                   
mine had  paid $17.1 million in  taxes and fees to  the state                                                                   
in  2014;  $7.3  million  in   mining  license  taxes  (which                                                                   
accounted for  31 percent of  the mining license  tax revenue                                                                   
collected by the  state); $9.8 million in payments  to Alaska                                                                   
Mental   Health   Trust   Authority,    the   Department   of                                                                   
Environmental Conservation, and  others; and in 2016 it would                                                                   
pay $8.4  million to  the borough.  She stressed the  amounts                                                                   
were not even part of the discussion.                                                                                           
                                                                                                                                
Co-Chair Thompson  asked how  much the  increase would  be if                                                                   
the bill was implemented.                                                                                                       
                                                                                                                                
Representative  Wilson answered there  would be a  29 percent                                                                   
increase in taxes if the tax was  increased from 7 percent to                                                                   
9 percent. She read from a prepared statement:                                                                                  
                                                                                                                                
     We've heard from the mining industry this increase                                                                         
     would result in deterring new investment in Alaska and                                                                     
     will shorten the lives of existing mines.                                                                                  
                                                                                                                                
Representative  Wilson  continued  that  the  8  percent  tax                                                                   
proposal had  been vetted in  another committee with  all the                                                                   
mines  participating.  She discussed  the  legislation  would                                                                   
impact the  industry, but  the impact  was not known  because                                                                   
the legislature  had not  received a  complete analysis.  She                                                                   
stressed  that  any tax  increase  would have  a  detrimental                                                                   
impact  on  the  mining  industry   and  would  place  future                                                                   
investment, jobs,  and significant local economic  impacts at                                                                   
risk.  She  emphasized the  issue  was  about more  than  the                                                                   
state,  it  was  about  the  state's   communities.  She  was                                                                   
frustrated the  committee had not received  information about                                                                   
how much state resources were  put in. She believed they were                                                                   
merely trying to  fill the state's coffers with  profits made                                                                   
by the various industries.                                                                                                      
                                                                                                                                
Co-Chair Thompson WITHDREW his OBJECTION.                                                                                       
                                                                                                                                
Vice-Chair  Saddler asked to  be a  cosponsor of Amendment  2                                                                   
and Amendment 3.                                                                                                                
                                                                                                                                
4:17:16 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:17:38 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Guttenberg OBJECTED.                                                                                             
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gattis, Munoz, Pruitt, Saddler, Wilson                                                                                
OPPOSED:  Gara,   Guttenberg,  Kawasaki,  Edgmon,   Thompson,                                                                   
Neuman                                                                                                                          
                                                                                                                                
The MOTION to adopt Amendment 2 FAILED (5/6).                                                                                   
                                                                                                                                
4:18:30 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  MOVED   to  ADOPT  Amendment  3,  29-                                                                   
GH2457\A.6 (Glover/Nauman, 5/28/16) (copy on file):                                                                             
                                                                                                                                
     Page 3, lines 19 - 23:                                                                                                     
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 4, lines 13 - 14:                                                                                                     
     Delete all material.                                                                                                       
                                                                                                                                
     Reletter the following subsection accordingly.                                                                             
                                                                                                                                
     Page 4, line 15:                                                                                                           
     Delete "sec. 6"                                                                                                            
     Insert "sec. 5"                                                                                                            
                                                                                                                                
     Page 4, line 17:                                                                                                           
     Delete "sec. 6"                                                                                                            
     Insert "sec. 5"                                                                                                            
                                                                                                                                
     Page 4, line 30:                                                                                                           
     Delete "Section 10"                                                                                                        
     Insert "Section 9"                                                                                                         
                                                                                                                                
     Page 4, line 31:                                                                                                           
     Delete "sec. 11"                                                                                                           
     Insert "sec. 10"                                                                                                           
                                                                                                                                
Co-Chair Thompson OBJECTED for discussion.                                                                                      
                                                                                                                                
Representative  Wilson addressed the  amendment. She  noted a                                                                   
significant amount  had been heard related to  the issue. She                                                                   
read from a prepared statement:                                                                                                 
                                                                                                                                
     The  exemption for  new mines  is  critical as  projects                                                                   
     look to recoup their investments  as quickly as possible                                                                   
     and  work towards  positive  cash flow.  The more  mines                                                                   
     that we have open, the faster  it will fill our deficit.                                                                   
                                                                                                                                
Representative Gara  asked if the amendment  gave companies a                                                                   
3.5-year tax holiday as opposed  to the 2-year tax holiday in                                                                   
the bill.                                                                                                                       
                                                                                                                                
Co-Chair Thompson  and Representative Wilson answered  in the                                                                   
affirmative.                                                                                                                    
                                                                                                                                
Representative  Gara opposed the  amendment. He  stressed the                                                                   
mining   tax   only   applied   when   profits   were   made.                                                                   
Additionally,   the  state  offered   tax  credits   to  help                                                                   
companies pay for exploration  and development (operating and                                                                   
capital costs). Companies received  the benefit of state help                                                                   
during  development. He  added  it was  not one  of the  more                                                                   
outrageous tax credits the state had on its books.                                                                              
                                                                                                                                
Co-Chair Thompson  asked Representative Gara to  clarify what                                                                   
he meant by state help. He explained  it had taken Kensington                                                                   
Mine 20  years [to begin operations].  He asked if  the state                                                                   
had funded the mine during the entire 20-year period.                                                                           
                                                                                                                                
Representative  Gara answered the  state paid an  exploration                                                                   
credit up  to $20 million  companies could deduct  after they                                                                   
became profitable.  The credits could be deducted  as long as                                                                   
it took to  earn enough profits to the  deductions (companies                                                                   
could deduct up to half their  profits). After the mine began                                                                   
operations companies were allowed to deduct the costs.                                                                          
                                                                                                                                
4:21:08 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman requested to hear from DOR.                                                                                     
                                                                                                                                
Mr. Burnett deferred the question to Mr. Spanos.                                                                                
                                                                                                                                
Mr. Spanos asked Co-Chair Neuman to repeat his question.                                                                        
                                                                                                                                
Co-Chair Neuman  asked Mr. Spanos  to explain the  mining tax                                                                   
credits.   Mr.  Spanos   answered  that   mines  were   given                                                                   
exploration  tax credits of  up to  $20 million. He  detailed                                                                   
that  expenses incurred  during  exploration  could be  taken                                                                   
over a 15 year-period after a mine began production.                                                                            
                                                                                                                                
Co-Chair Neuman provided a hypothetical  situation in which a                                                                   
mine  took  10 years  to  become  operational. He  asked  for                                                                   
verification  the mine could  deduct up  to $20 million  over                                                                   
the first 15 years.                                                                                                             
                                                                                                                                
Mr. Spanos  answered that no matter  how long a  company took                                                                   
to incur the costs  (such as 20 years) it had  15 years after                                                                   
production began to take the credit.                                                                                            
                                                                                                                                
Co-Chair  Thompson  asked  how  the 2-year  or  3.5-year  tax                                                                   
holiday fit into the 15-year credit deduction process.                                                                          
                                                                                                                                
Mr.  Spanos   explained  that  the  3.5-year   exemption  was                                                                   
currently in statute.  He asked if the question  pertained to                                                                   
how the  tax holiday  fit with  the 15-year credit  deduction                                                                   
period as well.                                                                                                                 
                                                                                                                                
Co-Chair Thompson replied in the affirmative.                                                                                   
                                                                                                                                
Mr. Spanos believed  companies had 15 years of  taxes due. He                                                                   
would have to follow up on the question.                                                                                        
                                                                                                                                
Co-Chair Thompson  surmised companies would receive  a 3-year                                                                   
tax holiday  followed by a  15-year period during  which they                                                                   
could use their credit deductions.  He asked for verification                                                                   
it was a total of 18 years.                                                                                                     
                                                                                                                                
Mr. Spanos  replied that  he believed it  was how  the system                                                                   
worked. He  would have  to double check,  but he  believed it                                                                   
included the first 3.5 years.                                                                                                   
                                                                                                                                
Representative  Gara asked  for  verification that  currently                                                                   
larger mines  received a  3.5-year tax  holiday even  if they                                                                   
were making  profits. The amendment  would maintain  the 3.5-                                                                   
year tax  holiday, whereas  the bill  would decrease  the tax                                                                   
holiday  to a  2-year period.  He  observed it  would not  be                                                                   
possible  for a company  to deduct  credits  when it was  not                                                                   
asked to  pay a profits tax.  He provided an example  where a                                                                   
company  started paying  for profits  in its  fourth year  of                                                                   
operation  and made $40  million. He  asked for  verification                                                                   
the company  could  take all $20  million in  credits in  the                                                                   
first year.                                                                                                                     
                                                                                                                                
Mr. Spanos  replied that the credit  was limited to  one half                                                                   
of a company's  net income. He referred to  the gross profits                                                                   
tax [Note: audio quality poor].                                                                                                 
                                                                                                                                
4:25:57 PM                                                                                                                    
                                                                                                                                
Representative  Gara asked  for verification  that a  company                                                                   
could use  the entire  $20 million  in deductions during  its                                                                   
first taxable  year if  it made $40  million in profits.  Mr.                                                                   
Spanos answered in the affirmative.                                                                                             
                                                                                                                                
Representative   Gara  spoke   to  his   opposition  to   the                                                                   
amendment.  He  stressed  that  the  tax  was  profits-based;                                                                   
companies  that  were  not making  profits  were  not  taxed.                                                                   
Additionally, under the legislation  the state gave companies                                                                   
a 2-year  tax holiday  even when  profitable. He believed  it                                                                   
made  sense  to   not  tax  companies  when   they  were  not                                                                   
profitable. He did  not support extending the  tax holiday to                                                                   
3.5  years, which  he believed  was excessive.  He wished  he                                                                   
received the tax holiday on his  income taxes. He thought the                                                                   
2-year period  seemed fair  to generous.  He stated  that the                                                                   
bill raised $7  million and he did not support  continuing to                                                                   
whittle  away at  the amount.  He believed  the public  would                                                                   
have a hard  time swallowing that individual  Alaskans had to                                                                   
pay for the deficit, while companies received tax holidays.                                                                     
                                                                                                                                
Vice-Chair  Saddler spoke  in  support of  the amendment.  He                                                                   
reasoned  that in order  to become  profitable, it  sometimes                                                                   
took a mineral development company  20 to 30 years. He stated                                                                   
the presumption  a  company could  open up  a mine and  begin                                                                   
making profits  within a  year was false.  He stated  it took                                                                   
many years  and significant  expense for  a company  to reach                                                                   
profitability.  He stressed that  Alaska was built  on mining                                                                   
and  he believed  the  land underneath  the  building may  be                                                                   
built on mine tailings [Bill Ray  Center, Juneau, Alaska]. He                                                                   
underscored  a  mine could  last  for decades  when  properly                                                                   
built with  infrastructure investment.  He referred  to mines                                                                   
that  triggered  infrastructure  like  airports,  mills,  and                                                                   
other facilities.  He believed it was cost-effective  to make                                                                   
the  investment to  find  more  ore (e.g.  Red  Dog Mine  and                                                                   
others).  He  opined  that shortening  the  tax  holiday  was                                                                   
nonsensical. He furthered that  shortening the tax holiday to                                                                   
a 2-year  period would  be like penalizing  "a child  for not                                                                   
being  able to  do  the work  of a  grown  man." He  believed                                                                   
restoring  the  tax  holiday   to  the  3.5-year  period  was                                                                   
appropriate.                                                                                                                    
                                                                                                                                
4:30:20 PM                                                                                                                    
                                                                                                                                
Representative Wilson  provided closing remarks  on Amendment                                                                   
3. She read from a prepared statement:                                                                                          
                                                                                                                                
     The State  of Alaska  has very  few incentives  to track                                                                   
     mining investment to the  state and doing away with this                                                                   
     one would  tell the  industry that we  are not  open for                                                                   
     business.  Investment  capital   is  globally  in  short                                                                   
     supply and retaining this  exemption will help us remain                                                                   
     competitive.  If  we  kill   our  industry  or  we  have                                                                   
     investors go somewhere else,  what truly have we gained?                                                                   
                                                                                                                                
Representative Wilson  wondered what would happen  with every                                                                   
investor  who chose  to invest  in  another location  besides                                                                   
Alaska. She  referred to  questions about  why the  state did                                                                   
not  lower some  costs  because  investors were  going  other                                                                   
places. She  stressed the  state was  rich in resources.  She                                                                   
reasoned that it was necessary  to ask why investors were not                                                                   
coming.  She  believed  the  state  should  be  incentivizing                                                                   
investment.  She underscored  that  the issue  was about  the                                                                   
state's long-term future. She  believed the discussion should                                                                   
be about what  the state would look like if  industry decided                                                                   
to  invest elsewhere.  She concluded  the  state would  still                                                                   
receive  profits  by  maintaining the  current  3.5-year  tax                                                                   
holiday. She  hoped the  state would  stay open for  business                                                                   
and would not discourage industry from investing in Alaska.                                                                     
                                                                                                                                
Co-Chair Thompson MAINTAINED his OBJECTION.                                                                                     
                                                                                                                                
A roll call vote  was taken on the motion to  adopt Amendment                                                                   
3.                                                                                                                              
                                                                                                                                
IN FAVOR: Munoz, Saddler, Wilson                                                                                                
OPPOSED:  Gara,   Guttenberg,  Kawasaki,  Edgmon,   Thompson,                                                                   
Neuman, Pruitt                                                                                                                  
                                                                                                                                
Representative Gattis was absent from the vote.                                                                                 
                                                                                                                                
The  MOTION to  adopt Amendment  3 FAILED  (3/7). [Note:  The                                                                   
committee later rescinded action on Amendment 3 and re-                                                                         
voted; the amendment  passed at that time.  See approximately                                                                   
5:14 p.m. for detail.]                                                                                                          
                                                                                                                                
4:33:17 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:46:05 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative   Gara  MOVED  to   ADOPT  Amendment   4,  29-                                                                   
GH2457\A.l (Martin/Nauman, 5/27/16) (copy on file):                                                                             
                                                                                                                                
     Page 3, lines 21 - 23:                                                                                                     
                                                                                                                                
     Delete "All new mining operations are exempt from the                                                                      
     tax levied by this chapter for two [THREE AND ONE-HALF]                                                                    
     years after production begins"                                                                                             
                                                                                                                                
     Insert "A new mining operation with a net income under                                                                     
     (c) of this section of                                                                                                     
          (1) not  more than $100,000 is exempt  from the tax                                                                   
          levied  by   this  chapter  for  two   years  after                                                                   
          production begins;                                                                                                    
          (2)  more  than  $100,000  shall pay  half  of  the                                                                   
          license  tax  on mining  provided  in  (c) of  this                                                                   
          section  for  two [ALL  NEW MINING  OPERATIONS  ARE                                                                   
          EXEMPT  FROM THE  TAX  LEVIED BY  THIS CHAPTER  FOR                                                                   
          THREE and ONE-HALF]  years after production begins"                                                                   
                                                                                                                                
Co-Chair Thompson OBJECTED for discussion.                                                                                      
                                                                                                                                
Representative  Gara explained  the  amendment. He  addressed                                                                   
that the  mining tax  was profits-based.  He did not  believe                                                                   
anyone  wanted  to increase  taxes  on  small "mom  and  pop"                                                                   
mining operations.  The amendment  would maintain  the 2-year                                                                   
tax  holiday for  businesses  making  less than  $100,000  in                                                                   
profits  per  year. While  businesses  making  over  $100,000                                                                   
would only pay half the tax rate  during the first two years.                                                                   
He  thought  the  state  should  receive  some  revenue  when                                                                   
companies were profitable. He  believed the proposed tax rate                                                                   
in the bill was around 9 percent;  the amendment would reduce                                                                   
the  tax  to around  4.5  percent  for  profitable  companies                                                                   
earning over $100,000 per year.                                                                                                 
                                                                                                                                
4:49:02 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson MAINTAINED his OBJECTION.                                                                                     
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Guttenberg, Kawasaki, Gara                                                                                            
OPPOSED:  Munoz,  Pruitt, Saddler,  Wilson,  Edgmon,  Gattis,                                                                   
Neuman, Thompson                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 4 FAILED (3/8).                                                                                   
                                                                                                                                
4:49:52 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki  MOVED  to ADOPT  Amendment  5,  29-                                                                   
GH2457\A.3 (Martin/Nauman, 5/27/16) (copy on file):                                                                             
                                                                                                                                
Page 3, line 24, through page 4, line 1:                                                                                        
                                                                                                                                
     Delete all material and insert:                                                                                            
     "*Sec. 6. AS 43.65.0lO(c) is repealed and reenacted to                                                                     
     read:                                                                                                                      
     (c)  The license  tax on  mining is imposed  on the  net                                                                   
     income of the  taxpayer from the property  in the state,                                                                   
     computed   with   allowable  depletion,   plus   royalty                                                                   
     received  in  connection  with mining  property  in  the                                                                   
     state.  The tax  rates  applicable to  the  amount of  a                                                                   
     taxpayer's net income are as follows:                                                                                      
        · over $100,000 and not over $250,000: five percent                                                                     
        · over $250,000 and not over $500,000: $7,500 plus                                                                      
         seven percent of the excess over $250,000                                                                              
        · over $500,000 and not over $1,000,000: $25,000                                                                        
          plus nine percent of the excess over $500,000                                                                         
        · over $1,000,000: $70,000 plus 11 percent of the                                                                       
          excess over $1,000,000."                                                                                              
                                                                                                                                
     Page 4, line 15:                                                                                                           
     Delete "amended"                                                                                                           
     Insert "repealed and reenacted"                                                                                            
                                                                                                                                
Co-Chair Thompson OBJECTED for discussion.                                                                                      
                                                                                                                                
Representative Kawasaki  explained that the  amendment sought                                                                   
to change the  brackets [related to the tax  rates applicable                                                                   
to the  amount of a taxpayer's  net income]. He  detailed the                                                                   
brackets had been established  during territorial days (prior                                                                   
to  statehood) in  1955 as  a  way to  fairly distribute  the                                                                   
burden  on mining  operations  within Alaska.  He  referenced                                                                   
Section  6,  page 3  of  the legislation,  which  showed  the                                                                   
original brackets still in statute.  He specified that mining                                                                   
companies earning less than $40,000  in profits did not pay a                                                                   
license tax. Mines  making between $50,000 and  $100,000 paid                                                                   
an assessment  of  5 percent and  $1,500. He  noted the  next                                                                   
bracket  was   for  companies   earning  over  $100,000.   He                                                                   
reiterated that the brackets had  been in place for 60 years.                                                                   
                                                                                                                                
Representative  Kawasaki furthered  amendment was an  attempt                                                                   
to make  the brackets  fair by  adjusting for inflation.  The                                                                   
amendment would  exempt small mining companies  earning below                                                                   
$100,000. The first bracket would  apply to companies earning                                                                   
between $100,000 and $250,000;  the second bracket applied to                                                                   
companies  earning  over  $250,000  to  $500,000;  the  third                                                                   
bracket  applied  to  companies   earning  over  $500,000  to                                                                   
$1,000,000;  and  the  fourth bracket  applied  to  companies                                                                   
earning  $1,000,000  and above.  There  were  roughly two  or                                                                   
three  mines within  each of  the first  three brackets  (the                                                                   
exact  number was  unknown due  to taxpayer  confidentiality)                                                                   
and there  were 5 mines  making over $1,000,000.  He believed                                                                   
the amendment  was very  fair; it  removed the unfair  burden                                                                   
off small miners and addressed the issue of inflation.                                                                          
                                                                                                                                
4:52:42 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson MAINTAINED his OBJECTION to Amendment 5.                                                                      
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki                                                                                            
OPPOSED:  Munoz,  Pruitt, Saddler,  Wilson,  Edgmon,  Gattis,                                                                   
Thompson, Neuman                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 5 FAILED (3/8).                                                                                   
                                                                                                                                
Representative   Gara  MOVED  to   ADOPT  Amendment   6,  29-                                                                   
GH2457\A.2 (Martin/Nauman, 5/27/16) (copy on file):                                                                             
                                                                                                                                
     Page 3, line 31, following "$100,000":                                                                                     
     Insert "and not over $250,000"                                                                                             
                                                                                                                                
     Page 4, line 1, following "$100,000":                                                                                      
     Insert new material to read:                                                                                               
        · over $250,000: $6,000 plus 11 percent of the                                                                          
          excess over $250,000                                                                                                  
                                                                                                                                
Co-Chair Thompson OBJECTED for discussion.                                                                                      
                                                                                                                                
Representative Gara  explained the amendment that  applied to                                                                   
companies earning  over $250,000 per  year. He stated  it was                                                                   
the kind of money  most Alaskans would never see  in any year                                                                   
of their lives. The amendment  would increase the profits tax                                                                   
rate from 9 percent to 11 percent  for companies earning over                                                                   
$250,000.  He  detailed  that  the $7  million  in  projected                                                                   
revenue in  DOR's fiscal note  primarily came from  the large                                                                   
mines  making  above $250,000  per  year. The  amendment  was                                                                   
likely to raise around $7 million.  He noted his business tax                                                                   
for the  restaurant he owned appeared  in his income  tax; he                                                                   
paid  a 25  percent tax.  He continued  a  company coming  to                                                                   
Alaska  to  explore  for  minerals   would  do  so  with  the                                                                   
exploration credit provided by  the state. He did not believe                                                                   
increasing the number to 11 percent  would change a company's                                                                   
decision  to invest  in Alaska  if they  were profitable.  He                                                                   
reasoned the  company would get  to keep the remaining  89 to                                                                   
91  percent of  their profits.  He  understood the  companies                                                                   
would pay other taxes. He believed  the amendment was fair in                                                                   
the time  of a  fiscal crisis  and also  when companies  paid                                                                   
taxes based  on profits.  He added he  would not  propose the                                                                   
amendment on  a mining tax if  the tax was  not profits-based                                                                   
and was imposed on companies losing money.                                                                                      
                                                                                                                                
4:56:42 PM                                                                                                                    
                                                                                                                                
Co-Chair  Thompson had  heard  significant discussion  during                                                                   
the current  meeting that the  mining tax was  profits-based.                                                                   
He had  heard statements  that it was  a gross tax  and other                                                                   
statements   that  it   was   a  net   tax.   He  asked   for                                                                   
clarification.                                                                                                                  
                                                                                                                                
Mr. Burnett  answered that  the mining tax  was a tax  on the                                                                   
margin created  by a mining  operation, which  contributed to                                                                   
the  profits  of a  company.  The  companies may  have  other                                                                   
operations;  therefore,  the tax  was not  based  on the  net                                                                   
income of the company, but on  the net margin remaining after                                                                   
deducting the  costs of mining  operation. The tax  was based                                                                   
on the  margin because  it was not  profit until  other items                                                                   
such as corporate overhead were included.                                                                                       
                                                                                                                                
Co-Chair  Thompson expressed  confusion about  the issue.  He                                                                   
elaborated that his business of  35 years paid tax on the net                                                                   
profit, which deducted his expenses.                                                                                            
                                                                                                                                
Mr.  Burnett  clarified that  the  mining  tax was  based  on                                                                   
profit from  mining operations  after deducting costs  of the                                                                   
mining  operation.  He detailed  it  was different  than  the                                                                   
total  business  profit  because  a company  may  have  other                                                                   
businesses;  it was  a  subset of  a company's  business.  He                                                                   
explained oil  and gas taxes were  based on cash  flow (money                                                                   
going into and out of a company on an annual basis).                                                                            
                                                                                                                                
Co-Chair Thompson  asked what  the tax would  be called  if a                                                                   
company  had only  one  mine. Mr.  Burnett  answered that  it                                                                   
would be  a net profits tax.  He added the company  would pay                                                                   
other local and corporate income taxes.                                                                                         
                                                                                                                                
Mr. Alper elaborated that if the  company that owned the mine                                                                   
was a  corporate tax  payer, the  state's mining license  tax                                                                   
was a  deduction from  the formula that  went into  the state                                                                   
corporate  income tax.  He specified  the mining license  tax                                                                   
was considered an expense.                                                                                                      
                                                                                                                                
4:59:42 PM                                                                                                                    
                                                                                                                                
Representative   Gara   asked   for  clarification   on   the                                                                   
department's  testimony.   He  asked  for   verification  the                                                                   
profits were  the profits  of an operation,  but if  parts of                                                                   
the company related to other business  aspects (e.g. a second                                                                   
mine in Utah) those pieces of  the business were not included                                                                   
in  the  tax.  He  surmised the  tax  aimed  to  contain  the                                                                   
profitability at the specific mine site in Alaska.                                                                              
                                                                                                                                
Mr. Burnett answered in the affirmative.                                                                                        
                                                                                                                                
Vice-Chair  Saddler asked  if the amendment  sponsor  had any                                                                   
analysis showing  the higher tax  bracket would not  harm the                                                                   
mines in that bracket.                                                                                                          
                                                                                                                                
Representative  Gara replied that  logic was the  answer. The                                                                   
amendment only applied to companies  making profits exceeding                                                                   
$250,000 per year.  He did not believe a company  would leave                                                                   
Alaska  when making  over  $250,000 because  of  a 2  percent                                                                   
change in a profits  tax. He believed a company  would not go                                                                   
to the  expense of  investing in Alaska  unless it  found the                                                                   
ore valuable.                                                                                                                   
                                                                                                                                
Vice-Chair Saddler  wondered if there was an  analysis on the                                                                   
percentage of the  net proceeds would amount to.  He asked if                                                                   
the logic  was based on the  idea that it was  appropriate to                                                                   
begin taxing a  company when it earned profits  slightly over                                                                   
the breakeven  point. He asked  whether $250,000 was  a large                                                                   
or small profit for a mining company.                                                                                           
                                                                                                                                
Representative  Gara answered  that  he was  trying to  avoid                                                                   
impacting small mining operations  on the margins that may go                                                                   
out of business if taxes were  increased. He believed profits                                                                   
of  $250,000 or  more  represented  a significant  amount  of                                                                   
money. He thought  if a company was making  over $250,000 per                                                                   
year it  had the means  to contribute  to the state's  budget                                                                   
deficit with  a slight  increase in  the tax. Otherwise,  the                                                                   
revenue  would have  to  come from  people  with less  money,                                                                   
which he was not in favor of.                                                                                                   
                                                                                                                                
Vice-Chair  Saddler  remarked that  the  scale  of costs  and                                                                   
investments  required   for  a  large  mine   in  Alaska  was                                                                   
significantly   larger  than  costs   for  a  restaurant   in                                                                   
Anchorage.                                                                                                                      
                                                                                                                                
5:04:03 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
5:04:28 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Gara countered  that  restaurants required  a                                                                   
significant amount of money to run.                                                                                             
                                                                                                                                
Co-Chair Thompson MAINTAINED his OBJECTION to Amendment 6.                                                                      
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Kawasaki, Guttenberg, Gara                                                                                            
OPPOSED:  Munoz,  Pruitt, Saddler,  Wilson,  Edgmon,  Gattis,                                                                   
Neuman, Thompson                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 6 FAILED (3/8).                                                                                   
                                                                                                                                
5:05:25 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson MOVED to ADOPT Amendment 7 29-GH2457\A.4                                                                      
(Martin/Nauman, 5/28/16) (copy on file):                                                                                        
                                                                                                                                
     Page 1, line 1, following "credit":                                                                                        
     Insert "and royalty payments"                                                                                              
                                                                                                                                
     Page 3, following line 18:                                                                                                 
     Insert a new bill section to read:                                                                                         
     "*Sec. 5. AS 38.05.150(d) is amended to read:                                                                              
     (d) For the privilege of mining or extracting the coal                                                                     
     in the land covered by the lease, the lessee                                                                               
          (1) shall pay to the  state the royalties specified                                                                   
          in the  lease; the royalties shall  be fixed before                                                                   
          offering  the lease, and  shall be effective  for a                                                                   
          period  of not  more than 20  years; the  royalties                                                                   
          shall be  not less than  five cents a ton  of 2,000                                                                   
          pounds;  [THE  ROYALTY PAYMENT  IS  SUBJECT TO  THE                                                                   
          EXPLORATION  INCENTIVE   CREDIT  AUTHORIZED  BY  AS                                                                   
          27.30;]                                                                                                               
          (2)  shall also  pay an annual  rental, payable  at                                                                   
          the date  of the lease and annually  thereafter, on                                                                   
          the land or coal deposits  covered by the lease, at                                                                   
          a rate  fixed by  the commissioner before  offering                                                                   
          the  lease; the  annual rental  shall be  effective                                                                   
          for a period of not  more than 20 years; the annual                                                                   
          rental shall be not  less than 25 cents an acre for                                                                   
          the  first year  of  the lease,  not  less than  50                                                                   
          cents  an acre  for  the second  year, third  year,                                                                   
          fourth  year and fifth year,  and not less  than $1                                                                   
          an  acre  for  each   year  thereafter  during  the                                                                   
          continuance of the lease;  the rental for each year                                                                   
          shall  be credited  against the  royalties as  they                                                                   
          accrue  for  that year;  each  lease shall  provide                                                                   
          that  the  annual  rental  payment  is  subject  to                                                                   
          adjustment  at intervals of  not [NO] more  than 20                                                                   
          years  and  adjustments   shall  be  based  on  the                                                                   
          current rates for properties similarly situated."                                                                     
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 4, following line 5:                                                                                                  
     Insert a new bill section to read:                                                                                         
     "*Sec. 9. AS 27.30.080 and AS 38.05.212(b)(2) are                                                                          
     repealed."                                                                                                                 
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 4, line 10:                                                                                                           
     Delete "and"                                                                                                               
                                                                                                                                
     Page 4, line 11, following "Act,":                                                                                         
     Insert "AS 38.05.150(d), as amended by sec. 5 of this                                                                      
     Act, and the repeal of AS 27.30.080 and AS                                                                                 
     28.05.212(b)(2) by sec. 9 of this Act,"                                                                                    
                                                                                                                                
     Page 4, line 13:                                                                                                           
     Delete "sec. 5"                                                                                                            
     Insert "sec. 6"                                                                                                            
                                                                                                                                
     Page 4, line 14:                                                                                                           
     Delete "sec. 5"                                                                                                            
     Insert "sec. 6"                                                                                                            
                                                                                                                                
     Page 4, line 15:                                                                                                           
     Delete "sec. 6"                                                                                                            
     Insert "sec. 7"                                                                                                            
                                                                                                                                
     Page 4, line 17:                                                                                                           
     Delete "sec. 6"                                                                                                            
     Insert "sec. 7"                                                                                                            
                                                                                                                                
     Page 4, line 30:                                                                                                           
     Delete "Section 10"                                                                                                        
     Insert "Section 12"                                                                                                        
                                                                                                                                
     Page 4, line 31:                                                                                                           
     Delete "sec. 11"                                                                                                           
     Insert "sec. 13"                                                                                                           
                                                                                                                                
Representative Gara OBJECTED.                                                                                                   
                                                                                                                                
Co-Chair  Thompson  explained  that  the  amendment  included                                                                   
necessary  conforming changes  identified  by the  Department                                                                   
of  Labor and  Workforce  Development.  He detailed  that  AS                                                                   
27.30.080  should  have  been repealed  because  the  statute                                                                   
provided that  the amount  due to the  Permanent Fund  was to                                                                   
be calculated  prior to  the application  of the credit.  The                                                                   
changes in  the committee substitute  (CS) provided  that the                                                                   
credit  was no  longer applicable  against royalty  payments.                                                                   
He  continued  the  statute was  now  inapplicable  that  the                                                                   
credit  could  only be  applied  to  tax since  only  royalty                                                                   
payments went  to the Permanent  Fund. He continued  that the                                                                   
royalty payment  subject to the exploration  incentive credit                                                                   
authorized  under  AS 27.30  needed  to  be deleted  from  AS                                                                   
38.05.150(d)(1).  Lastly,  AS  38.05.212(b)(2) needed  to  be                                                                   
repealed. He  asked members if  they wanted to hear  from the                                                                   
administration.                                                                                                                 
                                                                                                                                
Representative    Gara   requested    to   hear   from    the                                                                   
administration.                                                                                                                 
                                                                                                                                
Mr. Alper affirmed  that Co-Chair Thompson's  explanation was                                                                   
accurate.  He discussed  that the  exploration credits  could                                                                   
be  used  to  offset  the tax,  but  under  current  law  the                                                                   
credits  could   also  be  used   to  offset   royalties.  He                                                                   
specified most  mines did  not pay royalties  to the  state -                                                                   
mines  only  paid  royalties   to  the  state  if  they  were                                                                   
operating on state  land (just like with oil  and gas). Under                                                                   
the  specific  circumstance  a  mine could  use  any  of  the                                                                   
exploration  credits  to  offset  their  royalties  as  well.                                                                   
During  the regular  legislative  session there  had been  an                                                                   
amendment  in the  House Resources  Committee  that made  the                                                                   
change.  He explained  the change  had been  in a  standalone                                                                   
bill  - the  idea the  tax  credit could  no  longer be  used                                                                   
against   royalties.  He   explained   DOR's  attorneys   had                                                                   
realized  there  were a  couple  of  loose ends,  which  were                                                                   
addressed  in   the  amendment.  The  amendment   cleaned  up                                                                   
statutory references  to the credits and how  they interacted                                                                   
with  royalties, which  maintained the  underlying idea  that                                                                   
it  should  not  be  possible  to  use  the  credits  against                                                                   
royalty.                                                                                                                        
                                                                                                                                
Representative   Wilson  pointed   to  AS  27.30.080,   which                                                                   
addressed  that amounts due  to the  Permanent Fund  under AS                                                                   
37.13.010 were to  be calculated before the  application of a                                                                   
credit extended.  She wondered what  the amendment had  to do                                                                   
with the Permanent Fund.                                                                                                        
                                                                                                                                
Mr.  Alper  answered  that the  Permanent  Fund  received  25                                                                   
percent  of the  royalties for  all minerals.  He provided  a                                                                   
scenario where the  state received a royalty from  a mine. He                                                                   
explained  that if the  mine used  a credit  it needed  to be                                                                   
subtracted prior  to the calculation of the  share that would                                                                   
go to  the Permanent  Fund. He clarified  the section  was no                                                                   
longer necessary because the credit was being eliminated.                                                                       
                                                                                                                                
Representative  Wilson asked how  the amendment would  impact                                                                   
the Permanent Fund.                                                                                                             
                                                                                                                                
Mr. Alper  replied with  an example.  He hypothesized  if the                                                                   
state was  receiving $1,000  in royalties  from a small  mine                                                                   
on state  land, $250 would go  to the Permanent Fund.  If the                                                                   
company used  an exploration credit  that was used  to offset                                                                   
its taxes  and half  its royalty  (bringing the royalty  down                                                                   
to $500),  under current statute  the company could  pay one-                                                                   
quarter of the  $500, which would mean only $125  would go to                                                                   
the Permanent  Fund [Note:  Mr. Alper subsequently  clarified                                                                   
his explanation  was incorrect].  The amendment would  mean a                                                                   
company  would  no longer  have  the  ability to  subtract  a                                                                   
credit from the  royalty and would therefore have  to pay the                                                                   
percentage  of  the full  $1,000;  therefore,  the  Permanent                                                                   
Fund would receive  the full $250. He added  if anything, the                                                                   
change  would slightly  increase  the  money going  into  the                                                                   
Permanent  Fund principal,  but in  many circumstances  there                                                                   
would be no impact.                                                                                                             
                                                                                                                                
Co-Chair  Neuman asked  for verification  the Permanent  Fund                                                                   
would receive payments  before credits were taken  off of any                                                                   
taxes due.                                                                                                                      
                                                                                                                                
Mr.  Alper   asked  Representative   Wilson  to   reread  the                                                                   
statutory reference she had provided.                                                                                           
                                                                                                                                
Representative Wilson read from statute:                                                                                        
                                                                                                                                
     AS 27.30.080. Relationship to Other Funds.                                                                                 
                                                                                                                                
     Amounts due the permanent fund under AS 37.13.010                                                                          
     shall be calculated before the application of a credit                                                                     
     extended under this chapter.                                                                                               
                                                                                                                                
Mr.  Alper replied  to the  question by  Co-Chair Neuman.  He                                                                   
explained  the Permanent  Fund received  its money first.  He                                                                   
detailed  that   under  current   law,  the  Permanent   Fund                                                                   
received the  25 percent  of the  total regardless.  He noted                                                                   
his  prior  example  was  incorrect.  The  amendment  made  a                                                                   
conforming   change   because   there   was   no   longer   a                                                                   
circumstance  in which there  would be  a credit to  subtract                                                                   
from the royalty.                                                                                                               
                                                                                                                                
5:11:52 PM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman recapped  that the  Permanent Fund  received                                                                   
its  share of  the royalty  first under  current statute.  He                                                                   
asked for  verification that any  credits were  applied after                                                                   
the Permanent Fund received its share.                                                                                          
                                                                                                                                
Mr. Alper answered in the affirmative.                                                                                          
                                                                                                                                
Representative  Gara WITHDREW his  OBJECTION. There  being NO                                                                   
further OBJECTION, Amendment 7 was ADOPTED.                                                                                     
                                                                                                                                
Representative  Pruitt  MOVED   to  RESCIND  the  committee's                                                                   
action on Amendment  3. He requested a revote.  He relayed he                                                                   
had been absent  for the discussion on the  amendment and had                                                                   
been  confused  about  which   amendment  the  committee  was                                                                   
addressing when he voted earlier.                                                                                               
                                                                                                                                
Co-Chair  Neuman  asked  members  to be  present  during  the                                                                   
meeting.  He stated  that if a  person missed  the vote  they                                                                   
missed the vote.                                                                                                                
                                                                                                                                
Co-Chair  Thompson addressed  Amendment 3  that would  remove                                                                   
the governor's proposal  to reduce the existing  3.5-year tax                                                                   
holiday to 2 years.                                                                                                             
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Munoz, Pruitt, Saddler, Wilson, Gattis, Thompson                                                                      
OPPOSED: Edgmon, Gara, Guttenberg, Kawasaki, Neuman                                                                             
                                                                                                                                
The MOTION  to adopt  Amendment 3  PASSED (6/5). There  being                                                                   
NO further OBJECTION, Amendment 3 was ADOPTED.                                                                                  
                                                                                                                                
Representative  Wilson understood  that Amendment  1 had  not                                                                   
been  heard because  it had  been  deemed out  of place.  She                                                                   
understood  there   was  currently   a  lawsuit   related  to                                                                   
severance  tax,  but  she  hoped  that  the  issue  could  be                                                                   
considered  at another  time.  She believed  it  was a  major                                                                   
issue that could impact mines throughout the state.                                                                             
                                                                                                                                
Co-Chair Thompson  hoped the  issue would  be settled  in the                                                                   
coming  year so  the committee  could address  it during  the                                                                   
next session.                                                                                                                   
                                                                                                                                
Representative  Gara remarked that  one committee  member had                                                                   
been missing  and  upon his return  the vote  had changed  by                                                                   
two votes. He  was [somewhat facetiously] tempted  to ask for                                                                   
a revote on his amendments.                                                                                                     
                                                                                                                                
HB  4005  was  HEARD  and  HELD   in  committee  for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
HOUSE BILL NO. 4006                                                                                                           
                                                                                                                                
     "An  Act relating  to  the  fisheries business  tax  and                                                                   
     fishery resource  landing tax; removing the  minimum and                                                                   
     maximum  restrictions on  the  annual base  fee for  the                                                                   
     reissuance  or   renewal  of  an  entry  permit   or  an                                                                   
     interim-use   permit;  relating   to   refunds  of   the                                                                   
     fisheries   business  tax   and  the  fishery   resource                                                                   
     landing tax  to local governments; and providing  for an                                                                   
     effective date."                                                                                                           
                                                                                                                                
5:16:30 PM                                                                                                                    
                                                                                                                                
Representative Wilson MOVED to ADOPT Amendment 1, 29-                                                                           
GH2460\A.3 (Glover/Nauman, 5/28/16) (copy on file):                                                                             
                                                                                                                                
     Page l, lines 1 - 2:                                                                                                       
     Delete  "removing the minimum  and maximum  restrictions                                                                   
     on"                                                                                                                        
     Insert "relating to the calculation of'                                                                                    
                                                                                                                                
     Page 1, line 7, through page 2, line 3:                                                                                    
     Delete all material and insert:                                                                                            
     "*Section 1. AS 16.43.160(c) is amended to read:                                                                           
     (c) The  annual base fee  for issuance or renewal  of an                                                                   
     entry  permit   or  an   interim-use  permit   shall  be                                                                   
     established  under  this  subsection  [MAY NOT  BE  LESS                                                                   
     THAN $30 OR  MORE THAN $3,000. THE ANNUAL  BASE FEE MUST                                                                   
     REASONABLY  REFLECT  THE DIFFERENT  RA  TES OF  ECONOMIC                                                                   
     RETURN  FOR DIFFERENT  FISHERIES].  In  addition to  the                                                                   
     annual  base fee  established  by  the commission  under                                                                   
     this  subsection,  a  nonresident  shall pay  an  annual                                                                   
     nonresident  surcharge for  the issuance  or renewal  of                                                                   
     one or  more entry permits  or interim-use  permits. The                                                                   
     commission shall  annually determine the annual  fee for                                                                   
     the issuance  or renewal of an entry permit  or interim-                                                                   
     use permit as follows:                                                                                                     
                                                                                                                                
     (1) the annual  base fee for the issuance  or renewal of                                                                   
     an  entry permit  or  interim-use  permit  in a  limited                                                                   
     entry fishery  is 0.4 percent of the estimated  value of                                                                   
     the  entry permit,  subject to adjustment  under  (3) of                                                                   
     this subsection;  if insufficient  data is available  to                                                                   
     determine the  estimated value of an entry  permit or if                                                                   
     no permit  sale values have  been recorded for  the most                                                                   
     recent  three years,  the calculation  of an annual  fee                                                                   
     in a limited  entry fishery may be calculated  as if the                                                                   
     limited  entry fishery were  an unlimited entry  fishery                                                                   
     under  (2) of  this subsection,  subject to  adjustments                                                                   
     under (3) of this subsection;                                                                                              
                                                                                                                                
     (2) the annual  base fee for the issuance  or renewal of                                                                   
     an interim-use  permit in an unlimited entry  fishery is                                                                   
     0.4  percent of  the  estimated average  gross  earnings                                                                   
     for  each permit  in  the most  recent  three years  for                                                                   
     which data are available;                                                                                                  
                                                                                                                                
     (3) the commission  may make an adjustment  to an annual                                                                   
     base fee if                                                                                                                
          (A)more  than one permit  type allows the  directed                                                                   
          harvest of  the same species with the  same gear in                                                                   
          the  same   area  or  if  one  permit   allows  the                                                                   
          directed   harvest  of  the   same  species   by  a                                                                   
          combination of gear in the same area; or                                                                              
          (B)  the amounts  determined under  (1) and (2)  of                                                                   
          this  subsection  would result  in  an annual  base                                                                   
          fee  that  is  not  proportional  to  the  rate  of                                                                   
          economic return  for the fisheries covered  by that                                                                   
          permit [THE  COMMISSION SHALL ESTABLISH  THE ANNUAL                                                                   
          NONRESIDENT  SURCHARGE BY  REGULATION AT  AN AMOUNT                                                                   
          THAT IS  AS CLOSE AS IS PRACTICABLE  TO THE MAXIMUM                                                                   
          ALLOWED BYLAW]."                                                                                                      
                                                                                                                                
Co-Chair Thompson OBJECTED for discussion.                                                                                      
                                                                                                                                
Representative Wilson read from a prepared statement:                                                                           
                                                                                                                                
     The  fisheries business  tax is paid  by Alaska's  small                                                                   
     boat  fleet   -those  who   work  and  live   in  Alaska                                                                   
     communities.  The fisheries landing  tax is paid  by the                                                                   
     Seattle-based trawl fleet.                                                                                                 
                                                                                                                                
Representative  Wilson  believed  she was  referring  to  the                                                                   
incorrect talking points and requested an "at ease."                                                                            
                                                                                                                                
5:17:11 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
5:17:29 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Wilson  explained   Amendment  1.  She  noted                                                                   
there had been  a $3,000 cap, which had been  removed [in the                                                                   
CS]. However,  there was  an existing  regulation that  would                                                                   
maintain   fairness.    She   asked   to   hear    from   the                                                                   
administration  about the difference  between the  regulation                                                                   
and the cap.  She believed the smaller boats  were paying the                                                                   
full  amount because  they  were  underneath the  $3,000  cap                                                                   
when  the calculation  was  done.  She furthered  the  larger                                                                   
boats were  capped at  $3,000 and would  be paying  more. She                                                                   
remarked  it meant the  possibility of  "millions of  dollars                                                                   
currently not going."  She wanted to ensure it  was the right                                                                   
move to  make versus an overhaul  of the regulations  and the                                                                   
particular section of the fishing tax.                                                                                          
                                                                                                                                
Representative Edgmon  asked if the department  would address                                                                   
the committee.                                                                                                                  
                                                                                                                                
BENJAMIN  BROWN, COMMISSIONER,  ALASKA  COMMERCIAL  FISHERIES                                                                   
ENTRY  COMMISSION  (CFEC),  DEPARTMENT   OF  FISH  AND  GAME,                                                                   
answered  the   item  under   discussion  was  not   strictly                                                                   
speaking  a tax; it  was a  permit renewal  fee collected  by                                                                   
CFEC.  The fee amount  was not  set in  statute. The  statute                                                                   
required  the fee  to  proportionately  reflect the  economic                                                                   
value of  the fishery. A regulation  adopted by CFEC  set the                                                                   
formula at four-tenths  of one percent of either  the average                                                                   
value of a permit  or in the case of all  interim-use permits                                                                   
not in  limited entry fisheries,  four-tenths of  one percent                                                                   
of the  average gross earnings  in the fishery for  the three                                                                   
years before the  fee category was set. The fee  cap had been                                                                   
put into statute  (with SB 93 sponsored by  former legislator                                                                   
Senator Ben  Stevens) in  2005 when the  cap was  raised from                                                                   
$300.  At  the  time, there  had  been  testimony  by  Cheryl                                                                   
Sutton that the  $300 cap was artificial because  the statute                                                                   
stated  the  base  fee  needed   to  reasonably  reflect  the                                                                   
different rates  of economic return for  different fisheries.                                                                   
He  elaborated the  cap  resulted in  fisheries  with a  very                                                                   
high   economic  return   being   charged   fees  that   were                                                                   
disproportionately  low. He believed it  was fair to  say the                                                                   
statement  would apply  to the  current circumstance  related                                                                   
to  the  $3,000  cap.  He  explained   it  resulted  in  some                                                                   
fishermen not paying $7,000 they would otherwise pay.                                                                           
                                                                                                                                
Mr.  Brown elucidated  the  other side  of  the argument.  He                                                                   
explained  that  merely looking  at  the gross  earnings  for                                                                   
three years  before did not paint  a full picture of  how the                                                                   
fishermen  were  doing in  whether  or  not they  can  easily                                                                   
absorb  a $7,000  increase in  fees. The  current bill  dealt                                                                   
with  a permit  increase and  two different  kinds of  taxes.                                                                   
The items  were all  pieces of a  puzzle that inform  whether                                                                   
or  not removing  the cap  would  be the  fair and  equitable                                                                   
thing to do.  The commission would do whatever  the wisdom of                                                                   
the legislature  designated. He  furthered if the  $3,000 cap                                                                   
was  removed  the   CFEC  would  charge  fishermen   more  in                                                                   
accordance  with  the  four-tenths of  one  percent  formula.                                                                   
Alternatively, if  the cap was  not removed, CFEC  could look                                                                   
at some  of the more nuanced  elements of whether or  not the                                                                   
fees were fair  and if there was a superior  way to calculate                                                                   
them so  it did not unfairly  benefit or hinder  one category                                                                   
of fishermen.                                                                                                                   
                                                                                                                                
BRUCE TWOMLEY,  CHAIRMAN, ALASKA  COMMERCIAL FISHERIES  ENTRY                                                                   
COMMISSION,  DEPARTMENT OF  FISH AND GAME,  added that  there                                                                   
was  a formula  for interim-use  permits  (IUP) in  fisheries                                                                   
not limited  by the state. He  elaborated they were  the only                                                                   
permits that  would be  impacted by the  removal of  the cap.                                                                   
The function  of Section  1 was to  ensure all captains  were                                                                   
subject to the same formula.                                                                                                    
                                                                                                                                
5:22:16 PM                                                                                                                    
                                                                                                                                
Representative  Gara deduced  if four-tenths  of one  percent                                                                   
of  the  value  of for  a  small  fishing  operation  equaled                                                                   
$3,000,  the fisherman  would be paying  a higher  percentage                                                                   
than someone  with a large  factory trawler, which  also paid                                                                   
the $3,000  fee. He asked  for verification that  the factory                                                                   
trawler  would be  paying a  much smaller  percentage of  the                                                                   
value of its vessel than a smaller vessel paying $2,800.                                                                        
                                                                                                                                
Mr. Twomley answered in the affirmative.                                                                                        
                                                                                                                                
Representative Gara  surmised in that instance  a person with                                                                   
a  small vessel  paid a  higher  percentage of  the value  of                                                                   
their operation. Mr. Twomley replied in the affirmative.                                                                        
                                                                                                                                
Representative Gara  asked for verification that  the bill as                                                                   
written  was  trying  to  make  the  situation  equitable  so                                                                   
everyone paid the same percentage.                                                                                              
                                                                                                                                
Mr. Twomley  replied the bill  would subject all  captains in                                                                   
fisheries not limited by the state to the same formula.                                                                         
                                                                                                                                
Representative  Munoz asked  for verification  that within  a                                                                   
certain  class of boat  and fisheries  (e.g. vessels  between                                                                   
60 and  90 feet), one vessel  could catch significantly  more                                                                   
than another vessel but pay the same fee.                                                                                       
                                                                                                                                
Mr. Twomley  answered that  the formula  was only  reflective                                                                   
of average  earnings  by permit  in the fishery;  it did  not                                                                   
attempt   to   measure   capacity.   Representative   Munoz's                                                                   
scenario   was  a   possibility,  which   would  require   an                                                                   
analysis.  He detailed  it  was  possible some  vessels  with                                                                   
lighter capacity  paid more  in fees  than some vessels  with                                                                   
less capacity.                                                                                                                  
                                                                                                                                
Representative  Munoz  provided   an  example  of  a  55-foot                                                                   
vessel with a greater  capacity than a larger boat  in the 60                                                                   
to 90-foot  category. She asked  if the change would  make it                                                                   
possible for the  smaller boat to pay less  than another boat                                                                   
with a smaller catch.                                                                                                           
                                                                                                                                
Mr. Twomley  answered that  it was possible  or the  fees may                                                                   
come  out  the  same depending  on  the  application  of  the                                                                   
formula.                                                                                                                        
                                                                                                                                
Representative  Munoz  stated  that the  fee  was  associated                                                                   
with the captain.  She reasoned some boats had  more than one                                                                   
skipper. She wondered  if the fee would be  assessed multiple                                                                   
times for  the same operation  [if a  boat had more  than one                                                                   
captain].                                                                                                                       
                                                                                                                                
Mr.  Twomley  answered  that the  fee  applied  to  captains;                                                                   
therefore, each captain would pay for the needed IUP.                                                                           
                                                                                                                                
5:26:16 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon   was  concerned  that   the  proposed                                                                   
change would  put into statute  what CFEC did  by regulation.                                                                   
He worried that  it would hinder the commission's  ability to                                                                   
make changes to the regulatory process in the future.                                                                           
                                                                                                                                
Mr. Twomley replied that it was a fair assessment.                                                                              
                                                                                                                                
Vice-Chair  Saddler  summarized   his  understanding  of  the                                                                   
amendment.  He believed  the  amendment  would eliminate  the                                                                   
$3,000 cap on the entry permit fee.                                                                                             
                                                                                                                                
Representative  Wilson interjected that  the cap  had already                                                                   
been  removed.  The  concern  was  the  regulation  could  be                                                                   
easily changed  without going before the  legislature because                                                                   
the  cap had  been removed.  She agreed  the amendment  would                                                                   
tie the commission's hands, which was the purpose.                                                                              
                                                                                                                                
Co-Chair  Thompson  confirmed   that  the  CS  reflected  the                                                                   
elimination of  the $3,000 cap.  The amendment would  put the                                                                   
formula in statute.                                                                                                             
                                                                                                                                
Representative  Edgmon stated that  it captured his  concern.                                                                   
He  believed the  committee was  doing  things on  an ad  hoc                                                                   
basis related  to the bills. He  had spoken with  Mr. Twomley                                                                   
and  he wanted  to  ensure the  committee  was taking  action                                                                   
with  the proper  amount of  analysis and  foresight. He  was                                                                   
uncertain he could "get there" on the amendment.                                                                                
                                                                                                                                
Vice-Chair  Saddler  believed  the  primary  purpose  of  the                                                                   
amendment was to  set the formula for the fee  in statute. He                                                                   
pointed to page  2, line 6, paragraph 3, which  gave CFEC the                                                                   
ability  to adjust the  fee under  certain circumstances.  He                                                                   
asked for an explanation of the conditions.                                                                                     
                                                                                                                                
Mr. Twomley  provided an  example related  to Southeast  crab                                                                   
fisheries CFEC  had limited (i.e.  red king, brown  king, and                                                                   
tanner),  more often  than not  in the recent  past, the  red                                                                   
king crab  fishery had not  opened. Under the  circumstances,                                                                   
when a fishery  did not open, the permit holder  was entitled                                                                   
to  a  refund  if  they  had  paid  the  fee.  The  authority                                                                   
provided  under the  aforementioned section  would allow  the                                                                   
commission  to value  the permit  at  zero during  a year  in                                                                   
which the  fishery would  not open.  The ability would  avoid                                                                   
the  refund procedure  and meant  CFEC could  yield a  fairer                                                                   
evaluation  of  the value  of  a  permit combining  king  and                                                                   
tanner crab fisheries.                                                                                                          
                                                                                                                                
Mr. Brown elaborated  that in his 6 years of  work with CFEC,                                                                   
the research staff  annually prepared and provided  the gross                                                                   
earnings and  average permit  values, provided  commissioners                                                                   
with  detail on  the  fee class  would  be  according to  the                                                                   
formula,  and pointed  out potential  anomalies  such as  the                                                                   
Southeast  king crab  fishery. Almost  all of  the fees  were                                                                   
decided according  to the formula  - CFEC only  deviated from                                                                   
the formula when  there was clear evidence it  was necessary.                                                                   
Based on his  experience, any deviation from  the formula was                                                                   
always  in  the  interest  of  ensuring  fishermen  were  not                                                                   
unduly burdened by a fee they would not be able to pay.                                                                         
                                                                                                                                
Vice-Chair  Saddler  asked if  the  amendment  would make  it                                                                   
more  difficult, impossible,  or  have little  impact on  the                                                                   
commission's ability to operate.                                                                                                
                                                                                                                                
Mr. Twomley  answered that the amendment  accurately captured                                                                   
the formula  portion of  CFEC's regulations.  As long  as the                                                                   
remainder  of the regulations  remained  in place CFEC  could                                                                   
function.                                                                                                                       
                                                                                                                                
Mr.  Brown  referred  to  consultation   with  Representative                                                                   
Wilson when  she had  prepared the  amendment. He shared  she                                                                   
had  been  concerned  about  unduly  tying  the  commission's                                                                   
hands.  He explained  the commission  was already  generating                                                                   
millions  of  dollars  in  excess  of  its  operating  costs.                                                                   
Additionally,  CFEC  had  taken   a  "sizeable  hit"  in  the                                                                   
current  year  and  was  also  downsizing.  He  believed  the                                                                   
concern  would come  into  play  if a  commission  were in  a                                                                   
position  to change  a  regulation and  had  an incentive  to                                                                   
dramatically  increase  the  revenues.  He did  not  believed                                                                   
CFEC's structure  gave incentive to  do that, but he  did not                                                                   
know what the future would hold.                                                                                                
                                                                                                                                
5:32:12 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman  disputed a statement that  regulations could                                                                   
be  easily  removed.  He  stated  regulations  were  hard  to                                                                   
change and required  30 days of public comment.  He furthered                                                                   
that  statutes  were  very difficult  to  change  because  it                                                                   
required  going  through  the legislature.  He  surmised  the                                                                   
legislature did  not know how  fees changed and did  not know                                                                   
what  was coming  in  the future.  He  opposed the  amendment                                                                   
because of that  issue. He reasoned every time  something was                                                                   
put  in  statute it  made  it  much more  difficult  to  make                                                                   
adjustments. He  referred to Mr. Brown's testimony  that CFEC                                                                   
did not expect  to have to change regulations  for quite some                                                                   
time and  the commission would  try to ensure any  change did                                                                   
not  unduly burden  anyone within  the  fishing industry.  He                                                                   
asked   what   process   the  commission   took   to   change                                                                   
regulations.                                                                                                                    
                                                                                                                                
Mr.  Twomley  answered  that   CFEC  went  through  a  fairly                                                                   
rigorous  process dictated  by  the Administrative  Procedure                                                                   
Act.  The  process  required  notification,  public  hearings                                                                   
(some  near the  Board  of Fish)  and  other. The  commission                                                                   
took the  public comment period  very seriously  and reviewed                                                                   
it prior to taking action.                                                                                                      
                                                                                                                                
Representative  Gara thought the  maker of the  amendment was                                                                   
trying to  reestablish the $3,000  cap; however,  he believed                                                                   
the amendment removed the cap.                                                                                                  
                                                                                                                                
Co-Chair  Thompson clarified  that the  cap had been  removed                                                                   
in the CS. The  amendment addressed "how to  do the brackets"                                                                   
in statute.                                                                                                                     
                                                                                                                                
Representative  Gara  thought  the amendment  simply  removed                                                                   
the cap,  but it actually related  to the brackets.  He asked                                                                   
the commission how the amendment would change the bill.                                                                         
                                                                                                                                
Mr. Brown  answered that in  addition to removing  the $3,000                                                                   
cap [the CS  removed the cap], if the amendment  were adopted                                                                   
it  would put  the four-tenths  of one  percent formula  into                                                                   
statute   (it  was   currently  only   in  the   department's                                                                   
regulations);   therefore,   it   would  require   a   future                                                                   
legislative action  to change the formula. The  formula could                                                                   
currently  be  changed  by  CFEC at  its  own  discretion  in                                                                   
compliance with the Administrative Procedures Act.                                                                              
                                                                                                                                
Representative Gara  asked for verification the  amendment in                                                                   
no way  implemented the  cap. He  asked for confirmation  the                                                                   
cap had been removed in the bill.                                                                                               
                                                                                                                                
Mr. Brown answered in the affirmative.                                                                                          
                                                                                                                                
Representative Gara  asked for a recap of what  the amendment                                                                   
would do.                                                                                                                       
                                                                                                                                
Representative  Wilson explained that  when the cap  had been                                                                   
removed there had  been concern from fishermen  who were fine                                                                   
with the  formula. The  commission currently had  regulations                                                                   
in  place. Although  regulations  were  not easy  to  change,                                                                   
they were  easier to change  than statute. The  fishermen she                                                                   
had   heard  from   felt  more   comfortable  uplifting   the                                                                   
regulations  in place  of  the  cap so  the  small and  large                                                                   
fishermen  would be  treated  equitably  because the  formula                                                                   
would  be equal.  Currently with  the cap  removed, it  would                                                                   
still  be  equal,  but  would take  a  different  process  to                                                                   
change the formula.                                                                                                             
                                                                                                                                
5:37:05 PM                                                                                                                    
                                                                                                                                
Representative  Gara asked  if the amendment  had any  fiscal                                                                   
impact.                                                                                                                         
                                                                                                                                
Mr. Brown answered  in the negative. The commission  would be                                                                   
able  to  implement  its fee  structure  with  no  additional                                                                   
staff or fiscal impact.                                                                                                         
                                                                                                                                
Representative  Gara wondered  if  the amendment  would  have                                                                   
any impact on revenue to the state.                                                                                             
                                                                                                                                
Mr. Brown  answered  that the  removal of the  fee cap  could                                                                   
yield  approximately $2.1  million.  Putting  the formula  in                                                                   
statute would  in theory mean  revenue would remain  the same                                                                   
going forward  if average  gross earnings  and permit  values                                                                   
remained the  same. If those  items changed dramatically  and                                                                   
it  became  necessary  to  change   the  four-tenths  of  one                                                                   
percent formula  it would have  to be done legislatively  and                                                                   
not  by  regulation.  The  amendment would  not  have  a  big                                                                   
fiscal  impact. The  removal of  the  cap was  the item  that                                                                   
would result in a $2.1 million positive fiscal impact.                                                                          
                                                                                                                                
Representative  Gara understood  that the  formula was  based                                                                   
on the  average earnings  of a vessel.  He asked  for detail.                                                                   
Mr.  Twomley answered  that it  was the  average earnings  of                                                                   
the permit in  the fishery, which was measured  over the most                                                                   
recent  3-year  period.  The   formula  applied  to  IUPs  in                                                                   
fisheries  not  limited  by  the  state.  The  earnings  were                                                                   
averaged, which provided a figure to plug into fee classes.                                                                     
                                                                                                                                
Representative Gattis  asked if the fishermen  Representative                                                                   
Wilson had heard  from were from the Bristol  Bay region. She                                                                   
asked  if   it  was  a   region-specific  fishery   issue  or                                                                   
encompassed all fisheries.                                                                                                      
                                                                                                                                
Representative  Wilson  replied the  concern  related to  all                                                                   
fishermen. The  amendment was in  response to a  concern that                                                                   
once  the  cap  was  removed,  the  amounts  may  be  changed                                                                   
arbitrarily.  She  believed some  of  the fishermen  she  had                                                                   
spoken with  probably did not know  what it took to  change a                                                                   
regulation.                                                                                                                     
                                                                                                                                
Representative   Munoz  asked   for  clarification   on  fees                                                                   
associated with  permit classes.  She asked for  verification                                                                   
that the fee  pertained to an entire population  of fisherman                                                                   
in a  particular class.  Alternatively,  she wondered  if the                                                                   
fee was directed to a specific boat operation.                                                                                  
                                                                                                                                
Mr. Twomley  answered that  the fee was  derived from  all of                                                                   
the permits  fishing in  a given  fishery. In some  fisheries                                                                   
the  IUPs were  sold  based on  vessel  length  (there was  a                                                                   
cutoff  point). Fees  could  be different  but  it was  still                                                                   
traceable in the average.                                                                                                       
                                                                                                                                
Representative Munoz  stated that her concern  about removing                                                                   
the cap was within  the class of fishery a  vessel was paying                                                                   
the same  fee, but  may have a  different total catch,  which                                                                   
varied a great deal in the fee class.                                                                                           
                                                                                                                                
Mr.  Twomley  answered that  the  fee  was traceable  to  the                                                                   
average of all participants.                                                                                                    
                                                                                                                                
Mr. Brown  elaborated that  the way  to solve  Representative                                                                   
Munoz's concern  was to redefine the interim-use  open access                                                                   
fisheries where  some of the vessel length  designations that                                                                   
were  part of  the gear  definition may  not reflect  current                                                                   
practices in the  fishery. He stated it was  a separate issue                                                                   
from whether  or not the fee  cap should remain in  place. He                                                                   
understood from  the perspective of a fisherman  who believed                                                                   
someone else's  fee was  going to  increase but theirs  would                                                                   
not  or vice  versa.  He  reasoned  some fishermen  would  be                                                                   
happy  while  others  would  not be.  He  agreed  the  policy                                                                   
question  was important,  but it  was separate  from the  fee                                                                   
cap.                                                                                                                            
                                                                                                                                
5:42:00 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  relayed he had spoken with  several of                                                                   
his  colleagues from  coastal communities  who had  different                                                                   
thoughts  about the  issue. He  was  concerned the  amendment                                                                   
would  potentially  limit  the  ability of  young  people  to                                                                   
captain boats  if every  captain would have  to pay  the fee.                                                                   
He  asked if  the  amendment would  prevent  CFEC from  being                                                                   
able to address  the concern if the bill removed  the cap. He                                                                   
asked what  the department  had the ability  to do  under the                                                                   
current  regulation that  had not been  done and  potentially                                                                   
needed to  be done  and how the  amendment could  potentially                                                                   
CFEC's hands to be able to address the concerns.                                                                                
                                                                                                                                
Mr. Twomley  pointed out that  the vessels and  IUPs impacted                                                                   
by removing  the fee cap were  among some of the  largest and                                                                   
most  productive  vessels  fishing  in  Alaska.  He  did  not                                                                   
foresee the issue  coming up in those fisheries.  He detailed                                                                   
all of  the other  fisheries would  remain  in place as  they                                                                   
currently  existed.  The  amendment  only  impacted  IUPs  in                                                                   
place in  fisheries within  the $3,000  fee cap (i.e.  larger                                                                   
boats,   high   seas   fisheries,   factory   trawlers,   and                                                                   
etcetera).                                                                                                                      
                                                                                                                                
Representative  Pruitt  shared  that one  of  his  colleagues                                                                   
from a  coastal region  had highlighted  the potential  for a                                                                   
ship under  the 60-foot limit to  have a larger catch  than a                                                                   
larger  vessel, but  to not pay  the same  amount the  larger                                                                   
vessel had  to pay. Whether  the cap  was removed or  not, he                                                                   
believed the  issue needed to  be addressed. He asked  if the                                                                   
amendment would  bind CFEC's hands  from fixing  something he                                                                   
believed needed to be addressed.                                                                                                
                                                                                                                                
Mr.  Twomley replied  it had  been said  that fishermen  were                                                                   
slow   to  change,   but   quick   to  adapt.   He   believed                                                                   
Representative  Pruitt's   example  related   to  adaptations                                                                   
where  fishermen increased  their capacity.  He detailed  the                                                                   
phenomenon had  existed in  Bristol Bay for  the life  of the                                                                   
fishery where  a 32-foot limit  existed, but fishermen  found                                                                   
ways to  expand their  capacity. It was  an issue  CFEC would                                                                   
be happy to  look at in any  given fishery and could  make an                                                                   
effort to correct an inequity if there was a solution.                                                                          
                                                                                                                                
Representative Pruitt  believed it addressed the  concern his                                                                   
colleague had  brought to  him about whether  or not  the cap                                                                   
was  removed  or  maintained.  He  addressed  the  amendment,                                                                   
which  would place  the  current  regulation in  statute.  He                                                                   
asked if  the amendment limited  the department's  ability to                                                                   
address the  various aspects of  how CFEC assessed  the fees.                                                                   
He  wondered if  the  amendment would  bind  CFEC's hands  to                                                                   
address the fee structure.                                                                                                      
                                                                                                                                
Mr.  Twomley  replied the  fee  structure  was based  on  the                                                                   
average  permit earnings  in the  fishery. Within  particular                                                                   
fisheries sometimes  there were divisions between  the vessel                                                                   
lengths. Analyzing  the problem  presented by  Representative                                                                   
Pruitt would  require an analysis  of the fishery,  which was                                                                   
possible irrespective of the passage of the amendment.                                                                          
                                                                                                                                
5:47:23 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon  was  opposed  to  the  amendment.  He                                                                   
believed  the discussion  underscored the  complexity of  the                                                                   
issue. He  liked the direction  the sponsor of  the amendment                                                                   
was going,  but believed there  should be an  analysis before                                                                   
making the  change. He did not  want to tie  the commission's                                                                   
hands if circumstances changed down the road.                                                                                   
                                                                                                                                
Mr.  Brown  noted  that  his   term  ran  through  2019,  Mr.                                                                   
Twomley's term ran  through 2018, and the  third commissioner                                                                   
position  was  currently  vacant. He  relayed  Governor  Bill                                                                   
Walker had recently  solicited applications for  the vacancy.                                                                   
He stated  "in an uncertain  world, that's as  much certainty                                                                   
as we  can tell  you about  what the  commission might  do if                                                                   
there's not a  statute mandating that there  be a four-tenths                                                                   
of  one percent  formula."  He believed  he  and Mr.  Twomley                                                                   
were of  the mind  to address the  concerns raised  about the                                                                   
potential for inequities  based on fisheries that  use vessel                                                                   
length  in their  classifications.  He stated  the issue  was                                                                   
separate from the fee cap and whether or not the four-                                                                          
tenths of one percent formula was in regulation or statute.                                                                     
                                                                                                                                
Co-Chair Thompson  remarked that they appeared  to be looking                                                                   
for a  problem with a  solution, but  the answer had  not yet                                                                   
been determined.                                                                                                                
                                                                                                                                
Representative  Wilson provided a  wrap up on  the amendment.                                                                   
She  explained the  amendment  aimed to  address the  concern                                                                   
that when  the cap was removed  it may become easier  for the                                                                   
department  to   increase  fees.  The  amendment   maintained                                                                   
CFEC's  current regulation  and  would put  it into  statute.                                                                   
She summarized  the amendment  would put into  statute CFEC's                                                                   
current regulations  for the calculation  of the  annual base                                                                   
fee, a  renewal and  issuance of an  entry permit  or limited                                                                   
use  permit. With  the  removal  of the  statutory  cap of  a                                                                   
maximum fee  in the  current bill, there  was a concern  that                                                                   
fees could  be raised arbitrarily  in the future  because the                                                                   
calculation for  the fee was in regulation.  She acknowledged                                                                   
there was  a process to change  the fee, which would  have to                                                                   
be followed.  She  detailed the  amendment protected  smaller                                                                   
Alaskan fishing  operations as well as larger  operations and                                                                   
retained  the current  fiscal  impact  of removing  the  cap,                                                                   
while  ensuring   the  calculation  for  the   fees  remained                                                                   
consistent with  the current regulation and  calculation CFEC                                                                   
approved of. She  relayed she had spoken with  CFEC about the                                                                   
amendment.  She  observed there  appeared  to be  many  other                                                                   
concerns that were unrelated to the regulation.                                                                                 
                                                                                                                                
Co-Chair Thompson MAINTAINED his OBJECTION.                                                                                     
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Wilson                                                                                                                
OPPOSED: Pruitt,  Saddler, Edgmon, Gara,  Gattis, Guttenberg,                                                                   
Kawasaki, Munoz, Neuman, Thompson                                                                                               
                                                                                                                                
The MOTION to adopt Amendment 1 FAILED (1/10).                                                                                  
                                                                                                                                
5:51:24 PM                                                                                                                    
                                                                                                                                
Representative  Munoz   MOVED  to  ADOPT  Amendment   2,  29-                                                                   
GH2460\A.5 (Martin/Nauman, 5/28/16) (copy on file):                                                                             
                                                                                                                                
     Page 1, lines 1 - 2:                                                                                                       
     Delete "removing the minimum and maximum restrictions                                                                      
     on the annual base fee for the reissuance"                                                                                 
     Insert "relating to the nonresident surcharge for the                                                                      
     issuance"                                                                                                                  
                                                                                                                                
     Page 1, lines 9 - 10:                                                                                                      
     Delete "[MAY NOT BE LESS THAN $30 OR MORE THAN $3,000.                                                                     
     THE ANNUAL BASE FEE]" Insert "may not be less than $30                                                                     
     or more than $3,000. The annual base fee"                                                                                  
                                                                                                                                
Co-Chair Thompson OBJECTED for discussion.                                                                                      
                                                                                                                                
Representative Munoz  explained that Mr. Brown  had discussed                                                                   
the inequities where  vessel length was part  of the criteria                                                                   
in establishing  permit fees. She detailed the  fees followed                                                                   
the  captain  or  boat  skipper.   She  furthered  that  many                                                                   
vessels  had multiple  skippers;  therefore,  the removal  of                                                                   
the  fee  would  significantly  impact  the  operations.  She                                                                   
discussed  that in a  certain vessel  length class  where the                                                                   
length  was  one of  the  criteria  in establishing  the  fee                                                                   
(e.g. 60  to 90 feet),  there could be  a great variation  in                                                                   
the  actual  catches  on the  various  vessels.  The  current                                                                   
formula  used an  average  of the  fishery  permits within  a                                                                   
specific  class; therefore,  there was  an inherent  inequity                                                                   
in  the  way  the  permits  were  currently  calculated.  She                                                                   
believed it  was necessary  to maintain  the cap until  there                                                                   
was   a   more   thorough   analysis   of   the   issue   and                                                                   
recommendations on a comprehensive change.                                                                                      
                                                                                                                                
Representative  Edgmon  mentioned  that the  House  Fisheries                                                                   
Committee chair  was present  in the room  and had  been very                                                                   
active  on  the  issue  [Representative  Louise  Stutes].  He                                                                   
asked  if the  cap  was removed  whether  it  would give  the                                                                   
commission  the opportunity  to  begin working  on points  of                                                                   
concern raised  by House members.  He thought it was  a valid                                                                   
point.  Alternatively,  he  asked  if  the  commission  would                                                                   
prefer  to have  the cap  in place  with a  separate plan  to                                                                   
address  the other  issues in  the following  year. He  noted                                                                   
the removal  of the cap  would mean $2  million to  the state                                                                   
in a time it was looking everywhere for revenue.                                                                                
                                                                                                                                
Mr. Twomley answered  that he did not believe  the removal of                                                                   
the  cap  would  enhance  or  hinder  CFEC's  chances  to  do                                                                   
something. He detailed  it would require analysis  and review                                                                   
of specific cases. He relayed CFEC was neutral on the bill.                                                                     
                                                                                                                                
Mr.  Brown  added that  HB  4006  had  an effective  date  of                                                                   
January 1,  2017. He  noted the  original effective  date was                                                                   
July 1, 2016, which  would have been a bad idea  because CFEC                                                                   
fees were  assessed on  a calendar  year basis. He  explained                                                                   
that individuals who  did not want to pay a  higher fee would                                                                   
not be  happy about  it when they  received their  notices in                                                                   
the fall. The  commission's research staff had  been cut from                                                                   
four  positions   to  two   -  a   hiring  freeze   had  been                                                                   
implemented   and   other   there   were   other   structural                                                                   
existential  issues  affecting  the  agency;  therefore,  the                                                                   
present  was  not the  easiest  time  for the  commission  to                                                                   
commit to  doing a full-blown  analysis of the  issues raised                                                                   
by November.  The removal  of the cap  was a policy  call for                                                                   
the  legislature.  The  commission   would  do  its  best  to                                                                   
address   the  inequities   if   the  cap   was  removed   or                                                                   
maintained.   He  relayed   CFEC   would   do  whatever   the                                                                   
legislature directed it to do.                                                                                                  
                                                                                                                                
5:56:09 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon  asked   for  verification  that  CFEC                                                                   
believed it  would not have the  ability to achieve  the goal                                                                   
of the  amendment at least in  the first year  the additional                                                                   
fees may  be issued  if the cap  was removed.  Alternatively,                                                                   
Mr. Brown  was telling the committee  CFEC would do  the best                                                                   
it could and did not know what the outcome would be.                                                                            
                                                                                                                                
Mr. Brown answered  that if the cap was removed  it would not                                                                   
be  difficult   for  the   commission's  research   staff  to                                                                   
calculate  the  fees  -  the  exercise  would  be  formulaic.                                                                   
Alternatively,  it  would  be  difficult to  do  an  analysis                                                                   
quickly on whether  or not some skippers  paying dramatically                                                                   
increased fees  were being unfairly  burdened because  of the                                                                   
removal  of  the  cap. He  reiterated  implementing  the  cap                                                                   
removal would  not be  difficult. He  detailed that  the more                                                                   
challenging research  project would  be analyzing  the effect                                                                   
of the  cap removal  on a 6  skipper operation where  varying                                                                   
quotas impacted the ability to pay the increased fee.                                                                           
                                                                                                                                
Representative  Edgmon  surmised that  CFCE  would require  a                                                                   
statutory change  in order to  do the analysis  properly. Mr.                                                                   
Brown  answered  in  the  negative.  He  explained  that  the                                                                   
commission  would  need certainty  about  its future  and  an                                                                   
ability to hire  one or two more researchers to  look at each                                                                   
permit issued  in the entry  permit fisheries where  the fees                                                                   
would be  increasing by $75 to  $7,000 in order  to determine                                                                   
how the  removal of the cap  was impacting the  fishermen and                                                                   
why it was or was not equitable.                                                                                                
                                                                                                                                
Representative  Edgmon   asked  for  verification   that  the                                                                   
commission  could achieve  the amendment's  action without  a                                                                   
statutory change.                                                                                                               
                                                                                                                                
Mr.  Brown believed  the commission  had  submitted a  fiscal                                                                   
note for  another bill (HB 241)  showing there would  be zero                                                                   
cost to  the commission  if the  cap were  to be removed.  He                                                                   
stated   a  simple  cap   removal  was   absorbable  by   the                                                                   
commission's   existing   staff    resources.   Whereas,   an                                                                   
exhaustive  analysis on  the  effect of  the  cap removal  on                                                                   
fishermen was more of an unknown quantity of work.                                                                              
                                                                                                                                
Co-Chair Neuman surmised the answer was no.                                                                                     
                                                                                                                                
Representative  Edgmon understood that  it was a  complicated                                                                   
issue,  but he  was  not getting  a clear  "yes"  or "no"  he                                                                   
needed  in  order  to make  a  decision.  He  summarized  the                                                                   
amendment  was  not  needed  in  order for  CFEC  to  do  its                                                                   
analysis, but an  additional research person would  be needed                                                                   
to get the analysis  done due to the complexity  of the work.                                                                   
At the  same time,  there was a  significant amount  of money                                                                   
attached  to  the  amendment.  He  wanted  to  make  sure  he                                                                   
understood what he  was voting on. He surmised  the issue was                                                                   
not clear cut.                                                                                                                  
                                                                                                                                
5:59:53 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman  saw some  fairly simple  changes in  the tax                                                                   
structure but  now it appeared  the community was  taking the                                                                   
opportunity  to try to  change other  pieces of statute  that                                                                   
did not  seem to have been  vetted in the House  Fisheries or                                                                   
Resources  Committees. He  could not  support something  that                                                                   
the committee did  not know about and had not  discussed. The                                                                   
committee  had  heard  CFEC  needed   to  analyze  the  issue                                                                   
further. Additionally,  he believed  CFEC could already  take                                                                   
action  under regulation.  He reasoned  that when  amendments                                                                   
were  not  fully  vetted,  mistakes could  be  made.  He  was                                                                   
uncomfortable with the amendment.                                                                                               
                                                                                                                                
Representative Munoz  replied that the biggest  impact was on                                                                   
individual  fishermen. She  thought  it was  necessary to  be                                                                   
careful in  removing the  cap due  to any inadvertent  impact                                                                   
it could have  on Alaskan fisheries operations,  specifically                                                                   
on  individual  captains.  She  believed in  some  cases  the                                                                   
permit fee  could go from $3,000  to $6,000 overnight  for an                                                                   
individual  skipper.  She  furthered   that  many  operations                                                                   
required  six  skippers over  the  course  of a  season.  She                                                                   
agreed  with Co-Chair  Neuman's  comments,  but she  believed                                                                   
the removal  of the cap  rose greater concerns  and supported                                                                   
his comments more than leaving the cap in place.                                                                                
                                                                                                                                
Co-Chair Neuman stated  he did not believe CFEC  was ready to                                                                   
take the  action because  analysis was needed.  Additionally,                                                                   
he believed  the agency could  already take the action  if it                                                                   
chose to do so.                                                                                                                 
                                                                                                                                
Representative   Gara  noted   the  CFEC  commissioners   had                                                                   
already testified  the formula was  based on the  earnings of                                                                   
the  vessel.  He wondered  what  kind  of vessels  would  pay                                                                   
above the current $3,000 cap if it was removed.                                                                                 
                                                                                                                                
Mr. Twomley answered  that the applicable vessels  were large                                                                   
high  sea  factory  trawlers  and  crab  vessels,  which  had                                                                   
substantial earnings.                                                                                                           
                                                                                                                                
Representative  Gara asked  for further  explanation on  high                                                                   
sea  vessels that  were  not  factory trawlers.  Mr.  Twomley                                                                   
answered  that  he  was  referring   to  substantial  vessels                                                                   
capable of functioning in high seas.                                                                                            
                                                                                                                                
Representative  Gara surmised captains  were not the  same on                                                                   
every boat,  but they shared the  value of the catch  in some                                                                   
way. Mr. Twomley  answered that captains were  compensated in                                                                   
some way by the venture.                                                                                                        
                                                                                                                                
Representative  Gara stated the  cap applied to  the captain.                                                                   
Mr. Twomley affirmed.                                                                                                           
                                                                                                                                
Representative  Gara   provided  an  example  of   a  factory                                                                   
trawler with  three captains  in one  year and five  captains                                                                   
the next.  He asked if each  captain paid the same  amount if                                                                   
the  boat had  the same  costs each  year. Alternatively,  he                                                                   
wondered if the  cost was proportional and divided  among the                                                                   
number of captains.                                                                                                             
                                                                                                                                
Mr. Twomley  responded that each  captain would pay  the same                                                                   
fee;  the fee  applied  to the  IUP,  which  was a  captain's                                                                   
ticket  to operate  the vessel.  A number of  vessels at  sea                                                                   
for long periods had numerous captains.                                                                                         
                                                                                                                                
Representative  Gara asked if  a captain's  share of  the fee                                                                   
decreased   when  the   number  of  captains   on  a   vessel                                                                   
increased.   Mr. Twomley  answered in  the negative;  the fee                                                                   
would remain the same for the IUP for each captain.                                                                             
                                                                                                                                
6:05:15 PM                                                                                                                    
                                                                                                                                
Representative Munoz  asked for verification the  captains on                                                                   
a high sea  vessel of 80 feet  or more would pay the  same as                                                                   
captains on  a 60-foot vessel if  it they fell into  the same                                                                   
vessel length category.                                                                                                         
                                                                                                                                
Mr.  Twomley   answered  that  it   could  be  but   was  not                                                                   
necessarily  the  case.  He  elaborated  there  would  be  an                                                                   
average  based  on  the  vessel   length  within  the  vessel                                                                   
category. He furthered  the fee could come out  the same, but                                                                   
could vary; it would depend on the vessel earnings.                                                                             
                                                                                                                                
Representative  Munoz stated  there could  be a category  for                                                                   
vessels  between 60  to 90 feet  and CFEC  would average  out                                                                   
the  earnings  within  the fishery  in  the  specific  vessel                                                                   
category. Mr. Twomley answered in the affirmative.                                                                              
                                                                                                                                
Representative  Munoz surmised a  captain on a  larger vessel                                                                   
over 80  feet would pay  the same as  a captain on  a 60-foot                                                                   
vessel.                                                                                                                         
                                                                                                                                
Mr. Twomley  replied in the  negative. He detailed  IUPs were                                                                   
issued based  on vessel size;  CFEC averaged per  vessel size                                                                   
category, which would  yield a different fee  from one vessel                                                                   
category to another within the same fishery.                                                                                    
                                                                                                                                
Representative   Munoz   asked   for   examples   of   vessel                                                                   
categories.                                                                                                                     
                                                                                                                                
Mr.  Twomley  answered  there  were  vessels  over  90  feet,                                                                   
vessels under  90 feet. He stated  there could be  a variety.                                                                   
The  categories  were based  on  data  and where  there  were                                                                   
cutoff   points  that   made  sense   when  categories   were                                                                   
established.                                                                                                                    
                                                                                                                                
Representative Munoz  asked if 60 feet was a  cutoff point on                                                                   
the low end. Mr. Twomley answered yes, in some fisheries.                                                                       
                                                                                                                                
Representative Munoz  asked for verification 90  feet was the                                                                   
cutoff  on  the  high  end  within  the  same  category.  Mr.                                                                   
Twomley answered yes, in some fisheries.                                                                                        
                                                                                                                                
Representative Munoz  believed captains on a 90-foot  and 60-                                                                   
foot  vessels  were  paying  the  same  fee  because  it  was                                                                   
averaged over the fishery within the category.                                                                                  
                                                                                                                                
Mr.  Twomley  replied  in  the  negative.  He  detailed  that                                                                   
within  the vessel  categories  the fees  were  based on  the                                                                   
average earnings of the IUPs within the categories.                                                                             
                                                                                                                                
Mr.  Brown clarified  that  every fishery  was  defined by  a                                                                   
geographical  area that  could  be statewide  and a  species,                                                                   
which  could  be  miscellaneous   finfish.  He  detailed  all                                                                   
skippers fishing  statewide waters for miscellaneous  finfish                                                                   
on vessels  that were 60  feet applied  for the same  kind of                                                                   
IUP.  He  elaborated  that  if  the  next  category  was  for                                                                   
vessels between 60  to 90 feet, those vessels  would all fall                                                                   
into  the same  category. He  explained the  skippers in  the                                                                   
first group  would not  pay the same  amount as the  skippers                                                                   
in  the  second  group; however,  people  within  the  second                                                                   
group  may  be   earning  different  amounts   of  money.  He                                                                   
continued  that skippers  may  not even  pay  their own  fee,                                                                   
which  could be  paid by  whoever owned  the boat;  it was  a                                                                   
contractual  arrangement CFEC  was not  aware of. The  agency                                                                   
only  had visibility  into was  the  average boat's  earnings                                                                   
landed  on  a specific  permit  category  in the  past  three                                                                   
years  multiplied  by 0.04;  the  fee  was then  charged  and                                                                   
capped at  $3,000 at present.  He expounded that it  would be                                                                   
a hardship  for some people and  not for others. The  fee was                                                                   
not  arbitrary in  the sense  that  someone on  a very  large                                                                   
boat  was paying  the same  fee as  someone on  a very  small                                                                   
boat; it  only became an  issue at the  margins of  where the                                                                   
fishery  was defined by  vessel length  that the  disparities                                                                   
were arising.                                                                                                                   
                                                                                                                                
6:09:25 PM                                                                                                                    
                                                                                                                                
Representative  Gattis believed  the issue  should be  vetted                                                                   
through the  House Fisheries Committee.  She did  not believe                                                                   
the  committee  could  do  the  necessary  due  diligence  it                                                                   
should. She was  uncomfortable the committee may  be breaking                                                                   
open an issue that was bigger than the committee.                                                                               
                                                                                                                                
Representative   Wilson   stated   that  the   governor   was                                                                   
responsible  for  bringing  up   the  issue.  She  questioned                                                                   
whether  to keep or  discard the  cap. She  referred to  CFEC                                                                   
testimony  that it was  easy to  do the math  if the  cap was                                                                   
removed,   but  the   problem  involved   needing  time   and                                                                   
personnel  to do  the research  to understand  the impact  of                                                                   
removing  the  cap.   She  noted  the  information   was  not                                                                   
something    the   committee    had    received   from    the                                                                   
administration.  She stressed the  topic was being  discussed                                                                   
because it  is a tax issue.  She stressed the removal  of the                                                                   
cap could  mean a person currently  paying the cap  of $3,000                                                                   
could pay  upwards of  $15,000. She  observed the  difference                                                                   
was substantial.  She surmised a  boat may be big  enough and                                                                   
earn enough  to pay the amount,  but that was not  known. The                                                                   
bill would  remove the cap and  bring the state  $2.1 million                                                                   
in revenue,  but she  wondered  how many boats  could be  put                                                                   
out of  business because of that  decision. She did  not know                                                                   
the answer. She  would vote to maintain the cap  to give time                                                                   
for CFEC  to do the  research and  present the analysis.  She                                                                   
agreed  the  committee  should  know  the  answers  prior  to                                                                   
voting on  the bill, but  she would be  fine to set  the bill                                                                   
aside  until  the following  session  in  order to  make  the                                                                   
right  decisions based  on information  that  would help  the                                                                   
economy.  She   did  not  want   to  devastate   the  state's                                                                   
fisheries.  She  would vote  for  the amendment  because  the                                                                   
current  cap  was  working.  Although  smaller  vessels  were                                                                   
paying  the full  amount,  she was  nervous  about what  they                                                                   
could be "doing  on the outside" and she could  wait one year                                                                   
to find out.                                                                                                                    
                                                                                                                                
Co-Chair Thompson MAINTAINED his OBJECTION.                                                                                     
                                                                                                                                
Representative  Pruitt expressed  frustration with  the issue                                                                   
and  believed  the  legislature  had been  given  half  of  a                                                                   
solution.  He   had  heard   from  colleague  who   supported                                                                   
maintaining  the cap to  fix it  later and another  colleague                                                                   
who wanted  to remove the  cap in order  to force  the agency                                                                   
to   fix   the   problem   sooner.   He   wondered   if   the                                                                   
administration believed  the legislature would  be addressing                                                                   
the issue again  the following year. He believed  the problem                                                                   
needed  to  be  fixed.  He noted  the  situation  was  not  a                                                                   
failure on CFEC's  part, but he wanted to know  if the agency                                                                   
could come back  the following year with information  to help                                                                   
the legislature address the issue.                                                                                              
                                                                                                                                
Mr. Twomley  answered that  CFCE could  use its best  efforts                                                                   
to try to analyze  the problems put forward  by the committee                                                                   
to  determine  if  there  was   a  practicable  solution.  He                                                                   
communicated  the   agency  would  appreciate   hearing  from                                                                   
fishermen experiencing  a problem.  The agency would  hope to                                                                   
come back with the best information it could generate.                                                                          
                                                                                                                                
Representative Pruitt  stated that he would vote  to keep the                                                                   
cap. He  was expecting to  have a conversation  the following                                                                   
year  where the  entire issue  was  addressed. He  reiterated                                                                   
his frustration  with the  bill. He  surmised it appeared  to                                                                   
be more of a money grab than addressing an equity scenario                                                                      
within an industry. He wanted a whole picture instead of an                                                                     
incomplete one.                                                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Wilson, Pruitt, Gattis, Munoz, Kawasaki                                                                               
OPPOSED: Saddler, Edgmon, Gara, Guttenberg, Thompson,                                                                           
Neuman                                                                                                                          
                                                                                                                                
The MOTION to adopt Amendment 2 FAILED (5/6).                                                                                   
                                                                                                                                
6:15:49 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
6:25:42 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Wilson MOVED to ADOPT new Amendment 3, 29-                                                                       
GH2460\A.4 (Glover/Nauman, 5/28/16) (copy on file):                                                                             
                                                                                                                                
     Page 2, line 8:                                                                                                            
     Delete "five"                                                                                                              
     Insert "4.5"                                                                                                               
                                                                                                                                
     Page 2, line 12:                                                                                                           
     Delete "four"                                                                                                              
     Insert "3.5"                                                                                                               
                                                                                                                                
     Page 2, following line 14:                                                                                                 
     Insert a new bill section to read:                                                                                         
     "*Sec. 3. AS 43.75.015(b) is amended to read:                                                                              
     (b)  Instead  of  the  taxes   levied  by  (a)  of  this                                                                   
     section,   a   person   who   processes   a   developing                                                                   
     commercial fish  species is liable  for and shall  pay a                                                                   
     tax equal to                                                                                                               
     (1) 3.5  [ONE] percent  of the  value of the  developing                                                                   
     commercial  fish  species  processed  by  a  shore-based                                                                   
     fisheries business during the year; and                                                                                    
     (2) six [THREE]  percent of the value of  the developing                                                                   
     commercial   fish  species   processed  by  a   floating                                                                   
     fisheries business during the year."                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 2, line 19:                                                                                                           
     Delete "one"                                                                                                               
     Insert "3.5 [ONE]"                                                                                                         
                                                                                                                                
     Page 2, line 21:                                                                                                           
     Delete "four"                                                                                                              
     Insert "3.5"                                                                                                               
                                                                                                                                
     Page 2, lines 28 - 29:                                                                                                     
     Delete "The  amount of tax revenue equal  to one percent                                                                   
     of the  value of each  fishery taxed under  this chapter                                                                   
     shall be deposited into the general fund."                                                                                 
                                                                                                                                
     Page 2, line 30, through page 3, line 1:                                                                                   
     Delete  "and  not including  the  revenue  equal to  one                                                                   
     percent of  the value of  each fishery taxed  under this                                                                   
     section deposited in the general fund"                                                                                     
     Insert "and  not including the revenue derived  from the                                                                   
     value  of   each  fishery   taxed  under  this   chapter                                                                   
     deposited  in the  general fund  as provided  in (h)  of                                                                   
     this section"                                                                                                              
                                                                                                                                
     Page 3, following line 11:                                                                                                 
     Insert a new bill section to read:                                                                                         
     "*Sec.  7.  AS 43.75.130  is  amended  by adding  a  new                                                                   
     subsection to read:                                                                                                        
     (h) Notwithstanding  (a) of this section,  the amount of                                                                   
     tax   revenue  from   the  following   sources  in   the                                                                   
     following  amounts  shall be  deposited  in the  general                                                                   
     fund:                                                                                                                      
     (1)  one-half  percent  of  the  tax  revenue  collected                                                                   
     under                                                                                                                      
     AS 43.75.015(a)(l) and (2);                                                                                                
     (2) one  percent of the  tax revenue collected  under AS                                                                   
     43.75.015(a)(3);                                                                                                           
     (3)  two  and  one-half   percent  of  the  tax  revenue                                                                   
     collected under AS 43.75.015(d)(l); and                                                                                    
     (4)  one-half  percent  of  the  tax  revenue  collected                                                                   
     under                                                                                                                      
     AS 43.75.015(d)(2)."                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
     Page 3, line 19:                                                                                                           
     Delete "one"                                                                                                               
     Insert "five [ONE]"                                                                                                        
                                                                                                                                
     Page 3, line 21:                                                                                                           
     Delete "four"                                                                                                              
     Insert "five"                                                                                                              
                                                                                                                                
     Page 3, lines 23 - 24:                                                                                                     
     Delete "The  amount of tax revenue equal  to one percent                                                                   
     of the  value of each  fishery taxed under  this chapter                                                                   
     shall be deposited into the general fund."                                                                                 
                                                                                                                                
     Page 3, lines 25 - 27:                                                                                                     
     Delete  "and  not including  the  revenue  equal to  one                                                                   
     percent of  the value of  each fishery taxed  under this                                                                   
     section deposited in the general fund"                                                                                     
     Insert "and  not including the revenue derived  from the                                                                   
     value  of   each  fishery   taxed  under  this   chapter                                                                   
     deposited in  the general fund as provided in  m of this                                                                   
     section"                                                                                                                   
                                                                                                                                
     Page 4, lines 12 - 13:                                                                                                     
     Delete "The  amount of tax revenue equal  to one percent                                                                   
     of the  value of each  fishery taxed under  this chapter                                                                   
     shall be deposited in the general fund."                                                                                   
                                                                                                                                
     Page 4, lines 15 - 16:                                                                                                     
     Delete  "equal  to one  percent  of  the value  of  each                                                                   
     fishery  taxed  under  this  section  deposited  in  the                                                                   
     general fund"                                                                                                              
     Insert  "derived from  the value  of each fishery  taxed                                                                   
     under  this chapter  deposited  in the  general fund  as                                                                   
     provided in (g) of this section"                                                                                           
                                                                                                                                
     Page 5, following line 10:                                                                                                 
     Insert a new bill section to read:                                                                                         
     "*Sec.  11.  AS  43.77.060  is  amended  by  adding  new                                                                   
     subsections to read:                                                                                                       
     (f) Notwithstanding  (a) of this section,  the amount of                                                                   
     tax   revenue  from   the  following   sources  in   the                                                                   
     following  amounts  shall be  deposited  in the  general                                                                   
     fund:                                                                                                                      
     (1) four percent  of the tax revenue collected  under AS                                                                   
     43.77.010(1); and                                                                                                          
     (2) two  percent of the  tax revenue collected  under AS                                                                   
     43.77.010(2).                                                                                                              
     (g) Notwithstanding  (b) of this section,  the amount of                                                                   
     tax   revenue  from   the  following   sources  in   the                                                                   
     following  amounts  shall be  deposited  in the  general                                                                   
     fund:                                                                                                                      
     (1) four percent  of the tax revenue collected  under AS                                                                   
     43.77.010(1); and                                                                                                          
     (2) two  percent of the  tax revenue collected  under AS                                                                   
     43.77.010(2)."                                                                                                             
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 5, line 13, following "AS 43.75.015(a)":                                                                              
     Insert", AS 43.75.015(b),"                                                                                                 
                                                                                                                                
     Page 5, lines 13 - 14:                                                                                                     
     Delete "secs. 2 and 3"                                                                                                     
     Insert "secs. 2 - 4"                                                                                                       
                                                                                                                                
     Page 5, lines 14 - 15:                                                                                                     
     Delete "secs. 2 and 3"                                                                                                     
     Insert "secs. 2 - 4"                                                                                                       
                                                                                                                                
     Page 5, line 16:                                                                                                           
     Delete "sec. 6"                                                                                                            
     Insert "sec. 8"                                                                                                            
                                                                                                                                
     Page 5, line 17                                                                                                            
     Delete "sec. 6"                                                                                                            
     Insert "sec. 8"                                                                                                            
                                                                                                                                
     Page 5, line 25:                                                                                                           
     Delete "Section 10"                                                                                                        
     Insert "Section 13"                                                                                                        
                                                                                                                                
     Page 5, line 26:                                                                                                           
     Delete "secs. 11 and 12"                                                                                                   
     Insert "secs. 14 and 15"                                                                                                   
                                                                                                                                
Representative Gattis OBJECTED for discussion.                                                                                  
                                                                                                                                
Representative Wilson read from prepared remarks:                                                                               
                                                                                                                                
     The  fisheries business  tax is paid  by Alaska's  small                                                                   
     boat fleet  - the gillnetters,  trollers, and  more, who                                                                   
     live  and  work  in Alaska  communities.  The  fisheries                                                                   
     landing tax  is paid by  the Seattle-based  trawl fleet.                                                                   
     Our  tax rates should  be equitable  to those  fishermen                                                                   
     who  invest  in Alaska.  The  small boat  fleet  already                                                                   
     pays  into Alaska's  economy in more  diverse ways  than                                                                   
     through  taxes.  They  home port  in  Alaska's  harbors,                                                                   
     live in  Alaska communities,  hire local crews,  and buy                                                                   
     local  groceries.  The  revenue   gets  recirculated  in                                                                   
     Alaska  many  times  over  and the  economic  impact  on                                                                   
     Alaska  is  proportionately  far greater.  This  orients                                                                   
     Alaska's fisheries  tax structure in a way  that doesn't                                                                   
     penalize small  boat fishermen who generally  fish clean                                                                   
     with  very little  Chinook  salmon  or halibut  bycatch.                                                                   
     This is in  contrast to the largely  Seattle-based trawl                                                                   
     fleet,  which has  an unfortunate  track record of  vast                                                                   
     amounts of  halibut and king  salmon bycatch,  which are                                                                   
     caught,  killed,  and discarded  and  never  able to  be                                                                   
     caught   by    Alaska-based   sports    and   commercial                                                                   
     fishermen.                                                                                                                 
                                                                                                                                
Co-Chair   Thompson   clarified   that  the   committee   was                                                                   
addressing the new Amendment 3.                                                                                                 
                                                                                                                                
Representative Wilson responded in the affirmative.                                                                             
                                                                                                                                
Representative    Gara    supported   the    amendment.    He                                                                   
communicated he  did not care  who owned the trawl  fleet and                                                                   
relayed it  would be  unconstitutional for  the state  to tax                                                                   
fishermen  from Washington  a  different  tax than  fishermen                                                                   
from  Alaska. However,  he  cared that  the  trawl fleet  had                                                                   
cost  the state  significant money  in terms  of research  on                                                                   
king salmon  bycatch and  soon halibut  bycatch. He  detailed                                                                   
those  fisheries were  being decimated.  He  reasoned if  the                                                                   
state had  to keep  researching the  issue it would  continue                                                                   
to  cost the  state  money. He  surmised  if  the issue  kept                                                                   
costing the state  money, it needed to have the  means to pay                                                                   
for  the  research.  He  wished  he  could  solve  the  issue                                                                   
related to  bycatch of some of  the state's most  prized wild                                                                   
fish  and was  very troubled  by the  situation. He  reasoned                                                                   
there  was nothing  to  do about  the  issue  in the  current                                                                   
bill,  but the  legislature  could  factor in  the  knowledge                                                                   
that  continued  research  was  needed to  determine  how  to                                                                   
limit the bycatch.  He referred to page 3, lines  4 through 6                                                                   
of  the amendment  and referenced  the high  seas boats  that                                                                   
fished  beyond Alaska's  territorial  limit  and returned  to                                                                   
Alaska to  process or transport  their fish. He  stressed the                                                                   
boats  were costing  the state  a  huge amount  of grief  and                                                                   
money.  He suggested  increasing  the number  from  4 to  5.5                                                                   
percent.  He stressed  the  boats  were fishing  the  world's                                                                   
greatest fishery.  He reasoned  the boats  were not  going to                                                                   
leave  because  Alaska  was  one   of  the  last  great  wild                                                                   
fisheries in  the world. He  emphasized the factory  trawlers                                                                   
were  contributing   greatly  to  the  bycatch   problem  and                                                                   
damaging  the  fisheries.  He believed  the  trawlers  should                                                                   
help  contribute  to  the  cost   of  the  damage  they  were                                                                   
causing.                                                                                                                        
                                                                                                                                
6:30:42 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon   stated  that  the  numbers   in  new                                                                   
Amendment 3  were all  over the place.  He requested  to hear                                                                   
from  DOR.  He referred  to  Representative  Gara's  comments                                                                   
related to bycatch.  He mentioned federal  fisheries bycatch,                                                                   
the North Pacific  Fisheries Management Council,  and federal                                                                   
funds.  He  was  hearing  remarks   on  taxation  issues  and                                                                   
management  issues,   which  did   not  seem  to   be  linked                                                                   
together.                                                                                                                       
                                                                                                                                
Mr. Alper  summarized Representative Edgmon's  question about                                                                   
the  numbers  listed   in  the  amendment.  He   relayed  the                                                                   
administration's  intent  with   the  original  bill  was  to                                                                   
increase  tax rates  on the  fisheries  business and  landing                                                                   
taxes  by 1  percent.  Additionally, the  1  percent was  not                                                                   
subject to  the existing 50/50  revenue sharing  formula with                                                                   
municipalities.  The 1  percent was intended  to go  directly                                                                   
to  the state  and  the remaining  amount  (the original  tax                                                                   
prior  to the  proposed tax  increase) would  be split  50/50                                                                   
holding  municipalities harmless.  Amendment  3 changed  some                                                                   
of the  increases so the  shore-based processers,  which were                                                                   
primarily  buying  from  the  small  boat  fleet  in  coastal                                                                   
communities, would  receive a smaller tax  increase. Whereas,                                                                   
the  large  floating  processers   and  the  landing  tax  in                                                                   
particular  received a  larger tax increase.  The intent  was                                                                   
to  shift  the tax  burden  towards  those perceived  as  not                                                                   
supporting the local  economy to the same degree  or having a                                                                   
large amount  of bycatch.  He explained  the changed  numbers                                                                   
in the amendment  (some of the increases were  0.5 percent or                                                                   
2 percent).  He detailed if 1  percent went to the  state and                                                                   
the remainder  was split, it  created some distortion  to the                                                                   
revenue  sharing formula.  For example,  if a  4 percent  tax                                                                   
increased  to 5  percent the  state would  receive 1  percent                                                                   
and  remaining  4 percent  was  split,  municipalities  would                                                                   
still receive the  same 2 percent they received  prior to the                                                                   
increase. However,  if the tax  was raised from 4  percent to                                                                   
4.5   percent,  municipalities   would   only  receive   1.75                                                                   
percent. He  elaborated that  while benefiting the  fishermen                                                                   
with  a smaller  tax  increase, it  would  actually harm  the                                                                   
community. Therefore,  changes in  new Amendment  3 equalized                                                                   
the revenue sharing  formula by specifying the  state's piece                                                                   
was limited  to the  amount of the  increase (whether  it was                                                                   
0.5 percent,  1 percent, or  2 percent) and the  municipality                                                                   
received   half    of   the   remainder,    thereby   holding                                                                   
municipalities   harmless  in   the  changes   made  by   the                                                                   
legislation.                                                                                                                    
                                                                                                                                
Representative  Edgmon was  trying to assign  the numbers  to                                                                   
the  proper category.  He had  voted  against all  amendments                                                                   
during  the day  because the  theme had  been consistent.  He                                                                   
felt the  amendments could  not be  properly analyzed  during                                                                   
the meeting; therefore he would oppose the amendment.                                                                           
                                                                                                                                
Representative Gara  recalled that several years  earlier the                                                                   
legislature had  funded a king  salmon study, which  had been                                                                   
in part based  on bycatch (from boats outside  the state's 3-                                                                   
mile limit)  that  was damaging  the returns  of fish to  the                                                                   
state's streams.  The study  had been  to determine  how much                                                                   
of  the  issue  pertained  to  certain  areas;  it  had  also                                                                   
included what  the state  could do  to help enhance  returns.                                                                   
There  had  been  some  impact,   but  he  did  not  want  to                                                                   
exaggerate it.                                                                                                                  
                                                                                                                                
6:36:04 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler agreed  with  Representative Edgmon  that                                                                   
the  question  of bycatch  was  biological,  scientific,  and                                                                   
financial and  the North  Pacific Fishery Management  Council                                                                   
was  staffed  and   funded  and  scheduled  to   conduct  the                                                                   
complicated analysis,  but the state was not.  He did believe                                                                   
not  enough information  was available  to  make an  informed                                                                   
decision; therefore, he was opposed to the amendment.                                                                           
                                                                                                                                
Co-Chair Thompson  expressed confusion. He remarked  that the                                                                   
original  Amendment 3  had a  big impact  on communities.  He                                                                   
discussed the  governor's original bill designated  1 percent                                                                   
of the  value of  each fishery  tax to  the General  Fund and                                                                   
increased  the taxes  by  1 percent  on  each fishery,  which                                                                   
meant  many  of  the communities  did  not  get  the  revenue                                                                   
sharing back. He asked if that was still the case.                                                                              
                                                                                                                                
Mr.  Alper replied  that the  administration's  bill did  not                                                                   
affect the  municipalities. For  example, under existing  law                                                                   
a 4  percent tax was split  50/50 with municipalities.  Under                                                                   
the  original legislation  a  4 percent  tax  increased to  5                                                                   
percent  and the  state  received  the additional  1  percent                                                                   
increase,   while  the   original   4  percent   was   split;                                                                   
therefore,  municipalities still  received  2 percent,  while                                                                   
the  state  received   3  percent.  The  language   had  been                                                                   
included in  order to  exempt the  additional 1 percent  from                                                                   
the  50/50 split.  The amendment  increased  taxes on  shore-                                                                   
based  fisheries  by  0.5  percent   and  increased  floating                                                                   
fishery taxes  by 2  percent, which would  go to  directly to                                                                   
the state.  He explained the  new Amendment 3  maintained the                                                                   
idea that whatever  the tax increase was,  the municipalities                                                                   
would be  held harmless and  would continue to  receive their                                                                   
current amount.                                                                                                                 
                                                                                                                                
Representative Gattis WITHDREW her OBJECTION.                                                                                   
                                                                                                                                
Co-Chair Thompson OBJECTED.                                                                                                     
                                                                                                                                
Representative  Wilson explained  that her  intent had  never                                                                   
been  to  take  any money  away  from  municipalities  -  the                                                                   
situation  had been  corrected in  the new  Amendment 3.  She                                                                   
explained  there  were  fishermen  who  required  more  state                                                                   
spending  because  it  was  necessary  for the  state  to  do                                                                   
research studies on  impacts. She relayed it was  one way for                                                                   
the  state   to  recoup   costs  from   people  using   state                                                                   
resources. The  amendment would also protect  local fishermen                                                                   
more and  charged more  to those  from out-of-state  who were                                                                   
not  investing the  same amount  into  Alaska's economy.  The                                                                   
amendment  tried  to  make  the  situation  more  equal.  She                                                                   
stressed the state was paying for the studies.                                                                                  
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Wilson, Gara, Gattis, Kawasaki, Munoz,                                                                                
OPPOSED:   Edgmon,  Guttenberg,   Pruitt,  Saddler,   Neuman,                                                                   
Thompson                                                                                                                        
                                                                                                                                
The MOTION to adopt new Amendment 3 FAILED (5/6).                                                                               
                                                                                                                                
6:41:08 PM                                                                                                                    
At EASE                                                                                                                         
                                                                                                                                
6:41:25 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative   Gara  MOVED  to   ADOPT  Amendment   4,  29-                                                                   
GH2460\A.2 (Glover/Nauman, 5/28/16)(copy on file):                                                                              
                                                                                                                                
     Page 3, line 21:                                                                                                           
     Delete "four"                                                                                                              
     Insert "five"                                                                                                              
                                                                                                                                
Co-Chair  Thompson  OBJECTED  for discussion.  He  asked  for                                                                   
verification the  amendment was similar to the  amendment the                                                                   
committee had just voted against.                                                                                               
                                                                                                                                
Representative  Gara replied  in the  negative. He  explained                                                                   
that the amendment  increased the tax rate from  4 percent to                                                                   
5 percent.                                                                                                                      
                                                                                                                                
Co-Chair Thompson  noted new Amendment 3 would  have done the                                                                   
same thing.                                                                                                                     
                                                                                                                                
Representative Gara  replied that new Amendment  3 would have                                                                   
done  a number  of  things.  He  explained that  Amendment  4                                                                   
would increase  the tax on high  seas vessels fishing  from 4                                                                   
to 5 percent.  He elaborated the large vessels  fished beyond                                                                   
the  state's  3-mile   limit  and  returned  to   Alaska  for                                                                   
processing  or to  deliver  fish.  He continued  the  vessels                                                                   
(e.g.  factory  trawlers  and  other) had  the  privilege  of                                                                   
fishing some  of the  most pristine wild  fish in  the world.                                                                   
He underscored  the state  owned the  resource in common  and                                                                   
under  the  constitution  it  was  supposed  to  receive  the                                                                   
maximum  benefit   for  its  commonly  owned   resources.  He                                                                   
thought  that  the  percentage  increase  would  be  fair  to                                                                   
Alaska and reflected the value of the fisheries.                                                                                
                                                                                                                                
6:43:32 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson MAINTAINED his OBJECTION.                                                                                     
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki                                                                                            
OPPOSED:  Edgmon,  Gattis, Munoz,  Pruitt,  Saddler,  Wilson,                                                                   
Neuman, Thompson                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 4 FAILED (3/8).                                                                                   
                                                                                                                                
6:44:14 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson  MOVED to ADOPT Amendment  5, 29-GH2460\A.1                                                                   
(Martin/Nauman, 5/28/16) (copy on file):                                                                                        
                                                                                                                                
     Page 2, lines 1 - 3:                                                                                                       
     Delete "[AT AN AMOUNT THAT IS AS CLOSE AS IS                                                                               
     PRACTICABLE TO THE MAXIMUM ALLOWED BYLAW]"                                                                                 
     Insert "at an amount that is as close as is                                                                                
     practicable to the maximum allowed by law"                                                                                 
                                                                                                                                
Representative Guttenberg OBJECTED for discussion.                                                                              
                                                                                                                                
Co-Chair  Thompson  relayed  the   amendment  was  conforming                                                                   
regarding  the  Carlson  case  [a  class  action  case  filed                                                                   
against  the state  in  1984  related to  commercial  fishing                                                                   
fees].                                                                                                                          
                                                                                                                                
Mr. Brown relayed  that CFEC strongly supported  Amendment 5.                                                                   
When  the  commission had  seen  the  original bill,  it  had                                                                   
communicated there  was no reason to remove  language calling                                                                   
for a  nonresident surcharge  to be  as close as  practicable                                                                   
as  law to  the  maximum  amount. He  understood  Legislative                                                                   
Legal   Services   initially   thought   the   language   was                                                                   
superfluous.  He continued  that Mr. Twomley  could speak  to                                                                   
the  long history  of  the Carlson  case.  He emphasized  the                                                                   
language  was not  superfluous.  The state  did  not want  to                                                                   
return  to  undercharging  nonresidents   any  more  than  it                                                                   
wanted  to  be  accused  of  unconstitutionally  overcharging                                                                   
them.                                                                                                                           
                                                                                                                                
Co-Chair  Neuman asked  for clarification  on the  amendment.                                                                   
He observed the  language to be deleted was  identical to the                                                                   
language to be inserted.                                                                                                        
                                                                                                                                
Representative Gara had the same question.                                                                                      
                                                                                                                                
Mr.  Brown clarified  that the  current version  of the  bill                                                                   
deleted  the  language.  The amendment  would  reinstate  the                                                                   
language.                                                                                                                       
                                                                                                                                
Representative  Guttenberg  WITHDREW   his  OBJECTION.  There                                                                   
being NO further OBJECTION, Amendment 5 was ADOPTED.                                                                            
                                                                                                                                
HB  4006  was  HEARD  and  HELD   in  committee  for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Thompson  relayed the agenda for the  following day.                                                                   
The meeting was  recessed to a call of the chair.  [Note: the                                                                   
meeting never reconvened.]                                                                                                      
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
6:47:00 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 6:47 p.m.                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
HB 4006 UFA letter.pdf HFIN 6/1/2016 3:00:00 PM
HB4006
HB 4006 New Amendment 4 Gara.pdf HFIN 6/1/2016 3:00:00 PM
HB4006
HB 4006 New Amendment 3 Wilson.pdf HFIN 6/1/2016 3:00:00 PM
HB4006