Legislature(2005 - 2006)BELTZ 211

05/02/2005 01:30 PM COMMUNITY & REGIONAL AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 133 MUNICIPAL BOUNDARY CHANGES/ COMMISSION TELECONFERENCED
Heard & Held
Bills Previously Heard/Scheduled
= SB 179 MINERALS TAX/PAYMENTS TO MUNIS IN LIEU
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
    SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                  
                          May 2, 2005                                                                                           
                           1:38 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Gary Stevens, Chair                                                                                                     
Senator Thomas Wagoner                                                                                                          
Senator Albert Kookesh                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Bert Stedman                                                                                                            
Senator Johnny Ellis                                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 133(JUD) am                                                                        
"An Act relating  to incorporation of boroughs,  to annexation by                                                               
local  action,   and  to  regulations   of  the   Local  Boundary                                                               
Commission  to provide  standards  and  procedures for  municipal                                                               
incorporation,   reclassification,   dissolution,   and   certain                                                               
municipal  boundary  changes;  and  providing  for  an  effective                                                               
date."                                                                                                                          
                                                                                                                                
     HEARD AND HELD                                                                                                             
                                                                                                                                
SENATE BILL NO. 179                                                                                                             
"An Act relating to the  taxation of mining property; relating to                                                               
contracts  approved by  municipalities  for payments  in lieu  of                                                               
taxes; and providing for an effective date."                                                                                    
                                                                                                                                
     HEARD AND HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 133                                                                                                                  
SHORT TITLE: MUNICIPAL BOUNDARY CHANGES/ COMMISSION                                                                             
SPONSOR(s): REPRESENTATIVE(s) COGHILL                                                                                           
                                                                                                                                
02/09/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/09/05       (H)       CRA, STA                                                                                               
02/16/05       (H)       SPONSOR SUBSTITUTE INTRODUCED                                                                          
02/16/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/05       (H)       CRA, STA                                                                                               
02/24/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
02/24/05       (H)       Heard & Held                                                                                           
02/24/05       (H)       MINUTE(CRA)                                                                                            
03/03/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
03/03/05       (H)       Moved CSSSHB 133(CRA) Out of Committee                                                                 
03/03/05       (H)       MINUTE(CRA)                                                                                            
03/04/05       (H)       CRA RPT CS(CRA) 5DP 2NR                                                                                
03/04/05       (H)       DP: SALMON, NEUMAN, KOTT, THOMAS,                                                                      
                         OLSON;                                                                                                 
03/04/05       (H)       NR: LEDOUX, CISSNA                                                                                     
04/02/05       (H)       STA AT 10:00 AM CAPITOL 106                                                                            
04/02/05       (H)       Moved CSSSHB 133(STA) Out of Committee                                                                 
04/02/05       (H)       MINUTE(STA)                                                                                            
04/04/05       (H)       STA RPT CS(STA) NT 3DP 2NR                                                                             
04/04/05       (H)       DP: LYNN, ELKINS, SEATON;                                                                              
04/04/05       (H)       NR: GARDNER, GRUENBERG                                                                                 
04/04/05       (H)       JUD REFERRAL ADDED AFTER STA                                                                           
04/04/05       (H)       JUD RPT CS(JUD) NT 2DP 3NR                                                                             
04/13/05       (H)       JUD AT 1:00 PM CAPITOL 120                                                                             
04/13/05       (H)       <Bill Hearing Postponed to 4/18>                                                                       
04/18/05       (H)       JUD AT 1:00 PM CAPITOL 120                                                                             
04/18/05       (H)       Moved CSSSHB 133(JUD) Out of Committee                                                                 
04/18/05       (H)       MINUTE(JUD)                                                                                            
04/19/05       (H)       DP: COGHILL, MCGUIRE;                                                                                  
04/19/05       (H)       NR: GRUENBERG, DAHLSTROM, GARA                                                                         
04/25/05       (H)       TRANSMITTED TO (S)                                                                                     
04/25/05       (H)       VERSION: CSSSHB 133(JUD) AM                                                                            
04/26/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/26/05       (S)       CRA, STA                                                                                               
05/02/05       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
                                                                                                                                
BILL: SB 179                                                                                                                  
SHORT TITLE: MINERALS TAX/PAYMENTS TO MUNIS IN LIEU                                                                             
SPONSOR(s): SENATOR(s) THERRIAULT                                                                                               
                                                                                                                                
04/18/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/18/05       (S)       CRA, FIN                                                                                               
04/18/05       (S)       CRA AT 2:00 PM BELTZ 211                                                                               
04/18/05       (S)       Heard & Held                                                                                           
04/18/05       (S)       MINUTE(CRA)                                                                                            
04/22/05       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
04/22/05       (S)       Heard & Held                                                                                           
04/22/05       (S)       MINUTE(CRA)                                                                                            
04/27/05       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
04/27/05       (S)       Heard & Held                                                                                           
04/27/05       (S)       MINUTE(CRA)                                                                                            
05/02/05       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Rynnieva Moss                                                                                                                   
Legislative Aide to Representative Coghill                                                                                      
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Introduced HB 133                                                                                         
                                                                                                                                
Steve Thompson, Mayor                                                                                                           
800 Cushman Street                                                                                                              
Fairbanks, AK 99701                                                                                                             
POSITION STATEMENT:  Opposed HB 133                                                                                           
                                                                                                                                
Steve Van Sant, State Assessor                                                                                                  
Department of Commerce, Community & Economic Development (DCCED)                                                                
550 W. 7th Street, Suite 1770                                                                                                   
Anchorage, AK 99501-3510                                                                                                        
POSITION STATEMENT:  Answered questions on SB 179                                                                             
                                                                                                                                
Senator Gene Therriault                                                                                                         
Alaska State Capitol                                                                                                            
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Sponsor SB 179                                                                                           
                                                                                                                                
Joe Balash                                                                                                                      
Staff to Legislative Budget & Audit Committee and Senator                                                                       
Therriault                                                                                                                      
Alaska State Capitol                                                                                                            
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Explained changes to SB 179                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  GARY  STEVENS called  the  Senate  Community and  Regional                                                             
Affairs  Standing  Committee  meeting  to order  at  1:38:29  PM.                                                             
Present  was  Chair Gary  Stevens.  Senator  Kookesh and  Wagoner                                                               
arrived shortly.                                                                                                                
                                                                                                                                
   CSSSHB 133(JUD) AM-MUNICIPAL BOUNDARY CHANGES/ COMMISSION                                                                
                                                                                                                                
CHAIR GARY STEVENS announced HB 133 to be up for consideration.                                                                 
                                                                                                                                
1:38:51 PM                                                                                                                    
                                                                                                                                
RYNNIEVA MOSS, Legislative Aide to Representative Coghill,                                                                      
explained that HB 133 started as a single subject piece of                                                                      
legislation  addressing  aggregate   votes.  Existing  regulation                                                               
provides for annexation by aggregate  vote. This means that votes                                                               
from an area  to be annexed and the votes  from the existing area                                                               
are  counted in  aggregate to  determine whether  or not  an area                                                               
will  be   annexed.  Representative  Coghill  believes   that  is                                                               
contrary to intent and statute  because existing statute says the                                                               
people in the  area to be annexed must approve  the annexation by                                                               
a majority vote.                                                                                                                
                                                                                                                                
Section  4   says  that   regulations  providing   standards  and                                                               
procedures are  subject to  state law,  which is  consistent with                                                               
the constitution.                                                                                                               
                                                                                                                                
The original draft required a  public vote for the Local Boundary                                                               
Commission  (LBC)  to  bring  a   proposal  to  the  Legislature.                                                               
Legislative Legal said that would  probably not stand up to legal                                                               
challenge. The committee substitute  requires two public hearings                                                               
if the LBC comes to the Legislature with a proposal.                                                                            
                                                                                                                                
Another change is the language  prohibiting the LBC from changing                                                               
or  adding requirements  to the  petition.  The current  proposal                                                               
requires the LBC to publicly  notice the changes and provide time                                                               
for public comment.                                                                                                             
                                                                                                                                
The final  addition to  the statute is  the requirement  that the                                                               
people  in the  existing municipality  would have  to approve  an                                                               
annexation by majority vote. The reason  for this is that a large                                                               
area  could force  itself into  an existing  borough through  the                                                               
annexation. As currently drafted,  the bill requires two separate                                                               
votes. One  vote would  be the  area to be  annexed and  one vote                                                               
would  be from  the  existing municipality.  Each  would have  to                                                               
approve the annexation separately.                                                                                              
                                                                                                                                
1:42:18 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS noted Senator Kookesh was present.                                                                           
                                                                                                                                
He  recapped and  remarked this  gives annexation  veto power  to                                                               
what could be a very few people.                                                                                                
                                                                                                                                
MS MOSS  replied that  power already  exists under  existing law.                                                               
The bill changes  that by requiring the  existing municipality to                                                               
vote in favor of the annexation.                                                                                                
                                                                                                                                
STEVE  THOMPSON, Fairbanks  Mayor, stated  three points  opposing                                                               
the bill:                                                                                                                       
                                                                                                                                
          · Some of the earliest lawsuits in Fairbanks were over                                                                
        annexations  and   the  same   probably  holds   true  in                                                               
        Anchorage. Nonetheless, local adjacent  annexations do in                                                               
       fact work out to be the best for the communities.                                                                        
          · Fairbanks has run out of property and is looking at                                                                 
        adjacent areas amounting to  between 500 and  1,000 acres                                                               
        areas to expand and grow the community. The borough would                                                               
        like to improve the  area to the  point that it  could be                                                               
        developed as an industrial area or a housing subdivision.                                                               
        Under the  proposed  legislation,  if  there's  just  one                                                               
        person living in the  area, he or  she could vote  no and                                                               
        that would be the end of the expansion.                                                                                 
          · In Fairbanks 30,000 people live inside the city                                                                     
        limits, but 80,000 live  in the immediate area.  Jobs are                                                               
        inside the city limits so about 50,000 people travel into                                                               
        the community where they  work every day. They  expect to                                                               
        have police, fire and ambulance protection  and they want                                                               
        the roads  plowed and  maintained. However,  those 50,000                                                               
        people provide  none  of the  funding  that  it takes  to                                                               
        provide those services. People  coming into town  to work                                                               
        in the community work for employers in buildings that are                                                               
        tax-exempt. The Fairbanks Memorial  Hospital, the federal                                                               
        building, state  court house,  borough buildings,  school                                                               
        district headquarters, and schools are  all big employers                                                               
        of people that live outside the city and the city is left                                                               
        with no way to recover any  costs. Annexing the immediate                                                               
        area around a town  that really is part  of the community                                                               
        would help solve the problem.                                                                                           
                                                                                                                                
HB 133 could be renamed the anti-economic development bill, he                                                                  
quipped.                                                                                                                        
                                                                                                                                
1:47:23 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS said it sounds as though you believe this                                                                    
bill would cause more trouble than you already have.                                                                            
                                                                                                                                
MAYOR THOMPSON replied yes it would. It would slow down the                                                                     
ability to develop areas for economic development and it would                                                                  
be burdensome for the city if it were to try to expand.                                                                         
                                                                                                                                
CHAIR GARY STEVENS noted Mike Black with Department of Community                                                                
& Economic Development (DCCED) was available for questions.                                                                     
                                                                                                                                
1:48:47 PM                                                                                                                    
                                                                                                                                
MS MOSS  said she  wanted to  address Mayor  Thompson's concerns.                                                               
She explained that under current  state statute, people living in                                                               
the annexed  area would have  to vote  on the annexation.  HB 133                                                               
takes nothing  away from the  current process, but it  takes away                                                               
the concern  that Representative  Coghill has about  a regulation                                                               
that is  inconsistent with  state statute.  That is  a regulation                                                               
that dilutes the voice of the people in the area to be annexed.                                                                 
                                                                                                                                
She  disagreed  that  people  living   outside  the  city  aren't                                                               
contributing  to the  services  and facilities  inside the  city.                                                               
Contribution examples  include user fees, fuel  tax, and driver's                                                               
licenses.  She also  pointed out  that the  state puts  a lot  of                                                               
money into  facilities in the  city. HB  133 won't slow  down the                                                               
city's process. It simply ensures  there are not regulations that                                                               
are inconsistent with state statute.                                                                                            
                                                                                                                                
CHAIR  GARY  STEVENS  asked  if it's  correct  that  currently  a                                                               
majority of the aggregate vote rules.                                                                                           
                                                                                                                                
MS MOSS  clarified it's  currently a  vote of  the people  in the                                                               
annexed  area. In  Fairbanks, Mayor  Whitaker made  the statement                                                               
that according  to regulation  he could do  an aggregate  vote to                                                               
annex  everything south  of the  Yukon River.  The regulation  is                                                               
indeed  on  the books  and  Representative  Coghill is  concerned                                                               
because that  regulation is inconsistent with  state statute. The                                                               
LBC has said  that it has never used the  aggregate vote, but she                                                               
hasn't verified that point.                                                                                                     
                                                                                                                                
1:51:48 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS noted Senator  Wagoner had joined the meeting.                                                               
He announced he would hold HB 133 in committee.                                                                                 
                                                                                                                                
         SB 179-MINERALS TAX/PAYMENTS TO MUNIS IN LIEU                                                                      
                                                                                                                              
1:52:15 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS  announced SB 179 to be  up for consideration.                                                               
He asked  Mr. Van Sant to  come forward and discuss  the issue of                                                               
prohibiting communities  from having a severance  tax on minerals                                                               
and mining and how that would be implemented.                                                                                   
                                                                                                                                
STEVE  VAN   SANT,  State   Assessor,  Department   of  Commerce,                                                               
Community & Economic Development  (DCCED), introduced himself and                                                               
explained that original bill exempted  nearly every tax you could                                                               
think of. The committee substitute  (CS) made a number of changes                                                               
that his  office recommended one  of which was the  severance tax                                                               
issue. It appeared  as though a municipality could  hold a mining                                                               
operation hostage by threatening  a severance tax. DCCED contends                                                               
that resources  belong to the people  of the State of  Alaska and                                                               
therefore a severance tax should  be reserved to the state rather                                                               
than  a  local municipality.  If  the  state  decided to  levy  a                                                               
severance tax, it could do so statewide or by category.                                                                         
                                                                                                                                
Looking  at other  changes  made  in the  CS,  he  said they  are                                                               
acceptable to the department at  this time. The primary point was                                                               
that  one entity  should not  carry the  total tax  burden for  a                                                               
community or  proposed borough. All  residents of an  area should                                                               
share the burden.                                                                                                               
                                                                                                                                
CHAIR GARY STEVENS asked how property tax is established.                                                                       
                                                                                                                                
MR.  VAN SANT  explained that  when speaking  about property  tax                                                               
everything is  taxable unless state law  specifically exempts it.                                                               
Obviously state  property, federal  property, city  property, and                                                               
borough  property would  be  exempt from  property  tax unless  a                                                               
private  entity  uses  the  property for  its  own  purpose.  For                                                               
example, the railroad  pays a possessory-interest tax  on land it                                                               
leases from the state.                                                                                                          
                                                                                                                                
Ownership on  January 1 dictates  taxability of a property.  If a                                                               
church owned  a piece of  property on January  1 and used  it for                                                               
religious purposes  until January 5  and then sold  the property,                                                               
the exemption  would carry  through for the  entire year.  But if                                                               
the  church  purchased a  property  on  January  5, it  would  be                                                               
taxable the entire year.                                                                                                        
                                                                                                                                
1:57:45 PM                                                                                                                    
                                                                                                                                
The Red  Dog Mine itself is  taxable. When he put  the full value                                                               
on  the  mine it  amounted  to  about  $130 million  in  property                                                               
including the  road, the port,  the storage facilities.  That was                                                               
all  property not  owned by  the Red  Dog Mine,  but they  had an                                                               
interest in it and were  therefore subject to possessory-interest                                                               
property   tax.   Subsequently,  the   Legislature   specifically                                                               
exempted  that interest,  but any  other operation  that came  in                                                               
would  pay a  local property  tax. If  they didn't  have a  local                                                               
property  tax the  assessor would  include it  in the  full value                                                               
determination for educational funding.                                                                                          
                                                                                                                                
CHAIR  GARY STEVENS  recalled that  the  Alaska Municipal  League                                                               
(AML) testified that there is a  perfect balance here if there is                                                               
a new borough.  If a property tax were assessed  against the mine                                                               
then residents would have to pay  a similar property tax on their                                                               
homes. He  asked whether that would  be true or would  many homes                                                               
be exempt.                                                                                                                      
                                                                                                                                
MR.  VAN SANT  explained that  most  property in  those areas  is                                                               
exempt  because it  is state  or federal  land. Private  homes on                                                               
restricted deeds,  Native allotments  or ANCSA property  would be                                                               
exempt  unless  leased to  third  parties.  Restricted deeds  are                                                               
exempt and ANCSA property would  be exempt unless it's developed.                                                               
The same  thing applies and  is done in Anchorage,  Fairbanks and                                                               
Kodiak.                                                                                                                         
                                                                                                                                
A  question  that  typically  arises relates  to  HUD  homes.  An                                                               
attorney general  opinion says that  while the underlying  fee is                                                               
exempt  the possessory  interest that  the purchaser  has in  the                                                               
property is taxable.  As a result, the Legislature  passed a bill                                                               
allowing  a  municipality  to   exempt  those  interests  because                                                               
collection may  be problematic  and the  cost of  collection more                                                               
than it's worth. Nonetheless, that  value is included in the full                                                               
value  determination  for  school   funding.  "Even  if  we  have                                                               
$100,000 or  $150 million of  those properties, we  would include                                                               
them in the full  value so they are going to have  to raise the 4                                                               
mills equivalency somehow on those."                                                                                            
                                                                                                                                
CHAIR GARY STEVENS observed that  there is probably no definitive                                                               
answer as  to whether that  is a control. AML  says it is  a good                                                               
control over  how much property tax  a mine would be  charged and                                                               
you say it's not a control.                                                                                                     
                                                                                                                                
2:01:54 PM                                                                                                                    
                                                                                                                                
MR.  VAN  SANT  replied  it  is a  control  to  some  extent.  He                                                               
suggested the City  of Valdez provides a good  example. It levies                                                               
a 20 mill  tax, which is quite  high but that's the  tax rate the                                                               
state levies against  oil and gas properties. The  City of Valdez                                                               
takes  all  the   tax  dollars  for  oil  and   gas  within  city                                                               
boundaries, but  every person living  in Valdez pays 20  mills on                                                               
their property as  well. Certainly that's a  control. People that                                                               
do pay property  tax are well cognizant of the  fact that the tax                                                               
comes from their pocket and if  the city wants to levy a property                                                               
tax against  a mine it can't  get around the fact  that residents                                                               
will pay the same rate.                                                                                                         
                                                                                                                                
CHAIR GARY STEVENS asked if 4 mills is enough or a fair amount.                                                                 
                                                                                                                                
MR.  VAN   SANT  replied   4  mills   is  the   minimum  required                                                               
contribution, "but if you're looking  at doing your own schools -                                                               
I don't  know of  anybody that  goes 4  mills." Typically  when a                                                               
community funds its  own schools the millage rate  isn't just the                                                               
minimum.  He noted  that  the CS  changes that  rate  if an  area                                                               
chooses to organize.                                                                                                            
                                                                                                                                
2:04:49 PM                                                                                                                    
                                                                                                                                
SENATOR  GENE  THERRIAULT,  Sponsor, stated  agreement  that  the                                                               
severance  tax should  be reserved  to the  state as  the supreme                                                               
taxing authority. He continued to say:                                                                                          
                                                                                                                                
     Certainly,  those minerals  are reserved  to the  state                                                                    
     and that's  one of  the concerns  that there  has been.                                                                    
     That  if you  allowed the  mine to  be the  only entity                                                                    
     that's  taxed,  then what  they  do  is they  use  that                                                                    
     jointly  owned property  - which  my 32,000  people own                                                                    
     part of and  your 32,000 people own part of  - and they                                                                    
     pay  their  entire burden  off  of  that jointly  owned                                                                    
     resource.  We'd rather  have them  tax the  enterprise,                                                                    
     tax the activity that's going  on as that jointly owned                                                                    
     resource is developed and mined.                                                                                           
                                                                                                                                
He suggested  that the CS is  a good work product  that addresses                                                               
many of  the concerns that have  been raised and that  Mr. Balash                                                               
could answer any technical questions.                                                                                           
                                                                                                                                
CHAIR  GARY  STEVENS asked  Mr.  Balash  to  explain how  the  CS                                                               
changes the original bill.                                                                                                      
                                                                                                                                
2:07:06 PM                                                                                                                    
                                                                                                                                
JOE BALASH,  Staff to  the Legislative  Budget &  Audit Committee                                                               
and to  Senator Therriault, explained  that a  different approach                                                               
was  taken  on  the  committee  substitute.  They  took  language                                                               
suggested by Mr. Van Sant and  "jumped between Title 29 and Title                                                               
43 as appropriate."                                                                                                             
                                                                                                                                
Section 1 simply adds a reference.                                                                                              
                                                                                                                                
Section 2  describes the way -  through Title 29 -  the tax would                                                               
affect mines in the unorganized area.                                                                                           
                                                                                                                                
Section  3  reserves the  severance  tax  to  the state,  but  it                                                               
grandfathers  in  those severance  taxes  that  are currently  in                                                               
place or that  come into being by January 1,  2006. It doesn't go                                                               
back  to  January  1,  2005  because  that  would  necessitate  a                                                               
retroactive effective date.                                                                                                     
                                                                                                                                
Section 4  has a few  changes. The  mill-rate is still  linked to                                                               
the foundation formula.  It is 4 mills when a  mine is located in                                                               
an unorganized borough  or it is the mill rate  levied by a newly                                                               
incorporated  municipality or  the  municipality  into which  the                                                               
mine is  annexed. The levy is  the same as all  other property in                                                               
that  municipality.  If  the  Pogo Mine  were  annexed  into  the                                                               
Fairbanks North Star Borough, it  would be assessed 15 mills just                                                               
like  every  other piece  of  property  in  the borough.  If  the                                                               
Deltana   Charter   Commission   were   to   be   successful   in                                                               
incorporating a  new borough  with a 10  mill property  tax, then                                                               
that would be the mill rate.  The tax would still be assessed and                                                               
collected  by  the  state  but   it  would  be  payable  to  that                                                               
municipality.                                                                                                                   
                                                                                                                                
In addition, there is a provision  for the negotiation of a state                                                               
PILT  in  place   of  the  property  tax.   Likewise,  the  newly                                                               
incorporated   government  or   the  annexing   government  could                                                               
negotiate a PILT with the mine.                                                                                                 
                                                                                                                                
The  15-year  exemption  on  particular  things  that  you  could                                                               
otherwise tax on the mine  after production commences remains the                                                               
same.                                                                                                                           
                                                                                                                                
The  State  Assessor will  do  the  assessment  and much  of  the                                                               
language Mr. Van Sant recommended is included.                                                                                  
                                                                                                                                
2:11:13 PM                                                                                                                    
                                                                                                                                
Referencing  page 6,  line  24, he  noted that  the  CS does  not                                                               
incorporate  Mr.   Van  Sant's   recommendation  to   reduce  the                                                               
exemption on property  valuation to $1 million.  The original $10                                                               
million   exemption   remains   unchanged.  The   Alaska   Miners                                                               
Association  has  weighed  in  and although  he  hasn't  had  the                                                               
opportunity  for   a  direct  conversation,  the   provision  was                                                               
intended  to  shield  small  mining  operations  that  have  made                                                               
substantial investments.                                                                                                        
                                                                                                                                
2:12:42 PM                                                                                                                    
                                                                                                                                
CHAIR  GARY  STEVENS referenced  the  $10  million exemption  and                                                               
asked if  that includes just the  value of the land  or the value                                                               
of the facilities built on the land.                                                                                            
                                                                                                                                
MR. BALASH replied it would  include those facilities that aren't                                                               
open to the public.                                                                                                             
                                                                                                                                
CHAIR GARY  STEVENS asked if  it would be the  physical structure                                                               
that the mine installs.                                                                                                         
                                                                                                                                
MR. BALASH  said that's  correct. At Fort  Knox in  the Fairbanks                                                               
North Star Borough,  the assessor taxes everything  that has been                                                               
added to  the property. This  includes the power poles  and power                                                               
lines on  the property. Similarly,  the road beyond  the security                                                               
gate leading  to the  mine is  taxed while the  part of  the road                                                               
leading up to the gate is not taxed.                                                                                            
                                                                                                                                
2:14:25 PM                                                                                                                    
                                                                                                                                
MR. BALASH explained that the  mechanism used to negotiate a PILT                                                               
agreement with the  state directs the Commissioner  to follow the                                                               
procedures in AS  43.82 - the Stranded Gas Act  - and then submit                                                               
it to the Legislature for approval.  In no way does this contract                                                               
away  the state's  right to  levy, change  or remove  a tax.  The                                                               
Legislature  would still  have  the full  ability  to modify  the                                                               
terms of the PILT agreement.                                                                                                    
                                                                                                                                
CHAIR  GARY STEVENS  noted  that a  question  was raised  earlier                                                               
about the  issue in the  constitution about not  contracting away                                                               
the right to tax. He asked if  a legal opinion was received as to                                                               
whether PILT agreements are included.                                                                                           
                                                                                                                                
MR.  BALASH  replied there  is  specific  language regarding  the                                                               
state  PILT. Although  he didn't  have anything  in writing  with                                                               
regard to a municipal PILT  the bill drafter posited the question                                                               
to him. He suggested that  the municipality's authority to put in                                                               
place  a PILT  was  implied,  as it  exists  today. The  proposed                                                               
legislation gives  a mechanism  authorizing municipalities  to go                                                               
through a  process and  do the  same thing,  which would  then be                                                               
binding.  "However, that  contract  wouldn't be  absolute in  its                                                               
binding effect. The municipality  could appeal to the Legislature                                                               
for relief." The drafter thought  that was a plausible remedy. He                                                               
said he didn't ask for an opinion beyond that.                                                                                  
                                                                                                                                
2:16:52 PM                                                                                                                    
                                                                                                                                
SENATOR THERRIAULT  referenced the  issue of property  subject to                                                               
taxation  and emphasized  that property  that has  limited public                                                               
access should be taxable.                                                                                                       
                                                                                                                                
With  regard  to the  $10  million  threshold, the  determination                                                               
would be the  same. If the public had free  access it wouldn't be                                                               
taxed, but if  a company exerts control as part  of the operation                                                               
then it's  part of  the calculation to  determine whether  or not                                                               
the $10  million threshold  is met. Large  mines and  small mines                                                               
are treated  the same  with regard to  valuation of  the property                                                               
itself.                                                                                                                         
                                                                                                                                
CHAIR GARY STEVENS  asked for an explanation of when  a tax would                                                               
be levied as it relates to beginning production.                                                                                
                                                                                                                                
MR. BALASH  read page 3, line  23 then pointed to  the definition                                                               
section  on page  6,  line  29. The  date  on  which the  initial                                                               
shipment of product  is made is the year that  the tax begins. No                                                               
tax would be levied during construction.                                                                                        
                                                                                                                                
SENATOR THERRIAULT  added there  might be concern  that companies                                                               
would  delay  the  initial  shipment,  but  because  the  upfront                                                               
investment  is  huge, companies  will  rush  to get  minerals  to                                                               
market so that they can service their debt.                                                                                     
                                                                                                                                
2:21:15 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS asked if he had any final comments.                                                                          
                                                                                                                                
SENATOR THERRIAULT said the till is  tied to the Stranded Gas Act                                                               
so that that structure could be used.                                                                                           
                                                                                                                                
CHAIR GARY STEVENS  asked Mr. Van Sant if he  had any response or                                                               
questions.                                                                                                                      
                                                                                                                                
2:22:16 PM                                                                                                                    
                                                                                                                                
MR. VAN  SANT acknowledged he  did have several  questions. First                                                               
he referenced  the change  in wording for  exemptions on  page 6,                                                               
line 20 and questioned the  intent. He interprets the language as                                                               
saying that  if it's within  a borough  it's going to  be exempt.                                                               
"And I'm not sure that that was the intent," he said.                                                                           
                                                                                                                                
MR. BALASH said he would have to review his notes.                                                                              
                                                                                                                                
MR. VAN  SANT referenced  page 6,  line 18 and  asked if  that is                                                               
unlimited use by the public.                                                                                                    
                                                                                                                                
MR. BALASH  replied yes. The  original draft had  "limited public                                                               
use". Senator  Therriault wasn't comfortable with  the phrase. He                                                               
wanted it clear that the property would be open to public use.                                                                  
                                                                                                                                
There were no further questions.                                                                                                
                                                                                                                                
2:24:41 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS announced he would hold SB 179 in committee.                                                                 
                                                                                                                                
There being no further business to come before the committee,                                                                   
Chair Gary Stevens adjourned the meeting at 2:24:58 PM.                                                                       
                                                                                                                                

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