03/21/2007 07:35 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| HB156 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
March 21, 2007
7:35 a.m.
MEMBERS PRESENT
Representative Mike Hawker, Chair
Representative Anna Fairclough, Vice Chair
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Sharon Cissna
Representative Max Gruenberg
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Andrea Doll
COMMITTEE CALENDAR
HOUSE BILL NO. 156
"An Act relating to mining licenses, to the mining license tax,
and to production royalties on minerals and rents for property
involved in mining; and providing for an effective date."
- HEARD AND HELD
HOUSE JOINT RESOLUTION NO. 1
Proposing amendments to the Constitution of the State of Alaska
creating and relating to the gas revenue endowment fund,
relating to deposits to the fund, limiting appropriations from
the fund based on an averaged percent of the fund market value,
relating to deposits to the permanent fund, and relating to
deposits to the budget reserve fund.
- BILL HEARING CANCELED
PREVIOUS COMMITTEE ACTION
BILL: HJR 1
SHORT TITLE: CONST. AM: GAS REVENUE ENDOWMENT FUND
SPONSOR(s): REPRESENTATIVE(s) HAWKER
01/16/07 (H) PREFILE RELEASED 1/5/07
01/16/07 (H) READ THE FIRST TIME - REFERRALS
01/16/07 (H) W&M, JUD, FIN
03/21/07 (H) W&M AT 7:30 AM HOUSE FINANCE 519
BILL: HB 156
SHORT TITLE: MINING PROD. & LICENSE TAXES/ROYALTIES
SPONSOR(s): REPRESENTATIVE(s) SEATON
02/26/07 (H) READ THE FIRST TIME - REFERRALS
02/26/07 (H) W&M, RES, FIN
03/16/07 (H) W&M AT 8:30 AM HOUSE FINANCE 519
03/16/07 (H) Heard & Held
03/16/07 (H) MINUTE(W&M)
03/21/07 (H) W&M AT 7:30 AM HOUSE FINANCE 519
WITNESS REGISTER
ROGER C. BURGGRAF, Mining consultant
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to HB 156.
STEVEN C. BORELL, P.E., Executive Director,
Alaska Miners Association, Inc.
Anchorage, Alaska
POSITION STATEMENT: Testified on behalf of Alaska Miners
Association, Inc., in opposition to HB 156.
KATE TROLL, Executive Director
Alaska Conservation Alliance (ACA)
Douglas, Alaska
POSITION STATEMENT: Testified in support of HB 156 and answered
questions.
ERIC UDHE, Public Lands Advocate
Alaska Center for the Environment (ACE)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 156 and answered
questions.
JOHANNA BALES, CPA, Excise Audit Manager
Tax Division
Department of Revenue (DOR)
POSITION STATEMENT: Answered questions about the tax effects of
HB 156.
ACTION NARRATIVE
CHAIR MIKE HAWKER called the House Special Committee on Ways and
Means meeting to order at 7:35:48 AM. Present at the call to
order were Representatives Hawker, Fairclough, Seaton, Roses,
and Wilson. Representatives Cissna and Gruenberg arrived as the
meeting was in progress. Representative Doll was also in
attendance.
HB 156-MINING PROD. & LICENSE TAXES/ROYALTIES
7:36:07 AM
CHAIR HAWKER announced that the only order of business would be
HOUSE BILL NO. 156, "An Act relating to mining licenses, to the
mining license tax, and to production royalties on minerals and
rents for property involved in mining; and providing for an
effective date."
7:36:41 AM
REPRESENTATIVE SEATON, sponsor of HB 156, said that as a result
of discussions with mining industry representatives, he will be
offering two amendments. The first will propose to change the
allowable length of lease terms; the second will adjust the
mining license tax brackets.
7:41:19 AM
ROGER C. BURGGRAF, Mining Consultant, provided testimony on HB
156, and paraphrased from a prepared statement, which read as
follows [original punctuation provided]:
I am opposed to 156.
It is a seriously flawed bill obviously proposed by
someone that does not understand the potential of the
mining industries' contribution to the state and the
people of Alaska.
If the bill is enacted it would seriously impair the
mining industry in Alaska and would discourage
investment in Alaska in areas that need development
and jobs.
There has been a concerted effort by this legislature
to stop mining on state lands. The legislature should
be supporting the industry which creates revenues for
both state and local communities and jobs for rural
residents in economically depressed areas. Developing
a mine is a lengthy and costly process. It requires a
lot of up front capital to be spent on a project which
may or may not become a mine. In the meantime the
industry is spending millions of dollars on trying to
locate viable deposits and providing jobs in Alaska.
The way to create a viable and healthy industry is to
support it and not kill the goose who lays the golden
egg.
If you look at other industries in Alaska and analyze
what taxes they pay you will find industries that
supposedly generate higher revenues which pay less
tax. Much of this revenue goes out of state and only
peripherally benefits a few Alaskans. Mining is labor
intensive and Alaska and its people benefit directly
from mining.
The present tax I feel is well balanced and the Mining
License Tax taxes all mines regardless of whether they
are on Federal lands, State lands, and private lands.
The seven (7%) net profits tax is reasonable.
In addition a three (3%) Net Profits Production
Royalty is placed on mines developed on state lands.
Mining claim holders must pay claim rentals on state
lands and claim maintenance fees on Federal lands.
Mining companies in addition to the mining license tax
must also pay Alaska Corporate Income Tax at nine
percent (9%).
Most small mines are marginally profitable and many
can be related to a subsistence type of income in
small communities. They provide jobs, but they do not
generate a lot of revenue.
There are only five large mines operating in Alaska
today. They are the mines that are generating the
bulk of the mining revenues in the State of Alaska.
Proposed large mines must go through a costly
permitting process today and are facing one lawsuit
after another by environmental groups funded by
outsider interests opposed to the development of our
resources in Alaska. The Kensington Mine near Juneau
and Rock Creek Mine in Nome are recent examples.
7:45:43 AM
If the state wants more revenue from mines on state,
federal, or private lands they should encourage the
development of large mines on those lands.
Alaska has a progressive tax standard for mining which
means when a miner is successful, the state shares in
that success.
During the past period of low metal prices the Fort
Know mine was having a hard time keeping open. No
revenues were being received to pay down the huge
capital expenditure it had to make to permit,
construct, and operate the mine. Still they operated,
paid property taxes, paid their creditors, and their
workers. Now with higher global metal prices they are
able to pay down their capital expenditures. A
company should be allowed to make a profit when times
are good. The state benefits also.
The mining industry averages about five percent (5%)
return on investment-much below other major industries
in Alaska. With the low rate of return, a net profits
tax is the only type of tax that can be paid on a
sustainable basis. The mining industry must be able
to operate in a stable regulatory climate and have a
stable tax basis for it to continue to invest in
Alaska.
The present taxation system is well thought out and
has allowed large mining companies to invest billions
of dollars in Alaska. We hope you will not tamper
with it and that HB 156 will be regulated to the
circular waste basket file.
7:49:23 AM
MR. BURGGRAF explained that he developed and worked the Grant
hard rock mine in the Fairbanks area around 1959, which at one
point had 150 employees. He has also explored for prospects for
larger mining companies to develop, oftentimes in remote areas.
These smaller operations may have had around 30 employees. He
said he is now a consultant.
7:52:16 AM
STEVEN C. BORELL, P.E., Executive Director, Alaska Miners
Association, Inc., stated he was testifying on behalf of the
association. Paraphrasing from a written statement, he
testified [original punctuation provided]:
We are pleased to explain to the Committee, and all
Alaskans, why the current rental, royalty and tax
regime is appropriate at the current levels and why
the changes proposed in House Bill 156 are not
appropriate and why the changes proposed will hurt
Alaskans, especially in the rural areas of the state,
and especially Alaska Natives and Native Corporations.
Most people living in the population centers of Alaska
do know of the hopelessness that is felt by many
residents in rural Alaska, and especially the young
people. The only jobs in many areas are working for
the State DOT or the Department of Education.
Mining can change that situation. Before the Red Dog
mine began operating, the Northwest Arctic Borough had
the highest level of unemployment in the state, and
all the attendant social problems. Today there are
more than 500 good paying, high quality, skilled, year
around jobs because of that one mine. The Northwest
Arctic Borough no longer has the highest unemployment
in the state. How much is it worth to the State of
Alaska to replace the former situation in NW Arctic
Borough with the current vibrant economy and the hope
for the future and personal satisfaction that now
exists because of the Red Dog Mine?
These same benefits are now occurring wherever mineral
development is taking place: at Pogo near Delta
Junction there are now over 300 new jobs; at
Kensington there are now 416 people at work building
that mine; at Rock Creek near Nome there are 130
people working right now, during one of the coldest
winters we have had in many years, constructing that
mine; at Donlin Creek there are now 150 at work (again
in the winter) and this project is still in the
exploration stage; at Pebble three drills are already
at work and 5 more are slated to begin as soon as they
can be placed into operation. So again I ask, how
much are these kinds of jobs worth to the State?
Not to cast stones at our fellow industries, the
mining industry has a >75% resident hire record. In
contrast, the fishing industry averages closer to 26%
resident hire.
During the presentation on Mach 14 by Johanna Bales of
the Department of Revenue, some specific questions
were raised by committee members that I wish to
address: Rep Gruenberg commented on the Mining
License Tax and asked what has transpired
historically? There are at least 3 main factors that
must be mentioned to answer this question:
1. From the late 1800s until WW II mining was the
largest employer in the State. During the war, all
precious metal mining was stopped by Presidential
Order. After WW II there was tremendous over-capacity
in the free world for base metals (Pb, Zn, Cu, Ni,
iron) and Alaska was a very expensive place to
explore. Regarding gold - the price was set by the
government at $35/oz, but costs for labor, fuel,
equipment, supplies, etc. had continued to increase
during the war and only a few mines re-started and no
one explored for gold.
2. Then came 1968 and the discovery of Prudhoe Bay.
This began a 13 year period of extreme land tenure
uncertainty, which lasted until passage of ANILCA in
1980.
3. From 1980 until 1989 two large mine projects
(Greens Creek and Red Dog) were in advanced
exploration, followed by permitting and then
construction. These mines proved to the world that
all of Alaska was not locked up in parks and refuges.
In Summary to Rep Gruenberg's question - the history
is that from WW II until 1989 there was no essentially
no hard rock/lode mining in the entire State of
Alaska.
However, based in part on Alaska's stable tax and
regulatory structure, many companies have invested
more than $900 million in exploration during the past
two decades. This is not mine construction, it is
just exploration. To now change that structure, just
when metal and coal prices are the high, would be seen
as "bait and switch". It would be destructive to
attracting new investment and the associated jobs and
tax base it brings to our state.
Rep Cissna asked why revenues were so low? One of the
DOR tables titled "Mining License Tax Revenue" showed
mining from FY-97 thorough FY-04 the total MLT was
less than $5 million per year. There are 2 primary
reasons for this:
1. There were so few major mines operating. During
that period there were only 4 major mines. There were
also fewer small family mines than in the past. It is
also important to note that only one of the major
mines, Usibelli Coal Mine, is on State land.
2. Metal and coal prices were so low that these four
mines were not making much, if any money, and the MLT
is a net proceeds tax. However, those 4 major mines
operated -- they provided excellent jobs to many
Alaskans; they purchased millions of dollars of
supplies and services from local Alaska vendors; they
paid property taxes to local governments, with the
result that the State Legislature did not have as
large a funding burden for basic community services in
those areas.
3. Conversely, as shown I the chart handed out during
DOR's testimony, the state's general fund has directly
benefited from current commodity prices. In face, as
projected by DOR, FY-07 Mining License Tax receipts
are forecast to exceed $34 million, up from $18.6
million in FY-06.
Rep Gruenberg also asked about non-producing
properties and whether companies hold these for a
tactical reason?
This question reaches to the heart of the claim rental
system that is now in place. Under the existing
system, the rental rates are established to discourage
non-producing properties. This is done by charging a
lower rent during the first few years and then
increasing that rent over time. The effect is that in
the early years the claimant can focus his funds on
exploration to determine whether the claims are worth
further investment. At this stage the claimant does
not have any incoming cash flow from the claims. If
the claimant does not find the area promising, he will
drop the claims and the area will be available for
someone else. If the claims are promising, he can
continue to hold the claims and continue exploration,
but he must pay higher claim rental. This is exactly
what has happened west of Pebble where Liberty Star
explored for the past several years but did not make
findings that justified continued exploration and
therefore have now dropped their claims.
Rep Wilson asked several questions about deductions.
Ms. Bales of DOR answered these questions and pointed
out several very important aspects of the Mining
License Tax:
1. Mining pays the same corporate income tax as
other industries.
2. The MLT is an additional form of taxation, a type
which is not paid by other industries. Only mining
pays this type of a tax.
3. Even though the current MLT has a 3½ year grace
period when a new mine begins operation, most mines
loose money during those startup years and cannot
benefit from that provision.
4. Furthermore, under the MLT there is no carry
forward of losses and no leveling of net income, both
of which would benefit the miner.
5. The result is that the State shares in the profits
when the miner is doing well; but the State does not
share in risk or the losses.
Rep Fairclough asked about the exploration tax credit.
This provision, which was singed into law in 1995 by
Governor Knowles, allows the miner to deduct up to $20
million of exploration expenses from future tax
liability. However, no credit can be taken until the
mine is permitted and in operation.
What Ms. Bales did not say in her response, was that
thus far, only two projects are in a position to
actually benefit from this program. Several hundred
million $ have been spent on exploration since 1995
and thus far only two projects are in a position to
benefit, and it will take them many years to receive
that benefit. It sounds like Alaska is getting one
whale of a good deal!
In previous hearings, and elsewhere, the statement has
often been made that "there have been no changes to
the mining taxes since 1955". Recall that during
most of that time period there were not more than
three large mines: Usibelli, the dredges at Nome for
part of that time, and Valdez Creek Mining Company for
part of that time.
But the statement is not correct -
In 1989 the Legislature enacted a claim rental
that included a built-in escalation schedule, and an
adjustment based on the Consumer Price Index.
In 1990 the Legislature enacted a production
royalty.
The Result --- If you staked mining claims in 1988 or
before your costs for rent and royalty have now
increased five times:
1. 1989 - rent established $0.50/ac
2. 1990 - royalty established 3% of net
proceeds
3. 1995 - automatic rent escalation increased
rent to $1.00/ac
4. 1999 - CPI increase $1.00/ac to
$1.32/ac
5. 2000 - rent escalated for yr 11 on $1.32/ac
to $3.30/ac
In conclusion, past Territorial and early State
Legislatures devised a very progressive tax structure
that brings benefit to the State, but even more
importantly, can provide good quality, year-around
jobs and an economic base for all areas of the State.
The principals embodied in the current net tax
structure, the current net royalty and the escalating
claim rentals are best for the state as a whole.
8:08:03 AM
REPRESENTATIVE WILSON asked how many acres a large mine may
cover.
MR. BORELL replied that a small miner may have about 20 claims
at 20 acres each, for a total of about 400 acres in addition to
other "claim blocks." Mr. Borell explained that miners need to
have more than one area permitted, so as to move on once mining
operations are complete in one area. A small miner may have
approximately $1.5 to $2 million invested in the mining
operation, he said. He went on to say that due to lawsuits in
the mid to late 1980s, some areas could not be developed pending
resolution of legal issues in other areas of the state.
MR. BORELL said he estimates that very large mines, such as the
Fort Knox mine near Fairbanks, may be about 15,000 to 20,000
acres. He said that the Fort Knox mine is currently mining only
a small portion of that acreage, and that the mine operates on
land leased from the Alaska Mental Health Trust Authority
(AMHTA).
8:11:59 AM
REPRESENTATIVE WILSON asked about the average time period from
exploration to production.
MR. BORELL explained that "as a rule of thumb" a major mining
company may consider 1,000 projects for mineral development,
drill test holes in only 100, and perhaps get a return from only
1 drill hole. He said he believes that Teck Cominco's Red Dog
Zinc Mine in northwest Alaska may have required 19 years from
discovery to actual production. He went on to say that he
believes that Kennecott Mineral's Greens Creek mine near Juneau
was discovered in around 1974 and began operations in 1989, a
period of 15 years.
8:14:42 AM
REPRESENTATIVE ROSES set forth his understanding that under the
current tax structure a miner with about 1,000 acres would have
paid rents of $0.50 an acre. Under the proposed changes, that
miner would pay rents of $3.30 an acre, or $3,300. If that
miner made exactly $100,000, the tax rate would be 4 percent or
$4,000, in addition to a 3 percent royalty, for a total mining
license tax due of about $10,000. Under the proposed changes,
that same miner would pay no tax on the first $100,000 of
income. The miner would owe rental fees of $3.30 an acre,
totaling $3,300. The royalties would be 3 percent of the net
smelter returns, which he estimated would not be anywhere near
the amount of $7,000. He queried whether under this
hypothetical situation, a small miner would actually pay less
tax under the structure proposed by HB 156.
MR. BORELL said that he would have to further examine this, but
he expressed doubt over the aforementioned conclusions of tax
liability under the bill. He noted that "changing the floor" on
the mining license tax may indeed work as described by
Representative Roses for a miner with that income level.
REPRESENTATIVE ROSES said it appears that, under the bill, a
miner would have to make more than $250,000 to pay more taxes
than that which would be owed under the current mining license
tax structure.
MR. BORELL noted that under the bill, the rental fees charged
would still escalate faster than under current law, and that
escalation could have an adverse affect.
8:18:10 AM
REPRESENTATIVE GRUENBERG set forth his understanding that the
coal industry is somewhat different from hard rock mining. He
asked if other jurisdictions tax all types of mines under the
same method, or whether different mining operations are taxed
differently.
MR. BORELL indicated he is not aware of any other jurisdiction
treating mining industries exactly the same. He noted that the
coal industry pays additional charges and taxes not paid by
other mineral extraction entities. Furthermore, the coal
industry must comply with a unique regulatory regime called the
Surface Mining Control and Reclamation Act of 1977 (SMCRA),
which imposes a complex regulatory scheme that is very different
from laws that affect other mining operations, he opined.
Another difference in the coal industry is that cost increases
can sometimes be passed on to customers by "pass-through"
clauses in contracts. He said he believes that Usibelli Coal
Mine, Inc., ("Usibelli"), has "pass-through" clauses in some of
its domestic contracts. He went on to explain that "pass-
through" clauses put a coal marketer at a disadvantage in the
international market. He said that Australia and South Africa
also export coal, but that these countries do not necessarily
have the same tax cost structure as Alaska. He opined that an
increase of mining taxes in the state would put Alaska in a
"worse competitive position."
8:22:39 AM
REPRESENTATIVE GRUENBERG described the oil and gas production
industry as really "one industry." In comparison, the issues
for mining seem to vary depending on the mineral being produced,
he noted. He asked whether one tax regime can be applied to all
aspects of the mining industry, or whether there should be
differences in the taxation approach based on the particular
mineral mined.
MR. BORELL agreed that precious and base metals are very
different industries. He explained that many boilers will not
work efficiently on Alaskan coal, so Usibelli sells coal to
Korea because that country's boilers work with Alaska-grade
coal. He said there is somewhat of a spot market for coal, but
in reality companies must focus on buyers who are able to
receive their grade of coal. Similarly with base metals, the
mining company must sell to a smelter which has the ability to
efficiently process the grade of ore produced. He said he
believes that the Greens Creek and Red Dog mines sell to six or
eight smelters around the world through set contracts, which
require a certain grade of ore to achieve full price for the
seller under the contract.
8:25:43 AM
REPRESENTATIVE WILSON asked what type of costs mining companies
incur when they engage in core drilling activities.
MR. BORELL replied that companies may consider 1,000 areas, but
may only drill in about 100 of those. He reiterated that the
mining company may only find one positive result out of the
original 1,000 areas considered. He explained that one cannot
compare mining to oil and gas because the revenue potential for
oil and gas is huge compared to mining. He noted that mining
will never be able to produce the same amount of revenues as oil
and gas production, but that it provides other benefits such as
employment due to its labor intensive nature. He said that
mining creates jobs in rural areas which have little tax base
and few employment opportunities. He posed the possibility that
the existence of mines in every rural school district could
eliminate the state's need to fund those schools.
8:29:09 AM
CHAIR HAWKER asked for further explanation of how mining
operations could contribute revenues to schools within the Rural
Education Attendance Area (REAA).
MR. BORELL replied that he believes Red Dog mines pays the
Northwest Arctic Borough around $5 million a year. He conceded
that he may have oversimplified his comment regarding the effect
mining operations could have on school funding. He retracted
his prior comment and opined that if there were two large mines
in every school district, it is possible that the local
governments for those school districts would have an opportunity
for a tremendous tax base. Mr. Borell said the prior statement
does not necessarily mean his organization supports mandatory
borough formation, but noted that it supports the concept of
grants to help fund borough formation for those entities that
wish to pursue borough formation.
8:32:10 AM
KATE TROLL, Executive Director, Alaska Conservation Alliance
(ACA), testified in support of HB 156. She said ACA is an
umbrella organization of 40 Alaska conservation groups with a
membership of approximately 37,000 Alaskans. She opined that
now is a good time to review the state's mining taxes due to the
lack of adjustment since statehood and the fact that there are
two large mining projects being proposed in the state. She
opined that the mining industry makes a minimal revenue
contribution to the state compared to other "high value"
resource industries. Title IIX of the Alaska State Constitution
requires that the state use its natural resources in a manner
that maximizes benefits to Alaska residents, she said. She
offered that it is difficult for those in the conservation
community to understand how the current mining tax system
"delivers on this constitutional directive." She went on to
opine that the state taxes the renewable resources of salmon,
cod, and crab at a higher rate than the state's "one-time, vast,
non-renewable resources." She offered that she is not prepared
to discuss what exactly is the "right rate" for mining taxation,
but she referenced the Fraser Report, prepared by The Fraser
Institute of Canada, as evidence that the state has the ability
to adjust its tax rate and make some modest tax adjustments
without losing its attractiveness to the mining industry. She
further opined that the state constitution does not require that
the state be ranked as having the second most favorable mining
tax regime in the world. Ms. Troll referenced a prior comment
by Representative Gruenberg and noted that she used to represent
fishing interests and that there is great variety in the fishing
industry however, the fishing industry is all taxed under the
same tax system.
8:36:40 AM
REPRESENTATIVE FAIRCLOUGH asked how many persons the mining
industry employs compared to the fishing industry.
MS. TROLL opined that although she does not have the exact
figures before her, fishing is state's largest private sector
employer. She went on to say that the fishing, oil, and tourist
industries also provide employment and pay taxes in an amount
which she characterized as "significantly more" than the mining
industry.
8:37:44 AM
REPRESENTATIVE FAIRCLOUGH stated her concern that there are
year-round employment opportunities for Alaskans. She noted
that fishing seems to be seasonal, whereas mining may provide
more year-round employment.
MS. TROLL referenced a study by The McDowell Group which she
said calculated fishing employment based on "full-time
equivalents," and concluded that the fishing industry provides
the most full-time employment.
8:38:38 AM
CHAIR HAWKER said that in his experience, conservation groups
have not made the state's economic development and well-being
their top priority. Indeed, their reputation is one of
frustrating economic development in the state, he opined. He
asked whether ACA has a position on what role mining should play
in Alaska's economic future.
MS. TROLL responded that ACA's mission statement recognizes the
importance of economically viable communities throughout Alaska,
but that ACA has no specific position on mining in general. She
offered her belief that a sound economy and a sound environment
go hand-in-hand. She said that she would direct some of her
efforts as executive director towards the conservation
community's recognition of these economic linkages.
8:40:03 AM
REPRESENTATIVE ROSES asked what level of taxation may be so high
as to discourage mining activities in the state.
MS. TROLL said she believes that the proposed increases of HB
156 are reasonable and would not create an inhospitable
environment. She indicated uncertainty as to when the tax
threshold would be so high as to discourage mining. She opined
that the oil industry is thriving despite tax rates of
approximately 20 percent, although she noted that the mining
industry could not afford that level of taxation. She estimated
that a reasonable level of taxation for mining is somewhere
between the proposals in HB 156 and the oil industry tax rates.
8:41:41 AM
REPRESENTATIVE CISSNA asked about the application of
sustainability principles to resource development.
MS. TROLL responded that she believes in employing the
sustainability principal as spoken to in the Alaska State
Constitution and that fisheries are managed on this basis. She
opined that non-renewable resources are different because once
these resources are extracted they cannot be replaced. Instead,
one must look at reclamation and permitting compliance to assure
that the land is available for other uses once mining operations
are complete, she opined.
8:43:49 AM
REPRESENTATIVE WILSON asked about the fishing industry's record
of employing Alaskans.
MS. TROLL said she could not recall statistics on the number of
Alaskans employed by the fishing industry. However, she opined
that all resource related industries employ a significant
percentage of non-residents and could provide further
information to the committee.
8:45:56 AM
REPRESENTATIVE ROSES asked for examples of mines which meet the
principals of sustainable and environmental development.
MS. TROLL said that the Greens Creek mine north of Juneau, and
the Fort Knox mine near Fairbanks, meets the aforementioned
sustainability criteria. She said that there are mines in the
state that are in compliance with all the environmental
regulations. She noted that Greens Creek mine dry stacks its
tailings, which she described as a preferable way to minimize
environmental impacts.
REPRESENTATIVE ROSES asked whether it is fair to state that ACA
is not in opposition to the Greens Creek and Fort Knox mines.
8:47:24 AM
MS. TROLL indicated her organization is not opposed to the mines
mentioned and further indicated that ACA is not opposed to
mining operations that comply with environmental regulations.
She went on to say that her comments today are not designed to
eliminate mining in the state, but are focused on the review of
the mining tax structure to assure that Alaskans receive some
economic benefits from mining.
8:48:05 AM
REPRESENTATIVE FAIRCLOUGH asked whether the conservation groups
represented by ACA went on record during the permitting process
as not opposing the mines mentioned.
MS. TROLL replied that she is unaware of whether the
conservation groups represented by ACA appear as unopposed to
the development of the mines mentioned, and noted she has only
been the executive director of ACA for a year.
8:48:56 AM
REPRESENTATIVE FAIRCLOUGH indicated that in general conservation
groups have been labeled as being in opposition to industry.
She noted that Northern Dynasty Inc.'s proposed Pebble Mine is a
fairly large project and expressed concern as to whether
concerns put forth by various groups are really about taxation,
or whether they are geared towards stymieing development of a
particular project. She set forth that she will consider
whether a group's concerns about the bill are genuine and
consistent with its past positions.
MS. TROLL noted that ACA meets once a year to determine its
legislative priorities and when this issue came up, it was not
in context of the proposed Pebble Mine. She stated that ACA is
on record as supporting the construction and operation of a gas
pipeline.
REPRESENTATIVE FAIRCLOUGH expressed her concern with Alaska's
reputation as a desirable place to do business. She noted that
public opinion seems to indicate a desire to avoid property tax
increases and use of permanent fund revenues. As the options
for funding are reduced, it is important to balance numerous
criteria of various revenue measures to make an appropriate
judgment call, she opined.
8:53:55 AM
ERIC UDHE, Public Lands Advocate, Alaska Center for the
Environment (ACE), an Anchorage based conservation organization
with over 7,000 Alaskan members, said ACE supports HB 156
because it has been over 50 years since Alaska has amended its
mining tax structure to assure a fair share of mining revenues.
He opined that the bill would improve mining industry regulation
by assuring that Alaskans maximize their benefits from resource
extraction. He said that mining activities are on the rise due
to Alaska's abundant mineral resources and high mineral prices;
therefore it is an opportune time to review the taxation regime.
He said that mining corporations desire to be "good neighbors,"
and that review of the mining taxation regime could help to
achieve that goal. He stated ACE supports mining projects that
are environmentally sound, pay their own way, are supported by a
majority of Alaskans, and provide maximum benefits to the state.
He referenced that some industry groups rate Alaska's mineral
prospects, security, and tax structure as very favorable to
industry. He said that one "really has to be looking out for
the new projects that are coming on line," referencing that some
recent projects such as Alaska Gold Company's Rock Creek mine
near Fairbanks have gone from permitting to operation in less
than a year. He mentioned that there are other proposed
projects in the Tangle Lakes area and opined that it is
important to look at the revenues the state receives from
resource extraction.
8:57:39 AM
CHAIR HAWKER asked, in light of the witness' comments, whether
the legislature should consider establishing taxes so as to
create an impediment to proposed mining projects.
MR. UHDE replied "absolutely not," but reiterated his opinion
that the state receive a "fair share" from mining activities.
He noted that mining supplies jobs, but opined that mines employ
workers from outside the state.
8:58:44 AM
CHAIR HAWKER asked for further clarification of the term "fair
share," which he characterized as somewhat indeterminate,
particularly in light of this committee's need to carefully
examine specific provisions of any bills brought before it.
MR. UHDE responded that the 3 percent net smelter tax proposed
by the bill is "pretty modest." In response to Chair Hawker's
request for further clarification, he agreed that the
determination of a fair rate of return is complicated. He
offered that ACE is making efforts to provide further
information on this issue. The reports published by The Fraser
Institute provide the best data available and conclude that the
mining industry looks favorably on Alaska's tax structure, he
opined. He offered that the issue of what changes would deter
investment is a complicated one that ACE cannot answer without
further input by mining economists.
9:01:35 AM
REPRESENTATIVE ROSES asked for verification and further
calculations of the bill's effect on mining taxes, referring to
the "Non-renewable Resource Tax Comparison Chart." He requested
some additional estimation of the bill's effect on mining
operations with varying income levels.
JOHANNA BALES, CPA, Excise Audit Manager, Tax Division,
Department of Revenue (DOR), said she would be able to consider
the scenarios posed by Representative Roses.
9:04:19 AM
REPRESENTATIVE FAIRCLOUGH expressed concern with prior comments
by Mr. Udhe which referenced that mining projects should have
majority support of Alaskans and observed that position may
suggest that there be a vote on oil and gas royalty lease
options. She reiterated her concern that requiring a vote for
project development could hurt the prices received for royalty
lease projects.
9:06:23 AM
REPRESENTATIVE WILSON asked for an explanation of the difference
between tailings impoundment and dry stacking.
MR. BORELL responded by noting that he is pleased ACA supports
the Fort Knox mine, which he said has a large 20 acre tailing
impoundment site. He opined that the Fort Knox mine would never
have opened had it been required to use a dry stack tailings
impoundment approach. He explained that the Fort Knox mine
grinds its tailings to a fine powder, after which the gold is
extracted through a solution. The tailings compact tightly to
make a hard surface, and are covered with water that is
consistently changed and filtered. The alternative "dry stack"
method of tailings impoundment requires a series of filter
presses, several steps, and is very expensive. The pressed
tailings have the water removed, and are packed into a pile. He
referenced that the proposed Kensington mine north of Juneau has
proposed to use tailings impoundment, and is currently being
sued regarding this issue.
REPRESENTATIVE CISSNA opined that tensions between various
groups can result in compromise positions to achieve "better
results." She said that the state is mineral rich and should
receive revenues without devaluing the value of the resource.
9:17:25 AM
MR. BORELL stated he could not agree more with the
aforementioned opinion that cooperation is a positive avenue,
noting it is frustrating for industry when positions change in
the course of development. He opined that there should be
accountability for environmental groups as there is for the
industry, which has to comply with various environmental
regulations.
9:20:48 AM
REPRESENTATIVE ROSES set forth his questions regarding
comparison of the bill's provisions with the current mining
license tax regime. He used the example of a mine in the
$250,000 to $500,000 range and posed that as written in the
"Non-renewable Resource Tax Comparison Chart" a mine with income
of $280,000 would pay 7 percent on income over $250,000, a total
of $2,850. He said that under the current tax structure a mine
with that same amount of net income would pay $16,600. He
opined that what is meant is for a mine with $280,000 in net
income to pay 7 percent of it total income, not just of the
portion over $250,000.
CHAIR HAWKER noted that this would be clarified and opined that
Representative Seaton's intent is for HB 156 to propose a
marginal tax system.
REPRESENTATIVE GRUENBERG requested that any questions in the
calculations be answered before Ms. Bales does her calculations.
[HB 156 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
9:22:39 AM.
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