Legislature(2003 - 2004)
04/29/2004 08:44 AM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
April 29, 2004
8:44 A.M.
TAPE HFC 04 - 101, Side A
TAPE HFC 04 - 101, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 8:44 A.M.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Mike Chenault
Representative Eric Croft
Representative Hugh Fate
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Carl Moses
Representative Bill Stoltze
MEMBERS ABSENT
None
ALSO PRESENT
Senator Gary Stevens; Terry Harvey, Staff to Representative
Weyhrauch; Tim Arnold, Vice President and General Manager,
Coeur Alaska; Mr. Donald Bremner, Tlingit & Haida Central
Council
PRESENT VIA TELECONFERENCE
Jim McMillan, Alaska Industrial Development & Export
Authority (AIDEA), Anchorage
SUMMARY
HB 556
An Act relating to a port development project at Lynn
Canal, providing legislative approval for the Alaska
Industrial Development and Export Authority to issue
bonds or otherwise provide financing for the project;
and providing for an effective date.
CSHB 556(FIN) was REPORTED out of Committee with a "do
pass" recommendation and with one previously published
fiscal impact note.
HCS FOR CS FOR SB 273(FSH)
An Act amending the size, membership, and powers of the
board of directors of the Alaska Seafood Marketing
Institute and making a corresponding change in the
quorum requirement; authorizing the establishment of
the seafood marketing assessment at a rate of 0.5
percent or 0.6 percent of the value of seafood products
produced; providing for an election to retain,
terminate, or increase the seafood marketing
assessment; providing for the repeal of the salmon
marketing tax and provisions related to the salmon
marketing tax; and providing for an effective date.
SB 273 was heard and HELD in Committee for further
consideration.
CCSSB 286(FIN)
An Act relating to direct marketing fisheries
businesses, to the fisheries business tax, and to
liability for payment of taxes and assessments on the
sale or transfer of fishery resources; and providing
for an effective date."
SB 286 was POSTPONED.
SB 315
An Act relating to the administration of commercial
fishing entry permit buy-back programs.
SB 315 was POSTPONED.
SB 322
An Act relating to the rate of the salmon enhancement
tax.
SB 322 was POSTPONED.
HOUSE BILL NO. 556
An Act relating to a port development project at Lynn
Canal, providing legislative approval for the Alaska
Industrial Development and Export Authority to issue
bonds or otherwise provide financing for the project;
and providing for an effective date.
TERRY HARVEY, STAFF TO REPRESENTATIVE WEYHRAUCH, explained
that HB 556 is a revenue bond bill for the Kensington Mine
project located about 50 miles northwest of Juneau. He
stated that the Kensington Mine is nearing completion of its
permitting process and construction could begin next year.
The Alaska Industrial Development & Export Authority (AIDEA)
has helped to draft the bill. The revenue bonds are for the
port infrastructure at Cascade Point and Lower Slate Cove to
help transport mine supplies and workers.
Co-Chair Harris asked the amount that AIDEA has the
authority to bond without legislative approval. Mr. Harvey
said about $10 million, and clarified that the bill gives
AIDEA authorization.
JIM MCMILLAN, DEPUTY DIRECTOR OF CREDIT AND BUSINESS
DEVELOPMENT, ALASKA INDUSTRIAL DEVELOPMENT & EXPORT
AUTHORITY, VIA TELECONFERENCE, ANCHORAGE, expressed that
AIDEA supports the bill. He noted that AS 44.88 gives AIDEA
the authority to issue bonds, and the bonds would be in
excess of $10 million. The current project status includes
conceptual costs and designs.
Mr. McMillan stressed two points. The preliminary costs of
$7 million are "very soft," and AIDEA is concerned that
costs could exceed $10 million. The IRS code with tax exempt
financing of a dock facility allows for financing of related
upland improvements, which will be part of the due diligence
process. He said that it is uncertain whether any uplands
development will be included, but the financing could reach
well above $10 million.
Mr. McMillan explained that HB 556 is simply an
authorization allowing the project to proceed to the due
diligence process. The financing approval by AIDEA's board
of directors depends on several statutory requirements
including a feasibility analysis, a financial plan, and a
finding of the economic, social and environmental effects.
He noted that this is the beginning of a long process.
Authorization is required only when the project is to be
financed under AIDEA's development finance program, known as
"the own and operate." AIDEA would own the docks because the
IRS code requires government ownership to qualify for tax-
exempt financing. Tax exempt financing also requires the
likelihood of public use of the dock facilities. The AIDEA
would seek a determination from the IRS that the two
facilities qualify for public use.
Mr. McMillan said that AIDEA estimates 250-300 construction
jobs, and 110-250 permanent jobs at Kensington Mine. The
tax-exempt financing would assist the developer, Coeur
Alaska, through the issuance of tax-exempt bonds and lower
cost financing, which could save up to 2% on the financing
cost. The AIDEA proposes to issue conduit tax-exempt revenue
bonds, which means its credit and assets would not be at
risk. The bondholders who supply the money in an AIDEA
pass-through will only look at the project revenues from the
Kensington project, and any credit enhancements that the
underwriters may require in order to sell the bonds. He
emphasized the due diligence process and that this
authorization and neither a commitment on the part of AIDEA
to provide the financing nor a commitment by Coeur Alaska to
accept it.
Representative Hawker questioned the $7 million preliminary
figure while the bill reflects a $20 million bonding
authority. He asked if there would be other projects on
Lynn Canal that would qualify. Mr. McMillan replied that
AIDEA is not considering any other projects at this time.
Representative Hawker asked if AIDEA might end up with
excess bonding capacity if this bill were passed. Mr.
McMillan said that it is possible to finance other port
development projects in Lynn Canal with the excess bonding.
However, AIDEA would meet with the Legislature before
considering any other projects.
Representative Hawker asked if AIDEA would object to
tightening up the definition to make it clear that the
bonding authorization applies only to the specific project
involving the Kensington Mine. Mr. McMillan replied that
AIDEA would not object.
Representative Chenault questioned if it is intended that
the money go to other [upland] projects. He asked who would
pay for maintenance and repair of the facility, and if
public access would happen during the mine's operation or in
later years.
Mr. McMillan replied that there has not been any related
upland improvement identified, but AIDEA would make a
determination in the near future. An upland fuel storage
facility would qualify, but it is uncertain if it would be
required. Coeur has requested additional financial
assistance for a tailings disposal facility but AIDEA
wouldn't own it. The AIDEA can issue extra tax-exempt
conduit revenue bonds for solid waste disposal.
Regarding maintenance, Mr. McMillan explained that AIDEA
could enter into a use agreement with Coeur Alaska, who
would be totally responsible for dock maintenance and
operation. Public access is a requirement under IRS code and
it cannot be precluded, although the Kensington Mine would
have preferential use. If both dock facilities are financed
and owned by AIDEA, these would be available for public use.
Representative Fate remarked that if the life of the mine
does not extend the life of the port, the amount of usage
would stop shortly after the mine closes and he asked if
there would be problems meeting operations and maintenance
costs. Mr. McMillan replied that the projected mine life is
10 or 12 years, a relatively short term to finance a project
of this nature. Coeur Alaska expects other minerals [silver
and copper] and that the mine will be there longer than 10
years. At the end of the mine life agreement, AIDEA would
either lease or sell the dock facility to Coeur Alaska at
fair market value. The southern port facility at Cascade
Point would be on land owned by Goldbelt, with the potential
to transfer the facility to the Corporation. He said that
these issues would be addressed during the due diligence
process.
Representative Joule asked if there are other models in
place similar to this financing. Mr. McMillan described it
as "hybrid" financing, a combination of two programs. These
are a development finance program of own-and-operate,
wherein AIDEA owns the asset, and the issuance of not-at-
risk conduit bonds. He likened it to the Snettisham Project
that AIDEA sold to AEL&P through conduit financing so that
AIDEA is not at risk.
TIM ARNOLD, VICE PRESIDENT AND GENERAL MANAGER, COEUR
ALASKA, stated that the Kensington Mine project has been
planned for some time, and Coeur Alaska will be able to
proceed with development by mid-summer. He referred to
"Project Summary and Overview of Partnership Opportunities,
April 2004,"(copy on file) and explained that Coeur Alaska
could do the financing itself and it has two options. It
could build the facility and under the current supplemental
environmental impact statement (SEIS), could own and operate
it, leaving a "small footprint" by removing the dock at the
end of project. The other option would involve AIDEA getting
Coeur Alaska tax-exempt financing during the repayment
period, with State ownership after the mine closes.
Vice-Chair Meyer expressed support for the project. In
response to a question by Vice-Chair Meyer, Mr. Arnold said
that Coeur Alaska is full owner of the project. The
operation would involve 250 jobs, with additional jobs
during the construction phase.
Vice-Chair Meyer asked if the permitting process is working
well. Mr. Arnold answered that the project is halfway
through the NEPA process (the supplemental environmental
impact statement) because of design changes.
In response to a question by Representative Joule, Mr.
Arnold reiterated that there would be about 250 jobs when
the mine is in operation, with up to 300 jobs during
construction. He said their goal would be as much local hire
as possible, and secondarily Alaska hires, and then Outside
hires. The company would provide a good local training
program for operation of the mine.
Mr. Arnold discussed the rotation schedule with
Representative Joule, and described the Kensington as a
community mine involving a beautiful commute, with the
possibility of a different schedule to work around
employees' needs.
Representative Joule asked the annual payroll. Mr. Arnold
thought it would be about $19 million, and said he would
provide the figure. Representative Joule asked if he
anticipated problems related to the marine life and fishing
in Lynn Canal. Mr. Arnold replied that he did not, and it
was addressed in the supplemental EIS.
Representative Hawker asked if the tunnel connecting the two
mine sites would be a vehicle or rail tunnel. Mr. Arnold
explained that it would be a vehicle tunnel for running a
40-ton truck from Kensington Mine to Jualin Mine. In
response to a question by Representative Hawker, Mr. Arnold
said that he hoped to lower the $5 million cost estimate for
1-1/2 miles.
Representative Croft asked the steady price of gold needed
for the mine to be economical. Mr. Arnold said the break-
even cost would be $200 per ounce. He noted that gold has
been hovering between $400 and $425, and has now dipped
below $400.
In response to a question by Vice-Chair Meyer, Mr. Arnold
said that he expected the mine to produce some silver and
copper, but the payable metal would be gold. It is primarily
a gold mine.
Representative Hawker MOVED to ADOPT Amendment #1. Co-Chair
Williams OBJECTED for purposes of discussion.
Amendment #1 reads:
Page 1, line 9
Insert: "at Slate Creek Cove and Cascade Point"
To read:
(a) The Alaska Industrial Development and Export Authority
may issue bonds to finance the acquisition, development,
improvement, and construction of port and related facilities
located at Slate Creek Cove and Cascade Point on Lynn Canal
in Southeast Alaska.
Representative Hawker explained that Amendment #1 addresses
the issue of over-authorization of bonding and makes it a
site-specific project.
Co-Chair Williams removed his objection. Amendment #1 was
adopted.
Representative Foster MOVED to report CSHB 556(FIN) out of
Committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
Co-Chair Williams pointed out a conflict of interest because
he is a shareholder in Cape Fox Corporation which is
negotiating a land trade in the area.
CSHB 556(FIN) was REPORTED out of Committee with a "do pass"
recommendation and with one previously published fiscal
impact note.
HOUSE CS FOR CS FOR SENATE BILL NO. 273(FSH)
An Act amending the size, membership, and powers of the
board of directors of the Alaska Seafood Marketing
Institute and making a corresponding change in the
quorum requirement; authorizing the establishment of
the seafood marketing assessment at a rate of 0.5
percent or 0.6 percent of the value of seafood products
produced; providing for an election to retain,
terminate, or increase the seafood marketing
assessment; providing for the repeal of the salmon
marketing tax and provisions related to the salmon
marketing tax; and providing for an effective date.
Co-Chair Harris MOVED to ADOPT Work Draft Version G, 23-
LS1366\G, Utermohle, dated 4-26-04, as the version before
the Committee. There being NO OBJECTION, it was so ordered.
SENATOR GARY STEVENS, SPONSOR, explained that SB 332 would
expedite a process to begin in January 2005. On August 1,
2004 the director of the Division of Elections would approve
the ballot [for the Board of Directors, Alaska Seafood
Marketing Institute (ASMI)]. On September 1, ASMI would hold
a meeting with the processors and fishermen. The ballot
would be mailed, postmarked and returned to the Division of
Elections to be certified by November 1. If the processors
made the proposed choice, the tax on salmon fishermen would
end on December 31 and the increased tax on processors would
begin on January 1. The bill ensures that processors would
be taxed during the full year and if there were fewer
fishermen on the board, they would not pay the 1% tax.
Co-Chair Harris thought that Section 2 and Section 3
appeared nearly identical. Senator Stevens referred to the
chart showing the current tax structure (copy on file.) He
pointed out that ASMI does the generic marketing for all
seafood products. He mentioned the 1% tax on salmon
fishermen, the 2% processors' assessment, and the current
25-member ASMI Board. The bill addresses both the size of
the Board and stable funding for ASMI, and it presents three
options to the processors.
Senator Stevens asserted that the current 25-member ASMI
board is unworkable. He pointed out in the far right column
on the chart the option for the processors to eliminate
their assessment and to end ASMI, with only the salmon tax
continuing. The ballot would ask if any tax should be
continued for ASMI. The second column of the chart would
reduce the ASMI Board to 7 members, eliminate the tax on
fishermen and raise the processors tax to .5% or $5 million.
He asserted that this option would be the most effective way
for ASMI to continue. The third column would raise the ASMI
Board to 9 members by adding two more fishermen, and
continue the taxes on salmon fishermen and on processors.
Senator Stevens acknowledged that the bill is confusing
because it provides options. The law requires 51% of the
processors based on the volume of product, or the largest 7
or 8 processors, to make a change.
In response to a comment by Co-Chair Harris, Senator Stevens
remarked that a smaller board with more processors would
mean that the processors would pay more into the industry.
He said the processors are willing to pay the .5% and let
the fishermen "off the hook."
In response to a question by Co-Chair Harris, Senator
Stevens answered that the federal funding appears stable.
Co-Chair Harris asked if fishermen would prefer the second
option of not paying a tax. Senator Stevens affirmed and
noted that the structure of the board should change in that
case.
Representative Joule commented on small Alaska-owned shops.
He thought that the ASMI Board would be controlled by out of
state processors and questioned giving the marketing of
seafood to non-Alaskans. Senator Stevens pointed out that
seafood is an international industry, with a lot of
marketing outside of Alaska. He commented that he was
involved in ASMI in the 1970s when he was a processor. He
thought that the board was more effective at that time
because the decisions were made at the board level, and he
expressed that CEOs, presidents and owners of processors are
needed on the ASMI Board.
TAPE HFC 04 - 101, Side B
Senator Stevens continued, noting that all the larger
companies and corporations deal in farmed fish. He
reiterated that leadership from industry should be
represented on the board.
Representative Croft asked the current structure of the
board. Senator Stevens replied that the 25-member board
includes one person from outside of the industry, 12
fishermen and 12 processors. Representative Croft asked if
the bill would change the composition to five processors and
two fishermen. Senator Stevens affirmed.
Representative Croft pointed out that under either scenario,
a smaller board would be substantially or partially
dominated by processors. Senator Stevens affirmed.
Representative Croft wondered why permission is necessary to
assess a processor tax. Senator Stevens replied that under
current law, processors could make the choice of increasing
the percentage, with the option not to fund ASMI.
Representative Croft asked the rationale of changing to a
board dominated by processors interested in the expansion of
farmed fish and not motivated by Alaskan interests. Senator
Stevens replied that ASMI would become less effective if it
continued with the 1% fishermen's' tax and the .2%
processors' tax. Alaska is no longer the primary supplier of
salmon with most of the industry involved in farmed salmon.
Representative Croft supported restructuring the board to a
smaller number but wanted to see control over a resource
Alaska owns. He didn't think ASMI could achieve the
marketing of wild salmon by giving the marketing decisions
to people with an inherent conflict of interest. He said
that assessing the tax is one thing, but giving processors
the power to choose how to market is another.
Co-Chair Williams commented that the processors and the
federal government pay into the marketing endeavor, and if
the state were paying, restrictions could be placed on how
the money is spent. Representative Croft argued that it is
all state money. Co-Chair Williams replied that the
processors could object. Representative Croft noted that it
is a voluntary tax on processors. Co-Chair Williams said
that it is "money out of the back pockets of processors."
The fishermen have assessed themselves and have asked not to
pay a tax.
Senator Stevens pointed out that if 7 of the 8 processors
could not be on the board because they have farmed fish
product, the processors would not move to tax themselves
higher. In current law the processors can decide taxation
and this bill gives the option to go to .5% with more
control of the board by the processors. He felt that it is
reasonable as long as ASMI gets the marketing dollars to
make the industry succeed. The tax level is not in this
bill.
Vice-Chair Meyer asked if the processors would pass on the
tax to the fishermen if the fishermen don't pay any tax.
Senator Stevens said that any tax on the industry impacts
the ex-vessel price to fishermen. Vice-Chair Meyer noted
that fishermen pay the price either indirectly or directly.
Vice-Chair Meyer asked if any of the Dutch Harbor floating
processors are Alaskan companies. Senator Stevens replied
that Alaska couldn't tax the processors outside state waters
unless they deliver a product inside state waters.
Representative Joule asked if the 5 processors on the ASMI
Board, as proposed in the bill, would be Alaskan. Senator
Stevens replied at least one would be Alaskan, but currently
most of the larger processors have offices in Seattle and
elsewhere.
Representative Croft asked if the bill allows fishermen to
lower their own tax and to raise the processors' tax.
Senator Stevens replied that it is similar to twelve
regional marketing organizations with fishermen choosing to
tax themselves and collect monies for regional marketing.
Regional marketing is based on grants and lacks stable
funding. He said that many fishermen would rather see money
put into their own local organizations than into ASMI.
Representative Croft asked if fishermen want any of the
options in the bill. Senator Stevens replied that the United
Fishermen of Alaska (UFA) supports eliminating the 1% salmon
harvester tax as part of the ASMI funding formula.
In response to a question by Representative Croft, Senator
Stevens affirmed that the bill would involve a shift to big
processors, stating that the board needs industry leaders.
Representative Croft questioned shifting the tax and giving
up control of the market when it all will work out in the
value of the fish. Senator Stevens stated that it is a very
indirect process.
Representative Croft asked how the composition of the ASMI
Board could represent the diversity of Alaskan fishermen
with just 2 seats for fishermen. Senator Stevens replied
that it would be unworkable for ASMI to represent every
regional fishery and every species, and the Board should
have members that represent and make marketing decisions to
benefit the entire industry. He thought that a small group
of 7 to 9 members would be more effective than a much larger
group of 25 members.
Representative Fate asked if the board would market wild
Alaskan salmon at the expense of farmed salmon, which might
represent the biggest margin of profit. Senator Stevens
replied that Alaska now must deal with the international
marketing structure that includes farmed fish. He said that
Alaska must provide the highest quality product. The
industry looks at what is most profitable, and farmed fish
can compete fairly in the market. All product, including
farmed salmon, is marketed through ASMI.
MR. DONALD BREMNER, TLINGIT & HAIDA CENTRAL COUNCIL, and
STAFF to SOUTHEAST ALASKA INTERTRIBAL FISH & WILDLIFE
COMMISSION, commented that the proposed size reduction of
the ASMI Board to 7 or 9 might make economic sense but it
would be at the expense of rural representation by the
smaller communities and smaller processors. He voiced that
the Department of Fish & Game and ASMI have done a good job.
The Central Council also opposes having representatives on
the board who sell farmed salmon. He recommended a reduction
to a 15-member board.
In response to a question by Representative Joule, Mr.
Bremner explained that the number of 7 or 9 was derived in
looking at the issue of representation.
Representative Joule asked if there were a number between 9
and 15 that would accommodate both of his concerns [rural
representation and economics]. Mr. Bremner felt that there
was basis for saying that rural Alaska's voice has not been
heard when major decisions have been made. He felt that the
quality and quantity of ASMI staff is also a key issue. He
maintained that rural Alaska would not receive
representation with the size of the board proposed in the
Committee Substitute.
SB 273 was heard and HELD in Committee for further
consideration.
ADJOURNMENT
The meeting was adjourned at 10:08 A.M.
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