Legislature(1995 - 1996)

03/20/1995 08:08 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               HOUSE RESOURCES STANDING COMMITTEE                              
                         March 20, 1995                                        
                           8:08 a.m.                                           
 MEMBERS PRESENT                                                               
 Representative Joe Green, Co-Chairman                                         
 Representative Bill Williams, Co-Chairman                                     
 Representative Scott Ogan, Vice Chairman                                      
 Representative Alan Austerman                                                 
 Representative John Davies                                                    
 Representative Pete Kott                                                      
 Representative Eileen MacLean                                                 
 MEMBERS ABSENT                                                                
 Representative Ramona Barnes                                                  
 Representative Irene Nicholia                                                 
 COMMITTEE CALENDAR                                                            
 HB 141:    "An Act relating to the appointment of members of the              
            Board of Fisheries."                                               
            PASSED CSHB 141(FSH) OUT OF COMMITTEE                              
 HB 59:     "An Act relating to raffles and auctions of certain                
            permits to take big game; and providing for an effective           
            PASSED CSHB 59(RES) OUT OF COMMITTEE                               
 HB 197:    "An Act providing for exploration incentive credits for            
            activities involving locatable and leasable minerals and           
            coal deposits on certain land in the state; and                    
            providing for an effective date."                                  
            PASSED CSHB 197(RES) OUT OF COMMITTEE                              
 WITNESS REGISTER                                                              
 REPRESENTATIVE ALAN AUSTERMAN                                                 
 Alaska State Legislature                                                      
 State Capitol, Room 434                                                       
 Juneau, AK   99801                                                            
 Phone:  465-2487                                                              
 POSITION STATEMENT:  Prime Sponsor of HB 141                                  
 JOHN WALSH, Legislative Assistant                                             
 Representative Richard Foster                                                 
 State Capitol, Room 410                                                       
 Juneau, AK   99801                                                            
 Phone:  465-3789                                                              
 POSITION STATEMENT:  Prime Sponsor of HB 197                                  
 PATTI SWENSON, Legislative Assistant                                          
 Representative Con Bunde                                                      
 State Capitol, Room 108                                                       
 Juneau, AK   99801                                                            
 Phone:  465-4843                                                              
 POSITION STATEMENT:  Reviewed changes in committee substitute                 
                      for HB 59                                                
 REPRESENTATIVE CON BUNDE                                                      
 Alaska State Legislature                                                      
 State Capitol, Room 108                                                       
 Juneau, AK   99801                                                            
 Phone:  465-4843                                                              
 POSITION STATEMENT:  Prime Sponsor of HB 59                                   
 DAVID ROGERS, Representative                                                  
 Council of Alaska Producers                                                   
 P.O. Box 33932                                                                
 Juneau, AK   99803                                                            
 Phone:  586-1107                                                              
 POSITION STATEMENT:  Answered questions regarding HB 197                      
 JOE RYAN, Legislative Assistant                                               
 Representative Al Vezey                                                       
 State Capitol, Room 216                                                       
 Juneau, AK   99801                                                            
 Phone:  465-3719                                                              
 POSITION STATEMENT:  Answered questions regarding HB 197                      
 JULES TILESTON, Director                                                      
 Division of Mining & Water Management                                         
 Department of Natural Resources                                               
 3601 C Street, Ste. 800                                                       
 Anchorage, AK   99503                                                         
 Phone:  762-2163                                                              
 POSITION STATEMENT:  Answered questions regarding HB 197                      
 PAUL DICK, Representative                                                     
 Income & Excise Audit Division                                                
 Department of Revenue                                                         
 P.O. Box 110420                                                               
 Juneau, AK    99811                                                           
 Phone:  465-3691                                                              
 POSITION STATEMENT:  Answered questions regarding HB 197                      
 REPRESENTATIVE AL VEZEY                                                       
 Alaska State Legislature                                                      
 State Capitol, Room 216                                                       
 Juneau, AK   99801                                                            
 Phone:  465-3719                                                              
 POSITION STATEMENT:  Commented on HB 197                                      
 PREVIOUS ACTION                                                               
 BILL:  HB 141                                                               
 SHORT TITLE: TERM OF FISH & GAME BOARD MEMBERS                                
 SPONSOR(S): REPRESENTATIVE(S) AUSTERMAN,Grussendorf,Elton                     
 JRN-DATE     JRN-PG               ACTION                                      
 02/01/95       199    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 02/01/95       199    (H)   FSH, RES                                          
 02/15/95              (H)   FSH AT 03:30 PM CAPITOL 124                       
 02/20/95              (H)   FSH AT 05:00 PM CAPITOL 124                       
 02/20/95              (H)   MINUTE(FSH)                                       
 02/21/95       431    (H)   COSPONSOR(S): ELTON                               
 02/27/95              (H)   FSH AT 05:00 PM CAPITOL 124                       
 02/27/95              (H)   MINUTE(FSH)                                       
 03/01/95       526    (H)   FSH RPT  CS(FSH) 5DP                              
 03/01/95       526    (H)   DP: G.DAVIS,AUSTERMAN,MOSES,OGAN                  
 03/01/95       526    (H)   DP: ELTON                                         
 03/01/95       526    (H)   ZERO FISCAL NOTE (F&G)                            
 03/15/95              (H)   RES AT 08:00 AM CAPITOL 124                       
 03/15/95              (H)   MINUTE(RES)                                       
 03/20/95              (H)   RES AT 08:00 AM CAPITOL 124                       
 BILL:  HB  59                                                                
 SPONSOR(S): REPRESENTATIVE(S) BUNDE,Toohey                                    
 JRN-DATE      JRN-PG              ACTION                                      
 01/06/95        36    (H)   PREFILE RELEASED                                  
 01/16/95        36    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 01/16/95        36    (H)   STATE AFFAIRS, RESOURCES, FINANCE                 
 01/20/95       105    (H)   COSPONSOR(S): TOOHEY                              
 03/07/95              (H)   STA AT 08:00 AM CAPITOL 102                       
 03/07/95              (H)   MINUTE(STA)                                       
 03/08/95       634    (H)   STA RPT  5DP 2NR                                  
 03/08/95       634    (H)   DP: JAMES,PORTER,GREEN,WILLIS,OGAN                
 03/08/95       634    (H)   NR: IVAN, ROBINSON                                
 03/08/95       634    (H)   FISCAL NOTE (F&G)                                 
 03/17/95              (H)   RES AT 08:00 AM CAPITOL 124                       
 03/17/95              (H)   MINUTE(RES)                                       
 03/20/95              (H)   RES AT 08:00 AM CAPITOL 124                       
 BILL:  HB 197                                                                
 SPONSOR(S): REPRESENTATIVE(S) FOSTER,Vezey                                    
 JRN-DATE     JRN-PG               ACTION                                      
 02/27/95       487    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 02/27/95       487    (H)   RESOURCES, FINANCE                                
 03/08/95              (H)   RES AT 08:00 AM CAPITOL 124                       
 03/08/95              (H)   MINUTE(RES)                                       
 03/17/95              (H)   RES AT 08:00 AM CAPITOL 124                       
 03/17/95              (H)   MINUTE(RES)                                       
 03/20/95              (H)   RES AT 08:00 AM CAPITOL 124                       
 ACTION NARRATIVE                                                              
 TAPE 95-36, SIDE A                                                            
 Number 000                                                                    
 The House Resources Committee was called to order by Co-Chairman              
 Green at 8:08 a.m.  Members present at the call to order were                 
 Representatives Green, Williams, Ogan, Austerman, Davies and Kott.            
 Members absent were Representatives Barnes, MacLean and Nicholia.             
 CO-CHAIRMAN JOE GREEN announced there is a quorum present and                 
 turned over the gavel to Representative Williams.                             
 HRES - 03/20/95                                                               
 HB 141 - TERMS OF FISH & GAME BOARD MEMBERS                                 
 CO-CHAIRMAN BILL WILLIAMS recalled at the last hearing all                    
 testimony had been heard and the committee was discussing whether             
 or not the Board of Game was going to be added to HB 141.                     
 REPRESENTATIVE ALAN AUSTERMAN, PRIME SPONSOR, reiterated his                  
 original position on the issue.  He felt adding the Board of Game             
 to HB 141 would slow down the bill and create problems.  He stated            
 adding the Board of Game to HB 141, along with that board's                   
 controversies and different issues, would cloud the issue of the              
 problems being experienced with the Board of Fisheries.  He noted             
 there have been no problems with confirmations of appointed members           
 to the Board of Game.  He stressed the objective of HB 141 is to              
 clean up the confirmation of people to the Board of Fisheries.  He            
 told committee members after talking to other members of the                  
 committee, he preferred to move the bill as it is currently                   
 Number 077                                                                    
 REPRESENTATIVE SCOTT OGAN concurred with the sponsor.                         
 REPRESENTATIVE JOHN DAVIES agreed the problems have been primarily            
 with the Board of Fisheries confirmations.  He believed, however,             
 the same kind of politicization of the appointment process could              
 happen with the Board of Game and felt in the future that should be           
 looked at, but as a separate action.                                          
 REPRESENTATIVE GREEN made a MOTION to MOVE CSHB 141(FSH) with                 
 attached fiscal note out of committee with individual                         
 CO-CHAIRMAN WILLIAMS asked if there were any objections.  Hearing             
 none, the MOTION PASSED.                                                      
 CO-CHAIRMAN WILLIAMS turned the gavel back over to CO-CHAIRMAN                
 HRES - 03/20/95                                                               
 HB 197 - MINERAL EXPLORATION INCENTIVE CREDITS                              
 Number 115                                                                    
 PRIME SPONSOR, passed out another letter of support for HB 197.  He           
 said since the last hearing, the sponsor and co-sponsor discussed             
 the considerations raised and incorporated some of those                      
 considerations in a work draft committee substitute.                          
 REPRESENTATIVE DAVIES requested a brief at ease to enable the                 
 sponsor to pass out copies of the work draft committee substitute.            
 (AT EASE)                                                                     
 CO-CHAIRMAN GREEN called the meeting back to order.  He said since            
 the work draft committee substitute needed reproducing, the                   
 committee would hear HB 59 first and then go back to HB 197.                  
 HRES - 03/20/95                                                               
 HB 59 - RAFFLE OR AUCTION OF BIG GAME PERMITS                               
 Number 176                                                                    
 told committee members the committee substitute before them                   
 contains the amendments discussed at the last hearing.  She                   
 explained the committee substitute deletes the 50 percent on the              
 first page and makes the definition of qualified organization the             
 same on pages 2 and 3.                                                        
 CO-CHAIRMAN GREEN asked if there were any objections.  Hearing                
 none, the MOTION PASSED.                                                      
 REPRESENTATIVE PETE KOTT recalled at the last hearing he commented            
 on the possibility of a sealed bid.  Since that time, he determined           
 that a sealed bid is included under the definition of raffle.                 
 REPRESENTATIVE CON BUNDE, PRIME SPONSOR, urged the committee to               
 support HB 59 and stated he would answer any further questions.               
 REPRESENTATIVE KOTT made a MOTION to MOVE CSHB 59(RES) with                   
 attached fiscal note out of committee with individual                         
 CO-CHAIRMAN GREEN asked if there were any objections.  Hearing                
 none, the MOTION PASSED.                                                      
 HRES - 03/20/95                                                               
 HB 197 - MINERAL EXPLORATION INCENTIVE CREDITS                              
 Number 235                                                                    
 would review the changes contained in the committee substitute for            
 HB 197.  He stated these changes are a result of discussions                  
 between a number of people, including the bill sponsors, and                  
 requests from the Department of Natural Resources (DNR).  He                  
 explained the first change is on page 1, line 11.  The previous               
 version of the bill included the phrase "feasibility of                       
 development."  He noted there was a concern that the phrase created           
 an ambiguity and could create things like an Environmental Impact             
 Statement preparation and other things which really are not                   
 exploration related.                                                          
 MR. ROGERS explained on page 2, lines 4-19, there is a new                    
 subsection (b).  He said the intent of the subsection is to clarify           
 when exploration stops and construction development begins.  He               
 stated this subsection essentially says after mine construction               
 commencement, exploration activities are over and expenditures                
 incurred after that date are not qualified for the exploration                
 incentive credit.  He noted the definition of mine construction               
 commencement date is the date the last permit is received allowing            
 a company to proceed.                                                         
 REPRESENTATIVE OGAN clarified the incentive credit is only good for           
 up to the date a company receives their last permit.                          
 MR. ROGERS responded that is correct.                                         
 Number 281                                                                    
 REPRESENTATIVE DAVIES wondered if hanging the definition entirely             
 on permits would open it up for potential abuse, where a company              
 would simply not get the last permit needed, proceed to spend a               
 great deal of money on constructing a mine and then when ready to             
 ship the first product, drop the last permit in the box.                      
 MR. ROGERS replied it was possible.  He felt HB 197 is further                
 governed by the list on page 1 which describes what activities are            
 eligible.  He said generally it is not economically prudent to                
 delay a permit in order to gain a credit.  He did not feel it would           
 ever happen.  He said the ending point is a very difficult concept            
 to define.  He noted the definition in the work draft committee               
 substitute does not necessarily deal with a situation of multiple             
 Number 307                                                                    
 reason for the change being discussed is the problems encountered             
 with interpretations in HB 377 last year where there did not seem             
 to be a definite time limit when one phase would end and another              
 phase would begin.  He said this change in HB 197 would set up a              
 definite cut off point and there would be no question as to when a            
 company is in production rather than exploration.                             
 CO-CHAIRMAN GREEN wondered if there would be any problem with the             
 department formulating regulations which would alleviate the                  
 problems Representative Davies mentioned.                                     
 MR. ROGERS said there is a desire to comprehensively deal with                
 issues in the bill to avoid the need for regulations.  He stated              
 aside from that fact, these issues could be cleared up with                   
 regulations.  He felt if there is a genuine exploration activity              
 involved, it should be eligible for the credit and if there is not,           
 the department will be able to determine that fact.                           
 Number 336                                                                    
 MR. ROGERS explained the next change in the committee substitute is           
 located at the bottom of page 2, PROCEDURE FOR OBTAINING THE                  
 CREDIT.  He said the DNR was concerned about the lack of guidelines           
 for the process and was afraid everything would be dumped in their            
 lap at the last minute, creating a lot of confusion, especially               
 given the time delay between the exploration activity and the                 
 development activity.  This change attempts to set up a process               
 where a company explores and then annually comes to the department            
 to certify its expenditures.  The department then determines if the           
 list of expenditures are legitimate under HB 197, and certifies               
 those expenditures.                                                           
 MR. ROGERS stated in addition to certifying the expenditures, the             
 department would also tell the company what data is needed at the             
 time of application for the credit.  He explained at the end of the           
 process, the company presents its list of certified expenditures              
 and required data to the department.  The department then reviews             
 the information and responds.  He said if the data meets the                  
 requirements stipulated, the credit is then approved.  He noted if            
 the department does not respond within the time specified, the                
 credit is deemed approved.  He told committee members these                   
 provisions are contained on page 2, line 32 through page 4, line              
 REPRESENTATIVE DAVIES clarified the committee is only looking at              
 the typed version M and none of the penciled in comments are                  
 MR. ROGERS said that is correct.                                              
 Number 386                                                                    
 MR. RYAN stated Representative Vezey had penciled in some thoughts            
 which might be appropriate.  However, those thoughts can be                   
 addressed at a later date.                                                    
 MR. ROGERS said the next change is on page 4, lines 31-32.  He                
 explained the original bill says the credit has to be used within             
 15 years after it is granted.  He noted there had been concern                
 expressed that in some cases, people do not make money for the                
 first several years of their operation or there may be other                  
 reasons why they do not want to take the credit immediately.  He              
 stated the proposed change provides that a company has 15 years to            
 use the credit--the company does not have to start on the first               
 year and the years do not have to be consecutive.                             
 MR. ROGERS explained an additional change is on page 5, lines 9-11,           
 which addresses a concern expressed at the last hearing.  This                
 change makes it clear that once the credit has been assigned to a             
 successor in interest, the applicant who assigned it cannot use the           
 CO-CHAIRMAN GREEN asked if the phrase on page 4, line 31, "must be            
 used within any 15 tax years" means in any taxable 15 year period.            
 He also wondered if a company does not use the credit within that             
 time frame, is the credit lost.                                               
 MR. ROGERS said the company has 15 years to use the credit.                   
 REPRESENTATIVE DAVIES stated he read it as any individual 15 years.           
 MR. ROGERS responded the way it works is the credit has to be                 
 prorated over a 15 year period.  He said a company could prorate up           
 to 15 years of credits.  For example, if a company has a $100,000             
 credit, the credit could be prorated over 15 years or the credit              
 could be taken faster, but the credit could not be prorated over              
 any greater length of time.                                                   
 CO-CHAIRMAN GREEN said he did not read it the same as                         
 Representative Davies.  Reading it his way, he wondered if a                  
 company is approved in 1995 and the credit is not used until some             
 time in the 21st century, even though it is a 15 year period, does            
 the credit have to be used before 2010 or does it mean any 15 year            
 MR. ROGERS replied any 15 year period.  He stated ultimately it               
 means the credit has to be prorated over a maximum of 15 years.  He           
 noted the credit is fixed and a company can take all of the credit            
 in one year or over a period of years.  He explained the proration            
 period is limited to 15 years, so that is the maximum time it can             
 be prorated but the credit can be taken at any time.  If a                    
 company's mine lasts 30 years, the company can take the credit up             
 to 30 years, there just has to be a decision on how to allocate the           
 credit over a 15 year period.                                                 
 MR. ROGERS noted the original problem was that 15 years was fixed             
 and some mines do not make money early on.  Therefore, if a company           
 had to take the credit the first year and there was no income to              
 take the credit against, it would be lost.  He thought that would             
 limit a company's flexibility to make financial decisions about how           
 to use the credit.                                                            
 Number 459                                                                    
 REPRESENTATIVE DAVIES clarified what Mr. Rogers is attempting to              
 say is within a period of any 15 tax years.  He wondered if it                
 would clarify that intent by inserting the words "period of" after            
 the word "any" on page 4, line 31.  He asked what is meant by                 
 royalty payment periods.                                                      
 MR. ROGERS replied that is a calendar year or 12 month period.                
 CO-CHAIRMAN GREEN wondered, if there was a situation where the mine           
 was oscillating on and off for whatever reason, would this mean the           
 company could start in year one, skip two or three, take another              
 one, then skip two or three, etc.                                             
 MR. ROGERS responded that is another reason for the problem of 15             
 years because the business is an up and down kind of business.  He            
 noted that mining companies sometimes have years which are slow and           
 sometimes shut down and then start up again.  He stressed a company           
 could use up its 15 years and actually not have 15 years of taxable           
 income to use the credit against.  He stated he is not sure any               
 limit is necessary.  He said the 15 years came in last year and               
 reflects a concept of production but he is not sure that time                 
 period was fully evaluated at the time.                                       
 Number 485                                                                    
 MR. RYAN stated when purchasing gold shares, most people look to              
 find a 10-12 percent return per year over the life of the mine,               
 hoping to amortize their investment to make a profit.  The majority           
 of mines, with the exception of South Africa, very seldom last 10-            
 15 years.  He noted the company mines out the available mineral and           
 then goes on to new properties.  He said deposits being the way               
 they are and technology being what it is, a 15 year mine is a very            
 good investment.                                                              
 MR. RYAN said there is beginning to be a move from placer to hard             
 rock mining but no one, with the exception of Fort Knox, has found            
 an amount of material which would take longer than a 15 year                  
 period.  He noted there are oscillations in the market depending on           
 things like foreign exchange, the value of the dollar, direct labor           
 costs, etc.  He pointed out it is not necessarily profitable to               
 mine in a certain time period.  He stated any tax year within 15              
 years allows the industry, when it is profitable to mine gold, to             
 take their deduction over that particular time period and when it             
 is not profitable, to shut down the operation and commence at                 
 another time when the price of gold increases.                                
 CO-CHAIRMAN GREEN asked if a company is allowed to take those                 
 deductions, would that tend to make the mine profitable and would             
 the company want to take the credit as early as possible.                     
 MR. ROGERS replied that is his gut reaction, but every mine has its           
 own set of financial issues it deals with, so there may not be a              
 rule.  He stressed a company has to first make a profit before it             
 can take a tax credit.  He felt the time period should be left                
 flexible, allowing individuals to make their own decision.                    
 REPRESENTATIVE DAVIES observed Mr. Ryan is suggesting that in the             
 vast majority of cases, 15 years would be the universal basis.  He            
 felt there is not much utility in adding this additional                      
 flexibility, and for profitability reasons, most mines would want             
 to take the credit within the first 15 years it is available.  He             
 stated in order to eliminate the confusion, he felt the word "any"            
 should be deleted on page 4, line 31.                                         
 REPRESENTATIVE DAVIES stated there is another issue involved.  He             
 said the reason for having a limit is if a mine opens, gets                   
 permission to proceed, then closes and reopens over a period of 30            
 years and 30 years down the road they ask for their credit but                
 the state feels the company did not do certain things and                     
 litigation results, then the record becomes very stale.  He                   
 stressed that is the reason the state has a statute of limitations.           
 He felt a time limit would also put a larger burden on the company            
 to prove.  He did not feel it is practical to think of a situation            
 where the credit could be extended much beyond 15 or 20 years, just           
 for the reason of record keeping.                                             
 CO-CHAIRMAN GREEN asked how the sponsor feels about the suggestion            
 to drop the word "any" on page 4, line 31.                                    
 MR. RYAN said one of the purposes of HB 197 relates to the world              
 situation on liquidity.  He noted in the last five or six years               
 there have been 3.5 billion people added to the consumer market               
 with India and China changing their policies and the break up of              
 the Soviet Union and Eastern Europe.  All of these people want                
 washing machines, toasters, etc.  Therefore, there are great                  
 markets for investment.  He stated Alaska finds itself in the                 
 position, with interest rates and the hassle factor of doing                  
 business in Alaska, as being a very poor place to invest.  He                 
 pointed out that other markets around the world are offering very             
 high rates for return on investments, so money is flowing out of              
 MR. RYAN told committee members there is a desire to attract                  
 capital to Alaska and HB 197 addresses that desire by offering                
 incentives to companies who come to the state.  He said the state             
 may not benefit as much directly in regard to taxation, but                   
 stressed these people will spend real dollars going to the state's            
 businesses and people will be employed.  He noted that money                  
 circulates through the economy and makes Alaska a better place to             
 live.  He pointed out the philosophy behind HB 197 is to attract              
 this capital and make Alaska a better place to do business.                   
 CO-CHAIRMAN GREEN said he still has a mental block.  He observed if           
 a company is going to make an investment in Alaska this year                  
 because Alaska is going to give an extended period of time to                 
 charge off exploration costs and the company opens its mine in the            
 year 2000, by the time the company is getting credit for the costs,           
 15 plus years down the road, the present worth of that is almost              
 zero.  He thought the company would want to show that as far                  
 forward as possible in the present work basis to get that money               
 back, so it can be reinvested somewhere else.  He felt a 30 year              
 discount on the dollar is a penney.                                           
 MR. RYAN stated the logistics of doing business in Alaska are much            
 higher than anywhere else because there are not many roads and most           
 transportation is by air which is very expensive.  As to a company            
 amortizing their investment, it would be prudent for the company to           
 take the credit up-front as much as possible.  He noted that has              
 been limited to 50 percent.  He noted the window has been left open           
 primarily due to the nature of the beast.  The country's balance of           
 payments and the dollar on the international market would influence           
 a company on whether or not it wanted to mine gold because the                
 price of gold is directly attributable to those factors.                      
 Number 601                                                                    
 REPRESENTATIVE DAVIES reiterated the number of cases where this               
 credit will actually work as an incentive...where having this 15              
 year limit would be a problem, is so small as to not be a concern.            
 He said on the other hand, the number of cases where not having               
 this time limit might develop into lawsuits or stale records is               
 very real and that is why the state has statutes of limitations on            
 the books.  He felt providing a statute of limitation in HB 197               
 would make good public policy sense.                                          
 REPRESENTATIVE AUSTERMAN asked what the difference is between a tax           
 year and a royalty payment period.                                            
 MR. ROGERS replied he was not sure.  He thought the royalty payment           
 period was a one year annual period but he did not know when it               
 begins and when it ends.  He said the royalty payment period may              
 not be parallel with the tax period.                                          
 REPRESENTATIVE AUSTERMAN wondered if there is a desire to tie the             
 credit to 15 years, would the royalty payment period change that.             
 Number 642                                                                    
 DNR, stated in regard to the phrase contained on page 4, line 31,             
 "within any 15 tax years," part of the concern he had raised                  
 earlier was if many of the line operations are looked at, they                
 sometimes shut down, such as Greens Creek.  Therefore, with the 15            
 years, a company may be penalized for no fault of their own.                  
 He added there is only a three and one-half year period when the              
 tax liability is extremely low.  He said the language previously              
 looked at was to recognize those things and make the period within            
 any 15 year period, recognizing that most mines generally have a              
 10-15 year life.  He noted there are a range of mines involved.  He           
 told committee members he could not answer the question on the                
 royalty payment period as he had not seen that language before.               
 MR. ROGERS asked if the typical royalty payment period is one year.           
 MR. TILESTON replied yes.                                                     
 MR. ROGERS asked if the royalty payment period typically runs                 
 January 1 through December 31.                                                
 MR. TILESTON said he could not answer the question but could                  
 provide the answer later.                                                     
 CO-CHAIRMAN GREEN stated in regard to the phrase "within any 15 tax           
 years," the concern the committee expressed was that by possibly              
 deferring the credit, for instance in a 40 year mine, memories get            
 dim, records go to archives, etc., and to try and come in during              
 the 40th year to exercise the 15th tax year credit might create a             
 lot of concern and consternation.  He said on the other hand, it              
 would seem logical the quicker a company can claim the tax credit,            
 the better off the company is from a present worth value of its               
 CO-CHAIRMAN GREEN observed testimony has indicated a mine normally            
 lasts 15 years and only by exception does a mine go on and on.  He            
 said if a mine goes on and it does not seem to apply cyclic--the              
 company is probably operating each year and by having this time               
 period afloat, a concern is being created which might be addressed            
 on a practical basis by having a certain time period, making it a             
 finite number.                                                                
 Number 680                                                                    
 MR. TILESTON responded the 15 year time period is probably an                 
 appropriate term when looking at a normal mine life.  He felt if              
 the department goes to an annual approval as part of the record               
 system, the long term responsibility for keeping records is an                
 easily managed solution.                                                      
 MR. ROGERS stated that was the intent of the two phase system of              
 getting expenditures certified annually and data being brought in             
 at the end of the process.  He noted the system would provide that            
 a company have an ongoing discussion with the department about what           
 it is doing.  He felt that would address Representative Davies                
 concern about staleness and confusion.                                        
 TAPE 95-36, SIDE B                                                            
 Number 000                                                                    
 REPRESENTATIVE DAVIES recalled at the last hearing on HB 197, the             
 committee discussed that HB 197 had a relatively small fiscal note            
 attached because it was not going to require much record keeping on           
 the part of the state.  He noted now it seems like the volume of              
 record keeping has ballooned.                                                 
 MR. ROGERS stated he did not believe the process is any different             
 other than it is more rational.  He said at some point, the                   
 department has to review expenditures and data to issue a credit.             
 He did not think there was going to be any change in the                      
 administrative burden.                                                        
 MR. TILESTON agreed with Mr. Rogers.  He said the department looks            
 at the documentation normally submitted, either to the DNR or the             
 Department of Revenue (DOR), on an annual basis.  He stated the               
 desire was to tie phase one into the existing system rather than              
 create a new system.                                                          
 REPRESENTATIVE DAVIES asked Mr. Tileston if he is satisfied there             
 is enough information in those annual reports for the department to           
 make a decision, if the department is asked to certify a request              
 for a credit 15 years down the road.                                          
 MR. TILESTON responded in meeting with industry representatives               
 last week, a minor change should be made.  He said that change                
 would provide that the company, industry, or claim holder desiring            
 to accrue a credit would annually file and request a credit,                  
 submitting a ledger sheet to be used and approved at that point of            
 time.  He noted supplemental information would have to be provided            
 because the general information received currently at the DNR says            
 a company is going to conduct certain types of geophysical or                 
 exploration activities in a given area.  That information is                  
 reviewed but the fiscal data regarding the costs involved or the              
 fact the claim holder or agent may desire to get that credit...the            
 department sees it as a check on an existing form and then a follow           
 up with a ledger sheet, not detailed accounting.                              
 Number 074                                                                    
 CO-CHAIRMAN GREEN stated as a hypothetical situation, "We are doing           
 this during the 1995-2000 time frame.  Each year the applicant                
 comes in and adds some more costs, the costs are approved and the             
 pot of money they are going to be seeking tax credits against is a            
 running ledger, which is current and then it might be several years           
 before they start pecking away at that.  They do not have to re-              
 approve it, they just say they want to take so much of a percentage           
 of that this year, next year, and so on."                                     
 MR. TILESTON replied that is correct.  He noted HB 197 establishes            
 limitations on how much is taken in any given year.                           
 REPRESENTATIVE DAVIES clarified a company is going to submit a                
 ledger of bills it wants to have credit for and the state is going            
 to approve that list on an annual basis.  He said that does not               
 sound like something the state is doing currently.                            
 MR. TILESTON responded the state is not doing the fiscal side                 
 currently.  He said, "the department would see the other thing                
 saying this is our expenditure and this is the data that we will              
 deliver to you when we request final approval in phase two."  He              
 noted those two items will be a matter of record, agreed to by all            
 the parties at the time it was done and then that record would                
 exist and be available to the company.                                        
 REPRESENTATIVE DAVIES said it seems one of two situations has to              
 exist.  Either the state is going to look at enough data on an                
 annual basis to approve the expenditures and then it would be a               
 matter of taking the credits sometime in the future when people               
 agreed on it, or the state is going to agree to a limiting list and           
 will have to review the underlining data at some point in the                 
 future.  He pointed out in the latter case, his concern about                 
 staleness of records is reinstated.                                           
 Number 133                                                                    
 MR. TILESTON stated the department does not, at this time, review             
 the financial records associated with a mining activity.  The                 
 department envisions, since companies do have and do attract                  
 projects by financial things, that companies would look at those              
 items expressly identified as being potential credit items, they              
 would say these are the expenditures associated with those credits,           
 this is the data collected but not the data itself...all of that              
 would be agreed on and entered into a running tabulation which is             
 updated every time that company or its assignee asks to apply for             
 a credit.                                                                     
 CO-CHAIRMAN GREEN clarified that information would include the                
 MR. TILESTON replied it would include the value.  He explained the            
 department would have a running tabulation on two things on an                
 annual basis--new records, which is the credit itself (dollars),              
 and the data that credit is applied to.  Therefore, when the                  
 project was reached, the department could say data in year five was           
 X and the costs were Y and there would be no dispute on what those            
 values are or what the data is.                                               
 REPRESENTATIVE DAVIES clarified it still will be the case that                
 whenever this credit is actually claimed, the state will have to              
 review the underlining financial data to verify that the amounts              
 tabulated were acceptable.                                                    
 MR. TILESTON responded the department will do that at the time the            
 credit is accrued.  He said if data submitted by company A is not             
 sufficient, the department would go back to company A at that point           
 in time, ask specific questions, and get responses at that time so            
 the ledger sheet which goes forward will be something that is money           
 in the bank and data to be delivered.                                         
 REPRESENTATIVE DAVIES maintained there would be significant fiscal            
 impact in the early years.                                                    
 MR. TILESTON replied it would be a one person increase and the                
 record keeping will be incorporated into the existing system.                 
 MR. RYAN said if deductions cannot be substantiated, they cannot be           
 Number 200                                                                    
 DEPARTMENT OF REVENUE, said he agreed with Mr. Ryan on deductions             
 and substantiation.                                                           
 REPRESENTATIVE DAVIES said that sounds very simple but reminded               
 everyone there was a special session held last year on that                   
 subject.  He did not feel it is that simple and he wants to avoid             
 setting the legislature up for that kind of train wreck in the                
 Number 223                                                                    
 MR. ROGERS stated the next change is on page 5, lines 20-22, which            
 makes it clear that if the department prematurely releases                    
 confidential data, they would be liable for damages for violating             
 the confidentiality requirements of this section.  He noted once              
 the information is submitted, it is confidential for 36 months and            
 if the department releases the information early, this change                 
 clarifies there is no sovereign immunity for premature release of             
 confidential information.                                                     
 CO-CHAIRMAN GREEN asked if the intent is that this be the normal              
 confidentiality.  He said there are some disclosures within the               
 division who get the information.  For example, petroleum company             
 records are not only disclosed to the Alaska Oil and Gas                      
 Conservation Commission but are also disclosed to the DNR and are             
 still considered confidential.                                                
 MR. ROGERS said the concern regarding confidentiality is more with            
 other companies and the general public, not within departments.               
 MR. RYAN remarked the country was settled by the disclosure of                
 large gold strikes.  He said if a company makes a large strike,               
 they do not want everyone claiming the rest of the land.                      
 Number 255                                                                    
 REPRESENTATIVE DAVIES questioned if the nature of the damages                 
 should be limited to actual damages on page 5, line 20.  He                   
 wondered if the current verbiage referred to punitive damages.                
 MR. ROGERS replied the verbiage makes no distinction.  He said it             
 would give lawyers all the tools they currently have under existing           
 REPRESENTATIVE AL VEZEY, CO-SPONSOR HB 197, said he is not aware of           
 any law allowing punitive damages in cases of a torte nature of               
 this sort.  He stated this would be strictly a uniform commercial             
 code type of situation.                                                       
 CO-CHAIRMAN GREEN asked Mr. Tileston if he was aware of any                   
 punitive nature damages available under current law for disclosure.           
 MR. TILESTON replied he was not.                                              
 CO-CHAIRMAN GREEN asked Mr. Tileston if he has any problems with              
 page 5, lines 20-22.                                                          
 MR. TILESTON said no.                                                         
 Number 276                                                                    
 MR. ROGERS explained the next change is on page 5, lines 29-31, and           
 clarifies that the costs of obtaining permits, approvals, etc.,               
 related to exploration work are also included as eligible costs               
 under HB 197.                                                                 
 MR. ROGERS stated because of a miscommunication with the drafter,             
 there was a section included in the committee substitute which was            
 not desired.  He explained page 6, lines 15-18, section viii,                 
 should be deleted.                                                            
 MR. ROGERS said another change is on page 6, lines 7 and 8, which             
 states that insurance and bond premiums associated with exploration           
 activities would also be considered eligible costs.                           
 REPRESENTATIVE OGAN wondered if mines are going to pay any                    
 royalties whatsoever to the state.                                            
 MR. ROGERS replied there is a cap of 50 percent combined royalty              
 tax obligations per year.                                                     
 REPRESENTATIVE OGAN asked what the current royalty rate is for                
 MR. TILESTON responded the current royalty rate for mining is 3               
 percent of net profit.                                                        
 MR. ROGERS stated another change is on page 6, lines 24-30,                   
 subsection (2).  He said this section previously appeared earlier             
 in HB 197 but because of the restructuring of the process for                 
 reviewing and certifying credits, it makes more sense to place the            
 subsection in this part of the bill.                                          
 CO-CHAIRMAN WILLIAMS made a MOTION to ADOPT CSHB 197, version M.              
 CO-CHAIRMAN GREEN asked if there were any objections.  Hearing                
 none, the MOTION PASSED.                                                      
 REPRESENTATIVE DAVIES made a MOTION to AMEND CSHB 197(RES), on page           
 2, line 7, delete the word "on" and insert the words "no later                
 than".  He said lines 6 and 7 would read, "In this subsection,                
 `mine construction commencement date' means the date no later than            
 which all of the following have occurred:"                                    
 REPRESENTATIVE DAVIES said this change sets a limit but would allow           
 the department to also issue regulations to set the date earlier,             
 if a significant amount of exploration activity had occurred, in              
 terms of financial expenditures.                                              
 Number 366                                                                    
 MR. ROGERS stated another change he failed to mention is contained            
 on page 5, lines 15 and 16, which prohibits the adoption of                   
 regulations to implement HB 197.                                              
 CO-CHAIRMAN GREEN expressed concern that the drafters may feel the            
 words "no later than" and the word "on" mean the same thing.  He              
 wondered if there would ever be a difference.                                 
 REPRESENTATIVE DAVIES replied yes.  He said the change allows for             
 the occurrence of an earlier date.                                            
 MR. RYAN said the co-sponsor has asked him, when preparing work               
 drafts of legislation, to make them as comprehensive as possible in           
 order to address the problems in law and to get away from the                 
 regulatory process.  He noted there have been shining examples of             
 legislation being passed and then regulations being written                   
 circumventing the original intent.  He felt the only remedy seems             
 to be going to court.                                                         
 MR. RYAN stated the costs of implementing regulations nationwide              
 exceeds the costs of what individuals pay in taxes.  He told                  
 committee members the co-sponsor felt by writing comprehensive                
 legislation addressing the problem, it could work and in the future           
 if there seemed to be a few things needing to be fixed, those                 
 problems could be brought back to the legislature.  The legislature           
 could then address those concerns, leaving the decision making in             
 the policy body rather than giving that discretion to the                     
 Administration.  He pointed out that is the philosophy behind                 
 prohibiting regulations in HB 197.                                            
 Number 409                                                                    
 REPRESENTATIVE DAVIES stated the ability to implement any policy              
 the legislature decides is clearly given to the Administration to             
 follow through.  He said the reason the legislature requests the              
 Administration to construct regulations is to implement policy                
 decisions made.  He felt if the legislature really desires to                 
 totally eliminate all regulation writing activities of the                    
 departments, the legislature will need to meet 365 days a year.               
 REPRESENTATIVE DAVIES stressed the legislature should be setting              
 the policy in this case.  He said the policy is the legislature               
 wants to provide incentives for new mines.  He did not believe                
 there is a desire to spend days writing the regulations under which           
 that policy gets implemented.  He felt in writing policy                      
 statements, the legislature should make those statements as clear             
 as possible and provide as many bright lines in statutes as                   
 REPRESENTATIVE DAVIES stated the legislature should not make the              
 situation simpler than what it really is.  He said life is a little           
 more complicated than desired and that is why there is a need to              
 flush out the policy decisions the legislature makes with                     
 regulations.  He expressed concern with the specific case at hand,            
 that while it is a bright line, it may open itself up to abuse.  He           
 felt there is a need for flexibility on the part of the                       
 Administration to deal with that abuse, should it arise.  He did              
 not feel there is a need to have every single possible turn and               
 twist to come back to the legislature for another statutory change.           
 REPRESENTATIVE OGAN stated he has a lot of problems with regulatory           
 agencies.  He previously served on a regulatory board and felt that           
 board was responsive to the industry in making changes.  He                   
 concurred with Representative Davies.  He said the legislature does           
 not necessarily have the expertise to super-define the statutes               
 like regulations.  He told committee members he has a problem with            
 creating a regulation-type statute.                                           
 CO-CHAIRMAN GREEN asked, referring to page 2, lines 8-19, if there            
 will be any time when a company might start construction or start             
 operations without having the three things accomplished and if not,           
 is not that the date "on which the following have occurred."                  
 MR. ROGERS responded a company has to have its permits to proceed.            
 CO-CHAIRMAN GREEN wondered if at the time a company pulls the                 
 switch to start if it needs to comply with all three.  He asked if            
 there would ever be a time when that would not be the date when               
 "all of the following have occurred:" and would there ever be a               
 time when a company would start earlier than that which it is                 
 required to do.                                                               
 MR. ROGERS stated he could not think of one.  He stated the words             
 "no later than" might create an ambiguity as to what the cut off              
 date really is.                                                               
 CO-CHAIRMAN GREEN shared that concern.                                        
 Number 482                                                                    
 REPRESENTATIVE DAVIES replied if in most cases this would be the              
 time when mine construction commencement begins, he did not feel              
 the wording is ambiguous.  He stated the wording he proposes says             
 when the three things listed have been done, there is a bright line           
 which says mine construction has begun.  He said in most cases the            
 wording "no later than" would function the same way as having the             
 word "on" but in a few cases, where there may be some attempts to             
 jiggle the permit process in order to allow the construction of               
 roads, etc., the wording would allow the department to deal with              
 those exceptional cases.  He felt in most cases the change would              
 not have any effect but in a few cases where there might be a                 
 loophole, it would allow the department to close the loophole.                
 CO-CHAIRMAN GREEN OBJECTED to the MOTION.                                     
 CO-CHAIRMAN GREEN asked for a roll call vote.  Voting in favor of             
 the amendment were Representatives Austerman, Ogan, Davies and                
 Williams.  Voting against the amendment were Representatives Kott             
 and Green.  The MOTION PASSED 4-2.                                            
 REPRESENTATIVE DAVIES made a MOTION to AMEND CSHB 197(RES), on page           
 4, line 31, deleting the word "any."                                          
 CO-CHAIRMAN GREEN asked if there were any objections.  Hearing                
 none, the MOTION PASSED.                                                      
 REPRESENTATIVE DAVIES made a MOTION to AMEND CSHB 197(RES) on page            
 5, lines 15-16, deleting the entire section.                                  
 Number 525                                                                    
 MR. RYAN stated nothing precludes the department from developing a            
 policy as to how to administer any particular statute.  He said               
 policies can easily be changed through the commissioner having a              
 discussion with the people affected.  Once regulations are written,           
 they are law.  He pointed out the process for writing regulations             
 is cumbersome and requires public hearings for approval and the               
 same process has to be followed to remove them, which in turn                 
 serves as a disincentive for people to make changes.  He felt the             
 language should be left in the bill.                                          
 REPRESENTATIVE AUSTERMAN expressed support for the amendment.  He             
 agreed the legislature should set policy and allow the                        
 Administration to actually manage and run the business as it should           
 be run.  He noted there are options available if there is a problem           
 with the way a regulation has been implemented which totally                  
 destroys the original intent of the legislation.  He felt what is             
 contained in this section (Regulations Prohibited) is an overall              
 policy which should be made by the entire legislature rather than             
 drafting it into this bill.                                                   
 MR. WALSH felt the intent of both sponsors is to minimize the                 
 amount of regulations needed to govern the statute.  He said there            
 are some issues which are unclear in terms of definitions, dates,             
 and actual mechanics but the intention is to make the bill as                 
 straightforward as possible.                                                  
 MR. TILESTON felt it would be a mistake to restrict the ability to            
 clarify.  He recalled there was a comment earlier about policy and            
 the fact the department could issue some policy statements.  He               
 said it has been his experience both in state and federal                     
 government, in a dispute that goes to court as far as departmental            
 policy is concerned, the department loses.  He felt there does need           
 to be a mechanism to provide for regulations, if they are needed.             
 REPRESENTATIVE AUSTERMAN felt there are many times the departments            
 do overregulate and write regulations which are totally off track.            
 He stressed when that happens, the legislature needs to go back and           
 address those specific instances rather than eliminating the                  
 ability of the department to write a regulation.  He said if it is            
 the intent of the maker of the legislation to get a message to the            
 department to not overregulate, he felt a letter of intent along              
 with HB 197 would be appropriate, but to actually prohibit                    
 regulations is not the right step.                                            
 (Representative MACLEAN joined the committee.)                                
 Number 597                                                                    
 REPRESENTATIVE OGAN felt this amendment is important.  He said he             
 would appreciate hearing from each committee member in regard to              
 the amendment.  He thought CSHB 197(RES) is almost like a                     
 regulatory statute and is very extensive.  He wondered how much               
 time was spent drafting the changes in the committee substitute and           
 how many people were involved.                                                
 MR. RYAN said the industry, Mr. Tileston, John Walsh, David Rogers,           
 Paul Dick and him were involved in a cooperative effort to address            
 problems and added that many issues were brought up.  He stated the           
 desire was to address all the issues in the bill and make the bill            
 comprehensive, so a good document would go forward, doing the job             
 of getting the policy implemented.  He reiterated that                        
 Representative Vezey has directed him to be as comprehensive as               
 possible in all the legislation he drafts for him.                            
 REPRESENTATIVE DAVIES pointed out that all of the regulatory                  
 agencies issue regulations on a daily basis to implement policies.            
 The vast majority of those regulations work fine and are not a                
 problem.  He felt the regulations which rise up to be problems                
 number less than a fraction of 1 percent of the regulations                   
 promulgated.  He said to use a major hammer such as what is                   
 contained in this section to solve what really is a small problem             
 is overkill.                                                                  
 REPRESENTATIVE DAVIES noted in those cases where there is a                   
 problem, the legislature needs to change the statute to preclude              
 the variation the department is proposing as a regulation.  He                
 stressed that is the quickest, most effective and reasonable public           
 process of dealing with those issues.  He said the idea that a                
 small group of people outside the public process is going to set              
 what these regulations are going to be and what the departmental              
 policies are going to be, with respect to implementing policies, is           
 contrary to open government.                                                  
 REPRESENTATIVE DAVIES stated the reason the regulatory process is             
 somewhat cumbersome is the requirement for public hearings but he             
 reminded everyone that is what democracy is all about.  He felt               
 there is a need to have the deliberations of the legislature and              
 the deliberations of the department, as they are implementing the             
 regulations, carried out in the public process.  He agreed there              
 are some regulations which go beyond the original intent but he did           
 not feel this section is the way to solve that problem.                       
 Number 655                                                                    
 REPRESENTATIVE EILEEN MACLEAN stated she liked the section                    
 prohibiting regulations.  She felt regulations are very onerous and           
 believed once a bill is passed, the agencies tend to implement                
 regulations more stringent than what was proposed in the law.                 
 CO-CHAIRMAN WILLIAMS felt the amendment was good.  He said there              
 has been a lot of effort put forth to get the bill to work and he             
 would not want to see what is contained in CSHB 197(RES) delayed              
 due to what the legislature is like at a certain time.  He stressed           
 the main focus of CSHB 197(RES) is to get companies to come to                
 Alaska and regulations should be written in a way to encourage                
 those companies to come to the state.                                         
 TAPE 95-37, SIDE A                                                            
 Number 000                                                                    
 CO-CHAIRMAN GREEN asked Mr. Tileston if the department proceeds as            
 normal in writing regulations, would the intent in CSHB 197(RES) be           
 delayed any significant amount of time due to the time required to            
 write the regulations.                                                        
 MR. TILESTON responded if CSHB 197(RES) was enacted without lines             
 15 and 16, on page 5, the DNR and DOR would get together with                 
 industry to determine whether or not any clarifications are needed.           
 He stated that would be done within one year because there is a               
 need for the department to provide industry the message that the              
 state not only wants them to come to the state, but also that the             
 state has the mechanism in place to remove any uncertainties on               
 industry's part.                                                              
 CO-CHAIRMAN GREEN asked if there were any objections to the motion.           
 REPRESENTATIVE MACLEAN OBJECTED.                                              
 CO-CHAIRMAN GREEN asked for a roll call vote.  Voting in favor of             
 the amendment were Representatives Davies, Ogan, Austerman, Kott,             
 Williams and Green.  Voting against the amendment was                         
 Representative MacLean.  The MOTION PASSED 6-1.                               
 Number 087                                                                    
 REPRESENTATIVE DAVIES made a MOTION to AMEND CSHB 197(RES) on page            
 5, line 20, inserting the word "actual" prior to the word                     
 MR. ROGERS asked Representative Davies what he meant by actual.  He           
 said putting the punitive question aside, the word "actual" may               
 limit the ability of the agreed party to get full justice.                    
 REPRESENTATIVE DAVIES stated his concern is in the realm of                   
 punitive issues.  He noted there had been testimony indicating that           
 is not an issue and he felt if that is not an issue, then there               
 should not be a problem inserting the word "actual."  He said his             
 intent is to limit the claim to direct actual damages resulting               
 from the release of this data and not any consequential damages.              
 MR. ROGERS clarified Representative Davies wants to tighten up the            
 REPRESENTATIVE DAVIES said that is correct.                                   
 MR. ROGERS stated it is preferred there be the ability to pursue              
 whatever legal remedies currently available for this sort of                  
 problem.  He suspected the word "actual" would limit that.                    
 CO-CHAIRMAN GREEN stated he would object to the amendment because             
 he is concerned that if company A brings information in and the               
 department is lax, the information gets out before adequate                   
 safeguards have been taken, and company B comes in and creates a              
 problem, actual damages might be difficult.                                   
 Number 134                                                                    
 MR. RYAN said gold being what it is, it is where it is found.  He             
 stated gold is like the oil business--there is a need to keep                 
 exploring.  If a department employee tells the newspaper, the                 
 chances of following through to adjacent land are done because                
 everyone is going to rush in and stake.  He stated the sponsors               
 felt there should be compensation.  He wondered how the damages               
 would be determined.                                                          
 REPRESENTATIVE DAVIES agreed.  He asked how are the damages                   
 CO-CHAIRMAN GREEN said dealing with an uncertain science of                   
 determining what is available below the surface, the damages which            
 could accrue, especially with years, could be determined by a                 
 preponderance of the evidence but it may not yet have been damaged            
 because company A might not have been going to do something for               
 some number of years so there were no damages when the slip                   
 occurred but this company lost a mother lode because some guy had             
 a loose lip.                                                                  
 MR. TILESTON stressed the department employees who handle                     
 confidentiality material put a very high responsibility on keeping            
 that information confidential.  He felt the department has an                 
 excellent track record particularly on oil and gas issues.                    
 CO-CHAIRMAN GREEN said the committee was not casting any                      
 aspersions.  Rather the committee is trying to determine if actual            
 damages can be determined at the time a cause of action might be              
 brought, as opposed to determining damages.  For example, if a                
 company says it lost $15, that would be the reward.                           
 MR. TILESTON stated the committee is discussing an area in which he           
 has no expertise.                                                             
 CO-CHAIRMAN GREEN asked for a roll call vote.  Voting in favor of             
 the amendment was Representative Davies.  Voting against the                  
 amendment were Representatives Ogan, MacLean, Austerman, Kott,                
 Williams and Green.  The MOTION FAILED 6-1.                                   
 Number 200                                                                    
 REPRESENTATIVE MACLEAN wondered since the committee deleted lines             
 15 and 16 on page 5, should some sort of statement be attached to             
 the committee report saying the commissioner may adopt minimized              
 regulations as necessary and those minimized regulations should be            
 CO-CHAIRMAN GREEN responded the wording determining what the                  
 commissioner might adopt may not hold, but a letter from the                  
 committee encouraging minimal regulations is appropriate.  He noted           
 HB 197 is an incentive type bill--there is a desire to send the               
 word to the rest of the world that Alaska wants companies to come             
 to Alaska and invest their money and that while Alaska will                   
 continue with the way it does business, the state wants to minimize           
 any restrictions which might otherwise impede that flow of money              
 coming in.                                                                    
 REPRESENTATIVE DAVIES concurred with Co-Chairman Green's comments.            
 He said a committee letter of intent would be appropriate.                    
 CO-CHAIRMAN GREEN stated if that is the wish of the committee, he             
 will prepare a letter of intent and pass it by the committee for              
 REPRESENTATIVE DAVIES made a MOTION to AMEND CSHB 197(RES), on page           
 5, line 32, delete the word "including" and add the word "and."  He           
 felt the change would better reflect the intent.                              
 MR. ROGERS stated that is a good change.                                      
 CO-CHAIRMAN GREEN asked if there were any objections.  Hearing                
 none, the MOTION PASSED.                                                      
 Number 246                                                                    
 REPRESENTATIVE DAVIES made a MOTION to AMEND CSHB 197(RES), on page           
 6, lines 15-18, subsection viii, delete the entire subsection.                
 REPRESENTATIVE MACLEAN OBJECTED to hear the reason for deleting the           
 MR. ROGERS said the intent, when HB 197 was redrafted, was to                 
 ensure the costs of getting exploration related permits and                   
 approvals are eligible costs, which is covered on page 5.  He                 
 stated this subsection goes beyond that and moves into the                    
 development arena which is not the intent of the bill.  He felt it            
 was a miscommunication with the drafter.                                      
 REPRESENTATIVE MACLEAN WITHDREW her OBJECTION.                                
 REPRESENTATIVE DAVIES noted the previous "and" should be eliminated           
 and the semi-colon should be changed to a period which he assumes             
 the drafter will take care of.                                                
 CO-CHAIRMAN GREEN asked if there were any objections to the motion.           
 Hearing none, the MOTION PASSED.                                              
 Number 289                                                                    
 REPRESENTATIVE KOTT wondered on page 7, line 5, what the term                 
 "natural person" means.                                                       
 MR. ROGERS responded a person under state law includes                        
 corporations, partnerships, etc., so a natural person is like                 
 Representative Kott or him.  He stated an unnatural person is a               
 corporation or a business entity, which are listed also.                      
 REPRESENTATIVE KOTT wondered why there is a need to include the               
 word "natural."                                                               
 MR. ROGERS stated he would have to look at the statute to ensure              
 those business entities listed below are included in the law.                 
 CO-CHAIRMAN GREEN felt the point is well made.  He clarified what             
 is desired is the allowance for a single guy to go out and have his           
 own mine without having to be a corporation.                                  
 MR. ROGERS replied that is correct.  He said the desire is to have            
 the credit apply to anyone who is otherwise qualified.                        
 Number 314                                                                    
 REPRESENTATIVE OGAN observed the fiscal note from the DOR had                 
 comments attached and he had some concerns regarding those                    
 comments.  He noted on page 3 of the fiscal note, the department              
 recommends the bill be amended to add "nonrefundable" before                  
 references to the credit.                                                     
 MR. DICK responded that corporations are required to file taxes on            
 a combined basis, which essentially combines operations inside and            
 outside of Alaska, as long as it is the same mining business.  He             
 stated he outlined a scenario in the comment section of the fiscal            
 note where a company might have a site in Alaska, which proves to             
 be very profitable, and the measurement of the credit is based on             
 50 percent of the taxes attributable to that site.  For example, a            
 company has a $100,000 tax liability from that site.  When that               
 company goes to file its corporate income tax return, it will                 
 combine and file on a combined basis for all of their operations in           
 the U.S.                                                                      
 MR. DICK explained if there are losses for the company in a mine              
 down in Nevada, when all of the income is put into the pie,                   
 suddenly there may be, on a combined basis, only a $50,000 total              
 tax liability for the company.  Therefore, the company will take              
 that credit, one-half of the $100,000 or $50,000 for Alaska and               
 apply it against the $50,000 combined tax liability and the company           
 will not pay any tax.  He went on further to explain there may be             
 only $40,000 in the combined pie and therefore, the company would             
 take the credit against the $40,000, which would give the company             
 a negative $10,000 scenario.  He stated the DOR would argue the               
 amount is nonrefundable.  He said the department felt the bill                
 would be enhanced by including the term "nonrefundable" to clarify            
 that it is a nonrefundable credit, which is consistent with what              
 the Internal Revenue Service does.                                            
 MR. ROGERS stated he had not fully thought the issue out.  He was             
 not sure there was a problem or not.  He wondered about a case                
 where there is a pre-pay and the tax liability is less than what              
 someone has paid based on the credit.  He asked if that person                
 should be entitled to some recognition of that, at least in terms             
 of a carry forward.                                                           
 MR. DICK responded pre-pay is like a payment on the tax and the               
 credit involves a different scenario.  He agreed the company would            
 get their money back, but it would be after the credit is deducted,           
 so that would increase the amount returned.                                   
 MR. ROGERS felt adding the word "nonrefundable" throughout the bill           
 would confuse the issue.                                                      
 MR. DICK stated as long as the word "nonrefundable" is associated             
 with credit there would not be a problem.  He stressed it would be            
 a nonrefundable credit.                                                       
 MR. ROGERS asked what the effect would be.                                    
 MR. DICK stated the credit could be taken only to the amount of the           
 tax liability and whatever the pre-payment is would be mutually               
 exclusive.  The pre-payments would be compared against the tax                
 Number 401                                                                    
 REPRESENTATIVE OGAN said he was even more confused.                           
 REPRESENTATIVE MACLEAN advised Representative Ogan could amend CSHB
 197(RES) by inserting the word "nonrefundable" wherever the term              
 exploration incentive credit appears.                                         
 CO-CHAIRMAN GREEN asked Mr. Dick if that was the intent or would              
 there only be certain areas where the word "nonrefundable" should             
 MR. RYAN stated the unitary taxation structure was set up to                  
 realize gains downstream from the oil industry.  He felt now it is            
 coming back to haunt the legislature in this instance.  He said               
 mining is not as profitable as oil.  He noted there are operations            
 in the Lower 48 where people would have large deductions.                     
 Downstream in the oil industry is where the major profits are made            
 rather than the basic field productions.  He pointed out by trying            
 to capture that percentage and increase its wealth by the                     
 downstream on this end, the state may end up losing.  He noted he             
 understood the concerns of the DOR, but there needs to be a review            
 of how their suggestion might affect the overall bill.                        
 REPRESENTATIVE OGAN felt these issues should be addressed by the              
 Finance Committee.                                                            
 REPRESENTATIVE DAVIES said if changes are going to be made, they              
 should be made by inserting a new subsection (c) on page 4.                   
 Number 444                                                                    
 REPRESENTATIVE MACLEAN felt the committee should direct the Finance           
 Committee, via a letter, to review the issue carefully and also               
 include in the letter the concerns the committee discussed.                   
 REPRESENTATIVE MACLEAN made a MOTION to MOVE CSHB 197(RES) as                 
 amended, with attached fiscal notes, out of committee with                    
 individual recommendations.                                                   
 CO-CHAIRMAN GREEN asked if there were any objections.  Hearing                
 none, the MOTION PASSED.                                                      
 There being no further business to come before the House Resources            
 Committee, Co-Chairman Green adjourned the meeting at 10:10 a.m.              

Document Name Date/Time Subjects