Legislature(1995 - 1996)
03/20/1995 08:08 AM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 date." 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 SHORT TITLE: RAFFLE OR AUCTION OF BIG GAME PERMITS 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 SHORT TITLE: MINERAL EXPLORATION INCENTIVE CREDITS 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 written. 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 recommendations. 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 GREEN. HRES - 03/20/95 HB 197 - MINERAL EXPLORATION INCENTIVE CREDITS Number 115 JOHN WALSH, LEGISLATIVE ASSISTANT, REPRESENTATIVE RICHARD FOSTER, 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 PATTI SWENSON, LEGISLATIVE ASSISTANT, REPRESENTATIVE CON BUNDE, 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. REPRESENTATIVE AUSTERMAN made a MOTION to ADOPT CSHB 59(RES). 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 recommendations. 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 DAVID ROGERS, REPRESENTATIVE, COUNCIL OF ALASKA PRODUCERS, said he 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 targets. Number 307 JOE RYAN, LEGISLATIVE ASSISTANT, REPRESENTATIVE AL VEZEY, stated a 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 16. REPRESENTATIVE DAVIES clarified the committee is only looking at the typed version M and none of the penciled in comments are applicable. 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 credit. 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 period. 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 America. 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 JULES TILESTON, DIRECTOR, DIVISION OF MINING & WATER MANAGEMENT, 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 investment. 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 value. 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 used. Number 200 PAUL DICK, REPRESENTATIVE, INCOME & EXCISE AUDIT DIVISION, 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 future. 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 law. 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 mining. 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 possible. 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 "damages." 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 language. 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 determined. 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 and REPRESENTATIVE MACLEAN OBJECTED to the motion. 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 implemented. 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 approval. 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 subsection. 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 liability. 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 appear. 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. ADJOURNMENT There being no further business to come before the House Resources Committee, Co-Chairman Green adjourned the meeting at 10:10 a.m.