02/03/2016 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB115 | |
| SB137 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 115 | TELECONFERENCED | |
| *+ | SB 137 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 3, 2016
3:32 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Mia Costello, Vice Chair
Senator John Coghill
Senator Peter Micciche
Senator Bert Stedman
Senator Bill Stoltze
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
OTHER MEMBERS PRESENT
Representative Mike Chenault
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 115(FIN)
"An Act relating to the sovereignty of the state and the state's
right to a credit or setoff for amounts or injuries inequitably
or unlawfully caused or claimed by the federal government;
requiring the United States to lift certain land orders and
federal withdrawals; relating to the transfer of public land or
interests in public land from the federal government to the
state and to the disposal of that land or any interest in land;
and providing for an effective date."
- MOVED SCS CSHB 115(RES) OUT OF COMMITTEE
SENATE BILL NO. 137
"An Act requiring the electronic filing of a tax return or
report with the Department of Revenue; establishing a civil
penalty for failure to electronically file a return or report;
relating to exemptions from the mining license tax; relating to
the mining license tax rate; relating to mining license
application, renewal, and fees; and providing for an effective
date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 115
SHORT TITLE: AK SOVEREIGNTY;US TRANSFER LAND TO ALASKA
SPONSOR(s): REPRESENTATIVE(s) CHENAULT
02/18/15 (H) READ THE FIRST TIME - REFERRALS
02/18/15 (H) RES, FIN
02/27/15 (H) RES AT 1:00 PM BARNES 124
02/27/15 (H) Moved CSHB 115(RES) Out of Committee
02/27/15 (H) MINUTE(RES)
03/04/15 (H) RES RPT CS(RES) NT 4DP 2DNP 1AM
03/04/15 (H) DP: HERRON, OLSON, HAWKER, TALERICO
03/04/15 (H) DNP: JOSEPHSON, TARR
03/04/15 (H) AM: SEATON
03/16/15 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/16/15 (H) Heard & Held
03/16/15 (H) MINUTE(FIN)
03/23/15 (H) FIN RPT CS(FIN) NT 5DP 2DNP 2NR
03/23/15 (H) DP: SADDLER, PRUITT, GATTIS, NEUMAN,
THOMPSON
03/23/15 (H) DNP: GARA, GUTTENBERG
03/23/15 (H) NR: EDGMON, MUNOZ
03/23/15 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/23/15 (H) Moved CSHB 115(FIN) Out of Committee
03/23/15 (H) MINUTE(FIN)
04/06/15 (H) TRANSMITTED TO (S)
04/06/15 (H) VERSION: CSHB 115(FIN)
04/07/15 (S) READ THE FIRST TIME - REFERRALS
04/07/15 (S) RES, JUD, FIN
02/03/16 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 137
SHORT TITLE: ELCTRNC TAX RETURN;MINING LIC. TAX & FEES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/19/16 (S) READ THE FIRST TIME - REFERRALS
01/19/16 (S) RES, FIN
02/03/16 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
TOM WRIGHT, staff to Representative Chenault
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Commented on HB 115 for the sponsor.
ED FOGELS, Deputy Commissioner
Department of Natural Resources (DNR)
Juneau, Alaska
POSITION STATEMENT: Commented on HB 115 and SB 137.
LOIS EPSTEIN, Arctic Program Director
Wilderness Society
Juneau, Alaska
POSITION STATEMENT: Strongly opposed HB 115.
ELIZABETH DABNEY, Executive Director
Northern Alaska Environmental Center
Fairbanks, Alaska
POSITION STATEMENT: Opposed HB 115.
JOSEPH SEBASTIAN, representing himself
Kupreanof, Alaska
POSITION STATEMENT: Opposed the portion of HB 115 that wishes
to revoke and reclaim 222 million acres of federal public lands
in Alaska.
JERRY BURNETT, Deputy Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Commented on SB 137.
ACTION NARRATIVE
3:32:20 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:32 p.m. Present at the call to
order were Senators Coghill, Stedman, Costello, Wielechowski,
Micciche and Chair Giessel.
3:33:00 PM
HB 115-AK SOVEREIGNTY;US TRANSFER LAND TO ALASKA
CHAIR GIESSEL announced consideration of HB 115 [CSHB 115(FIN)
was before the committee]. She invited the sponsor's staff to
provide a brief sectional analysis.
TOM WRIGHT, staff to Representative Chenault, Alaska State
Legislature, said HB 115 addresses issues related to public
lands including the transfer of title of public lands to the
state and also asserts state sovereignty under the 9th and 10th
Amendments of the U.S. Constitution. According to the Department
of Natural Resources (DNR), right now there are 222 million
acres under federal ownership: the Bureau of Land Management
(BLM) has about 75 million acres; wildlife refuges comprise
about 70 million acres; national parks comprise 54 million
acres; national forests comprise about 22 million acres, and the
Department of Defense has 2.2 million acres. Alaska was granted
28 percent of the total land area within its borders. State
entitlement was about 106 million acres after various federal
laws were enacted. The remaining entitlement to be selected is
5.4 million acres.
The state has selected 10.9 million acres from which to receive
those remaining 5.4 million acres, and has 10.2 million acres of
top filings that may eventually become selections. A top filing
is a contingent selection where the land is subject to federal
restrictions or withdrawals. The state is prevented from
selecting any of those lands until such time as a public land
order is issued by the Department of Interior or an executive
order is issued by the executive branch.
The definition of public land within the bill is federal land in
the state, except for title held by another person or for
military purposes. He said a legal memo indicates constitutional
issues with this legislation, but it can be asserted that since
land selections were supposed to have been finalized 35 years
after Alaska's admission into the United States, that the
federal government really has not acted in good faith in
honoring the requirements of the Statehood Act.
3:34:05 PM
SENATOR STOLTZE joined the committee.
MR. WRIGHT said that the state has lost revenue due to lack of
resource development on these federal lands; the Alaska National
Wildlife Refuge (ANWR) is a prime example. Actions last year by
the Obama administration to try to lock up federal lands from
any development whatsoever also would have impinged on the
state's entitlement to a share of the revenues from mineral
development on these federal lands.
MR. WRIGHT said that HB 115 also asserts the state's sovereign
rights under Articles 9 and 10 of the U.S. Constitution, and
this was previously addressed in the 1983 initiative known as
"The Tundra Rebellion," which was never implemented after its
affirmation by voters.
He said that Utah is also struggling with the federal government
in trying to get the lands it is entitled to, and the South
Carolina House adopted a resolution in 2013 supporting western
states in the transfer of federal public lands to them. So,
Alaska is not unique in that situation. He said the western
states are dominated by federal land ownership. The resolution's
main points are that the lack of utilization of these public
lands and natural resources has a negative effect on the states'
economies as well as that of the entire United States.
An interesting fact is that a study done by the Property and
Environmental Research Center (PERC) found that the federal
government loses an average of 27 cents for every tax dollar
spent managing public lands, whereas state land trusts, on the
other hand, realize $14.51 for every dollar spent on managing
public lands.
He said the bill is simple and that is why he didn't prepare a
sectional analysis, but he offered to go over each section.
SENATOR COGHILL wanted to know what a "public land order" is
referring to Section 4.
3:38:05 PM
ED FOGELS, Deputy Commissioner, Department of Natural Resources
(DNR), Juneau, Alaska, answered that "public land order" is the
term the department works with most. He didn't have a precise
legal definition, but it is a land order put in place by the
Secretary of the Interior on federal lands to withdraw for
certain purposes. It prevents state selections from attaching to
those lands.
He explained that Alaska is approaching the end of its statehood
land entitlement process. Of the 105 million acre entitlement,
100 million acres have been conveyed and there are 5 million
acres to be conveyed. The state has selected 10 million acres on
BLM land that it could probably get tomorrow by just asking for
it. The state also has about 10 million acres of lands it would
like to select, but because of the public land orders, those
selections don't attach; these are called top filings. The state
can't get those lands until the public land orders are lifted.
In reality, the state would like to acquire some of the more
valuable lands encumbered by the public land orders.
MR. FOGELS said DNR had been pressing the Department of Interior
to lift those public land orders, because they have outlived
their initial purpose. For example, public land orders were put
in place to make sure that the Native corporations could select
their lands, but now those selections have been done.
SENATOR COGHILL asked if public land orders were part of the
land agreement issue that came up under the Alaska National
Interest Lands Conservation Act (ANILCA).
MR. FOGELS answered that those land orders were actually put in
place by ANILCA.
SENATOR COGHILL asked if other land orders are disparate in
their purposes.
MR. FOGELS responded that there are multiple purposes. A couple
of classic examples are the footprint of the Susitna Watana
Project that is encumbered by a public land order for a power
site withdrawal. The second example that they have been fighting
about for years is Public Land Order 5150 that withdrew a wide
swath of land for the Trans-Alaska Pipeline System (TAPS)
pipeline from Prudhoe Bay to Valdez that encumbers tens of
thousands of acres that are clearly not needed. The state would
like to select some of those lands for their rare earth mineral
potential.
He corrected himself saying that the Native Corporation public
land orders may have been put in place by the Alaska Native
Claims Settlement Act (ANCSA) not by ANILCA.
3:43:11 PM
CHAIR GIESSEL recognized Speaker Chenault in the audience.
SENATOR COGHILL remarked that the first section talks about the
rights to "setoffs" and asked how the state and federal
governments view those.
MR. FOGELS responded that this term is not used a lot by DNR. It
is basically the placement for any loss of economy that Alaska
would have received had those federal lands had been fully
utilized.
SENATOR COGHILL said because the buffer zones in his neck of the
woods are getting bigger and bigger, the trappers and placer
miners are faced with economic issues. They fall under a rule
that needs to be challenged, but practically speaking, an
economy can't be developed there either.
MR. WRIGHT responded that this language is modeled after a Utah
bill (HB 141). The sponsor described "setoff" as establishing a
place holder to reserve the state's rights as it pursues its
sovereignty on land claims against the federal government. It
provides notice that the state reserves its right to claim a
credit or "setoff" for any amount of injury suffered by the
state that is wrongfully caused or claimed by the federal
government. If the federal government finds the state has a
liability to the federal government, the right of setoff allows
the state to reduce or eliminate that liability by deducting or
offsetting the amount the federal government owes the state.
That claim could be used on any resource, or oil and gas
development.
SENATOR COSTELLO said in previous years Mr. Fogels had testified
to the fact that the state doesn't want to rush to complete its
land selection, because once it does, then some of these other
areas are off the table, plus more information will be gathered
about the resources on it. She asked him to talk about "that
delicate dance" and how this essentially not only keeps the
state from the benefits of economic development on these lands
but also from completing its land selections. She also had
always thought it was 103.5 million acres and he is using 105
million acres.
MR. FOGELS responded that he could give the committee an
accounting, but the several different land grant programs total
up to an entitlement of 105 million acres. He said it has been
the department's position to not rush to the finish line. The
state has to get its last 5 million acres and they want to
choose the best ones. The 20 million acres in this pool, half of
which is off limits to the state, is a big pool of land about
which not much is known. He explained that for a number of
years, DNR did a strategic and critical minerals assessment
program and got a lot of new information on many of those lands.
This is how they found the rare earth and other critical mineral
spikes in Public Land Order 5150. But, the first thing to do is
to unencumber that 10 million acres. If that were done, DNR
would ask for certain lands right now, because they know they
are valuable. They would probably go for some lands in the
selected category.
He explained that the public land orders also hamper the state's
ability to gather data on those federal acres as well as the
ability of explorers to explore (a lot of data comes from the
private sector).
SENATOR WIELECHOWSKI asked if the administration supports this
bill.
MR. FOGELS said he had been told that the bill could have
constitutional issues and based on that, the administration
might find it hard to put its full weight behind it. The public
land order issue is incredibly important to the DNR.
SENATOR WIELECHOWSKI said he didn't think there was any
disagreement on that; the argument is all about whether the bill
is legal or not. A lot of times attorneys for Legal Services
hedge, but they didn't hedge on this; they said the bill is
unconstitutional and cited the Constitutional provision, Article
12, Section 12, that says:
The State of Alaska and its people forever disclaim
all right and title in or to any property belonging to
the United States or subject to its disposition.
Basically, Senator Wielechowski said, the argument in this bill
is that Alaska's Constitution is unconstitutional. But aside
from that, if the bill passes, what is the enforcement mechanism
for the department?
3:51:38 PM
MR. WRIGHT said honestly, he didn't think the state would take
any action. The state is just asserting that it could be better
stewards of state lands than the federal government can.
CHAIR GIESSEL thanked Mr. Fogels for his readiness to be on call
for information.
SENATOR MICCICHE said he wanted a listing of public land orders
that are set aside to understand the one section of the bill
that is worthy of fighting for.
CHAIR GIESSEL referred him to an on-line resource, The American
Lands Council, that has a map of the U.S. which shows the areas
in red, but she said she would also ask for that information.
SENATOR COGHILL said he would be willing to work with Mr. Fogels
and asked if he was willing to consider that the Statehood Act,
ANCSA and ANILCA became the formulating documents that were
meant to be about land use. There is probably a pretty good case
that the constitution has already been stepped over. He asked
Mr. Wright if he had gone through the series of legal steps to
show that Congress has unilaterally changed - without getting
permission from the state that would back up the fact that it
has to look through its Constitution, through ANCSA, and through
ANILCA - to make this case.
MR. WRIGHT answered no, but he would be more than willing to
look at that. He understands the constitutional questions that
come with this bill.
SENATOR COGHILL said he would be willing to work with him and
that he thought a severability portion needed to be added. The
way the Statehood Compact has been treated - especially under
the current administration where conservation unit guidance
overrule the whole constitution and a compact that Alaska made
with the federal government - might be the place to start a
conversation to show that if the state has to assert itself,
it's in defense of the Constitution, not in contradiction to it.
3:56:53 PM
SENATOR COSTELLO moved Amendment 1: 29-LS0587\I.3.
29-LS0587\I.3
Bullard
4/7/15
AMENDMENT 1
OFFERED IN THE SENATE
TO: CSHB 115(FIN)
Page 2, line 30, following the first occurrence of
"state":
Insert ", except for land that is used for
military or naval purposes including a military
reservation,"
Page 3, line 3:
Delete "43 U.S.C. 1635(f) (sec. 906(f)"
Insert "43 U.S.C. 1635(f)(1) (sec. 906(f)(1)"
CHAIR GIESSEL objected for an explanation.
MR. FOGELS said he worked with the sponsor on the two
amendments. The first one on page 2, line 30, inserts, "under
the public land orders to be lifted except for land that is used
for military and naval purposes including a military
reservation," because those are important lands and the state
doesn't have an interest in getting those. If they are abandoned
or withdrawn at some point in the future, the department would
keep a selection in place and it would attach at that time.
The second amendment on page 3, line 3, is technical and refers
specifically to the Statehood Act, Sec. 906(f)(1), because the
other sections aren't relevant. Sec. (1) basically restricts
over-selection to 125 percent and the department has selected
about 200 percent. So, according to this section, the BLM could
just start tossing the over-selections out without the state's
permission. The department has kept BLM at bay, because of the
public land order issue. So, it wants that 125 percent over-
selection restriction deleted.
3:59:34 PM
SENATOR STOLTZE said "naval" has different definitions and asked
if it is intended to be military-associated or is it broader to
encompass National Oceanic and Atmospheric Administration (NOAA)
vessels and encampments.
MR. FOGELS answered that the intent is to protect military
presence in Alaska.
CHAIR GIESSEL removed her objection and finding no further
objection, she announced that Amendment 1 was adopted.
4:01:47 PM
LOIS EPSTEIN, Director* Arctic Program* Wilderness Society*
Juneau, Alaska* strongly opposed HB 115. She said the Wilderness
Society is a national membership organization that has had
scientists working in Alaska since its inception in the 1930s.
Their scientific work has helped identify and protect the
highest quality wildlife, recreational, and scenic habitat in
the state.
She said HB 115 overreaches greatly, going well beyond lands
that have been selected for conveyance to the state. They are
concerned that state management would undermine protection of
certain types of federally managed lands. They also oppose the
bill, because it is unconstitutional according to a February 13,
2015, Legal Services memo, and it would also be costly to the
state. Former Arizona Governor, Jan Brewer, vetoed a similar
bill, because it was unconstitutional.
Lastly, she said, given the need for the legislature to address
the complicated fiscal problems facing the state, they believe
holding this hearing on a clearly unconstitutional bill makes no
sense. She quoted from an April 3, 2015 Juneau Empire editorial
about HB 115 that backed up that sentiment.
4:05:08 PM
SENATOR STEDMAN commented that the legislature has been frugal
with its time this year dealing with the fiscal issues and they
take their jobs very seriously. He assured the public that
members are working the budget and still trying to keep to their
normal business along the way. However, he was a little
concerned when they start getting newspaper articles in their
bill packets. He exclaimed that everyone can get articles from
the entire political gamut with even more extreme opinions than
those in the U.S., and said, "Where does it stop? Do we ask ISIS
what they think and start reading it into our record? I think we
need to be a little bit careful there."
4:06:26 PM
ELIZABETH DABNEY, Executive Director, Northern Alaska
Environmental Center, Fairbanks, Alaska, opposed HB 115. It
ignores the U.S. Constitution and the state's legal advisors.
Given the fiscal crisis Alaska is in and the resources that
would be need to be dedicated to seeing this through, the best
thing at this time is to let it go of this bill's initiative.
4:08:04 PM
JOSEPH SEBASTIAN, representing himself, Kupreanof, Alaska, said
he is a 38-year resident and a commercial fisherman in Southeast
Alaska. He opposed the portion of HB 115 that wishes to revoke
and reclaim 222 million acres of federal public lands in Alaska.
He said federal lands have laws and rights that do not exist on
state or private lands. One such right is subsistence use, which
under ANILCA seeks to protect the public's right to those lands
for subsistence takings and purposes. Yet, under current state
forestry regulations, timber harvest is a primary use on state
lands.
Another example is the National Policy Environmental Act (NEPA)
that ensures certain procedures and oversight to resource use
and development that do not exist on state or private lands.
State forestry on state lands is relaxed to a point where it
appears that "variance management" or "anything goes" is the
state's low standard. The state is unable to manage the lands it
already has under its jurisdiction. While he didn't oppose the
state regaining the 5.5 million acres of Statehood Act lands
still unconveyed, he opposed the "nonsensical pie in the sky"
request for all 222 million acres of federal lands that belong
to all Americans.
SENATOR STEDMAN noted that the original 13 colonies had very
little federal land, and when the State of Texas came into the
Union it had very little federal land. The later states coming
into the Union ended up having all the federal land. The
original 13 colonies and Texas have healthy economies and their
tax base is much broader than Alaska's; they have a lot easier
time funding schools and building roads.
CHAIR GIESSEL, finding no further comments, closed public
testimony. She said they would hear from Mr. Sturgeon who was
also asserting state jurisdiction over state land in the U.S.
Supreme Court. She said HB 115 goes on to the Judiciary
Committee where it will be further examined, particularly on
legal issues.
SENATOR COSTELLO commented that there is a difference in the
tone and tenor of this bill that it wouldn't have if it was in
the form of a resolution. It gets at the heart of what it means
to be an Alaskan and references the economic wealth in our
Statehood Compact. She then moved to report work order 29-
LS9587\I as amended from committee with individual
recommendations and attached fiscal note(s).
SENATOR WIELECHOWSKI objected. He said they shouldn't be
spending any more time on this and their energies should be
focused on other ways to resolve this problem. Legislators took
an oath when they were sworn in to uphold the Constitution and
this is beyond a doubt unconstitutional.
4:15:28 PM
A roll call vote was taken: Senators Stoltze, Coghill, Micciche,
Stedman, Costello, and Chair Giessel voted yea; Senator
Wielechowski voted nay. Therefore SCS CSHB 115(RES) moved from
committee.
4:15:55 PM
At ease
SB 137-ELCTRNC TAX RETURN;MINING LIC. TAX & FEES
4:17:27 PM
CHAIR GIESSEL announced consideration of SB 137.
JERRY BURNETT, Deputy Commissioner, Department of Revenue (DOR),
thanked the committee for hearing the governor's mining tax
bill. He said since 1913, Alaska has had a mining tax. The
original mining license tax was .5 percent on mining net income
over $5,000 collected on both net income from mining operations
and from mining-related royalties. So, an owner collecting the
royalties would pay a mining tax, as well as the operator of the
mine. It came primarily from businesses engaged in coal and hard
rock mining; gravel pits and quarry rock were exempt from the
tax.
He said there were numerous changes from 1915-1953, but in 1951,
the Territorial Legislature adopted a 3.5 year exemption for new
mining operations. The current tax structure, in place since
1955 (pre-dating statehood) is as follows: incomes of zero to
$40,000 pay no tax; incomes from $40,000 to 50,000 pay $1,200
plus 3 percent over $40,000; incomes from $50,000 to 100,000 pay
$1,500 plus 5 percent over $50,000, and incomes over $100,000
pay $4,000 plus 7 percent over $100,000 net.
4:20:14 PM
ED FOGELS, Deputy Commissioner, Department of Natural Resources
(DNR), Juneau, Alaska, said Alaska has six major mines that are
currently operating and about 570 smaller placer and suction
dredge operations that were permitted in 2015. The top 200 of
those register enough on the tax scale and contribute as much to
the economy as one major large mine. There are 34,197 active
mining claims on state land. Of the six large operating mines,
five are hard rock mines and one is a coal mine and are as
follows:
1. The Red Dog Mine is an open pit lead and zinc mine and is
operated by Teck Alaska, Incorporated, on NANA Native
Corporation land; it is one of the largest zinc producers in the
world and employs 610 people.
2. The Fort Knox Mine is an open pit gold mine near Fairbanks on
state and private lands and is operated by Fairbanks Gold Mining
and has 600 employees. It is the largest taxpayer of the
Fairbanks North Star Borough.
3. The Pogo Mine is an underground gold mine located 38 miles
northeast of Delta Junction on state land. It's operated by
Sumitomo Metal Mining and employs 320 people.
4. The Usibelli Coal Mine is operated by Usibelli Coal Mine
Incorporated, is owned by a local family, and employs 140
people.
5. The Kensington Mine is an underground gold mine located near
Juneau and is operated by Coeur Alaska on Forest Service land.
6. The Greens Creek Mine, also operating on Forest Service land,
is an underground silver, zinc, lead and gold mine located close
to Juneau and is operated by Hecla Greens Creek Mining and
employs 415 people.
He said that the Nixon Fork Mine has been in temporary cessation
since 2013, but it has been maintained and monitored, and
hopefully will open again.
4:22:53 PM
CHAIR GIESSEL asked why Nixon Fork is suspended at the moment.
MR. FOGELS answered the reason is that commodity prices right
now are too low and the expense of the operation is too great to
justify operating. He thought the company was looking for more
investors.
CHAIR GIESSEL said one could construe that economic factors
affect the ability of a mine to continue operating.
MR. FOGELS agreed.
CHAIR GIESSEL asked what assessment was done on the proposed tax
as far as its effect on a mine like Nixon Fork.
MR. BURNETT answered that the department looked at the tax on
net income so as economic factors go down the tax will also go
down. In fact, from the time they started looking at this tax
proposal the estimated revenue went down from $12 million to $6
million. They have discussed this with the mining companies and
found that the tax rate is much less of a concern to them,
because it is on net income and is still fairly low, than
suspending the tax holiday.
CHAIR GIESSEL pointed out that Nixon Fork closed for economic
reasons and increasing taxes would accelerate those economic
reasons for other mines.
SENATOR STOLTZE asked if any of the operating mines are in
unincorporated areas.
MR. FOGELS said that Pogo and Nixon Fork Mines are in
unincorporated areas.
SENATOR STOLTZE asked if there were any local, production or
severance taxes.
MR. BURNETT answered that he didn't have all the details, but
the Fort Knox Mine is the largest taxpayer in the Fairbanks
North Star Borough and the Greens Creek and Kensington Mines are
the one and two largest taxpayers in Juneau. The Red Dog Mine
pays a Payments in Lieu of Taxes (PILT) and a severance tax to
the Northwest Arctic Borough and is the only taxpayer there.
He said these mines are an important source of local income and
they build a tremendous amount of infrastructure. In Juneau,
residents enjoy hydropower and lower electric rates, and its
third largest taxpayer is the privately owned electric utility
that was actually built to service the local mines. Clearly,
large mines are a major source of local revenue and a major
contributor to local infrastructure in those areas where they
are located.
SENATOR STOLTZEE commented that in previous revenue bills on
other industries, an analysis of government take was part of the
administration's presentation. He asked if there would be an
analysis of government take.
4:28:04 PM
CHAIR GIESSEL concurred and asked Mr. Burnett for a summary of
government take for each of the operating mines.
MR. BURNETT replied that he can't do that for individual mines,
because that is confidential information, but he could do it for
mines as a group. In 2014, 13 taxpayers were in the upper
bracket, which probably means multiple ownership of those mines.
The total income amongst that group was $571 million and they
paid $37,853,000 in state mining license tax. The other 490-plus
mine license taxpayers that filed had a total net income of $1
million.
4:30:00 PM
SENATOR STEDMAN said Alaska can't get the mining industry off
the ground, because it is just too remote and too expensive,
also called green-field costs, to do here. The tax structure is
not what is stopping it, because there is no mining tax for all
practical purposes. However, for the Niblack and the Bokan Mines
in Southeast, taking away the three-year window in the beginning
just creates another hurdle. Those two mines could bring a lot
of benefits to that region, so he was a little bit gun-shy about
putting up more hurdles for these mines that are trying to open.
SENATOR WIELECHOWSKI said a study was done a few years ago under
the Palin Administration comparing Alaska's mining tax to other
states' and countries' around the world. It seemed to have some
good ideas and didn't recommend tax increases. However, it noted
that Alaska's tax structure is very old, going back to 1955, and
there was some thought about updating the structure. He asked to
get a copy of that study, because he thought it could be helpful
in making other changes to encourage development and
exploration.
4:33:59 PM
MR. BURNETT said he was aware of the study and would find out if
it is available.
SENATOR COGHILL said they may not be able to get the whole
picture of mines and their value, but they need to know, for one
thing, if there is a royalty base.
4:34:52 PM
MR. FOGELS responded that DNR's role is not to tax, but to
collect the royalties and property rentals. There are 34,197
mining claims and those generated $6.07 million in 2014. All the
claims - upland and offshore mining leases and some coal leases
- generated $6.8 million in 2014, while production royalty
generated $7.07 million, and coal leases generated $2.3 million.
SENATOR COGHILL said some of his constituents tell him that
miners don't pay royalties, but they do. It's just small,
because they are a smaller mining business.
MR. FOGELS added of the six operating mines, only two are on
state land that pay royalty: Usibelli Coal Mine and Pogo Mine.
The Fort Knox Mine is on Mental Health Trust Land and private
lands, the Kensington and Greens Creek Mines are on federal
land, Nixon Fork is on BLM land and Red Dog is on NANA land.
4:38:02 PM
SENATOR COGHILL said he wanted people to realize that the state
is the landlord to only a small portion of mines. When it comes
to taxation, in Alaska anything green field requires defending
its permitting system in court. Those who come to explore up
here also have to defend themselves in court for the right do
what is quite often permitted. This is a universe of permitting
costs that at the end of the day it is a "deafening taxation" of
a different style, and it needs to be quantified as the state
tries to get its resource industries engaged and working.
SENATOR STOLTZE wanted a better grasp of the administration's
policy behind the proposed taxation. Is it purely to fill the
revenue shortfall, because it's pretty small and may actually be
counterproductive. The idea is to grow the pie not get sinew off
a diminished carcass.
MR. BURNETT responded that the policy behind the legislation is
parts of all the factors Senator Stoltze mentioned. Part of it
is to fill the state treasury, but if the state proposes to
spend money on mine infrastructure and facilities, it is
possibly politically more palatable if people see that the state
is collecting revenue from the mining industry (that would be
reallocated back to it). "The industry has to be seen that it is
paying its way."
4:41:05 PM
SENATOR STOLTZE commented that his takeaway from Mr. Burnett's
reply is that the legislature has to demonstrate credibility to
the public before embarking on fiscal policy and plans and
taxation regimes.
SENATOR STEDMAN asked if the mining industry does separate
accounting.
MR. BURNETT replied that the license tax is separate accounting
on the mining operations in Alaska. Corporate income taxes, as
with the rest of the state's corporate income tax structure, are
allocated based on various factors. For one, it's a portion of
their U.S. income tax.
SENATOR COGHILL said tradeoffs always happen with taxation, and
he is not against the mining industry putting money into state
coffers if the real value can be seen. However, the state
already has the large mines contributing the cost of permitting.
MR. FOGELS answered that was correct; the large mine permitting
process has evolved to where companies enter into an agreement
with DNR to coordinate permitting that is 100 percent
reimbursable to DNR, the Department of Environmental
Conservation (DEC), Alaska Department of Fish and Game (ADF&G),
Department of Health and Social Services (DHSS) or any other
agency that is actually involved in permitting. It is totally
voluntary.
4:44:16 PM
SENATOR COGHILL said the larger mines generally have to go
through a national environmental policy (NEPA) process where the
smaller mines probably wouldn't have to, but the smaller mines
would still have to go through the licensing tax.
MR. FOGELS said that was right.
4:44:57 PM
CHAIR GIESSEL asked what the Red Dog Mine has to reimburse the
Alaska Industrial Development and Export Authority AIDEA for in
the construction of its road. Is there any still outstanding
debt?
MR. BURNETT said they are still paying, but he would have to get
the specific numbers for her.
CHAIR GIESSEL said the social impacts have to be considered,
though it is an unquantifiable item, - like when the Nixon Fork
Mine shut down. She asked if there was a known number of jobs
lost from that.
MR. FOGELS answered that 30 to 40 people worked that project.
SENATOR COGHIL, for context, asked the value of the 3.5 year
exemption on the mining tax for new operations and if it is a
diminishing value.
MR. BURNETT answered that currently a large mine, in particular,
has a large capital construction budget over a long period of
time. So, at the beginning of operations, the first 3.5 years
are not subject to tax, which is quite valuable. The proposal to
remove this is based on a set of assumptions that the mine will
still be economic and that removing it won't affect any major
mining project during the period on the fiscal note.
4:48:18 PM
SENATOR WIELECHOWSKI asked what a production curve for a
standard mine looks like, because he knows that oil companies
produce huge amounts of oil at first to recoup their costs and
then production declines pretty steadily.
MR. FOGELS said typically the production curve for a mine goes
up quickly to a peak and then depending on the nature of the ore
body it stays high, and then as the ore body is depleted, unless
additional reserves are found, production might trickle down
depending on the grades. Typically the highest grades are
produced first to try and recoup those high upfront capital
costs.
SENATOR WIELECHOWSKI asked for a model of how much the state
would have made on other mines and asked if he had any
predictors on future hard rock mines.
SENATOR COSTELLO wanted more information about the context of
this tax proposal. Did the administration use several guiding
principles, or was it just a sentiment of "everyone is going to
feel the pain?" How much of the fiscal gap will this tax address
versus what amount of foregone revenue from projects being
shelved actually contribute to the deficit?
MR. BURNETT responded that there were a lot of discussions. One
factor was that they didn't want to leave any portion of the
economy out because of fairness issues.
4:51:25 PM
SENATOR STEDMAN said on the positive side, the tax structure has
been in place since 1955, so there is a lot of stability, which
he thought was a good sign. But in 1955 the state didn't have
automation and computerization. This bill requires electronic
filing, which is good, but will there be savings within the
department by switching?
MR. BURNETT answered that the department did not intend to add
or delete any positions as a result of passage of this bill.
However, because the legislature appropriated $35 million in
2011 to allow for a new custom off-the-shelf tax management
system that is now operating for all tax types, the department
has been able to delete some Tax Division positions over the
past two years.
None of these bills will change how the department does business
significantly enough to affect its position count. A small
increment is needed for changing the program and forms and
changing tax rates, but after that it's steady. That is one of
the reasons they didn't make changes in tax structures.
4:53:42 PM
SENATOR COSTELLO asked Mr. Burnett to clarify the statement that
position counts were expected to change, specifically that
instituting an income tax would require additional people.
MR. BURNETT clarified that he was referring to changing existing
taxes. Any new taxes will require additional staffing.
CHAIR GIESSEL said the lens they look at these taxes through is
how a proposed tax affects Alaska families, businesses and jobs.
They talked briefly about the Nixon Fork Mine, which is in a
very rural area with very few jobs to begin with, and the loss
of jobs when the mine closed.
She said this committee is interested in growing the pie. A
Livengood mine (a massive gold and limestone (for cement)
deposit) that is in pre-permitting would diversify the economy,
and provide a commodity at a much lower cost than having to ship
it in, which is done now. She asked what was considered as far
as the economic impact of removing the 3.5 year tax holiday on
the Livengood development, which is, at this point, at a
standstill because of commodity prices.
MR. BURNETT said he didn't know the specifics, but he would
provide the committee the information that is available on that
project.
4:56:27 PM
SENATOR COGHILL said they need to look at modeling capital
investment and capital gain to see if the state is missing part
of that top.
4:57:46 PM
SENATOR MICCICHE said he was worried about how the tax policy is
presented across the board. Alaska had been blessed with
enormous revenues from the North Slope that has provided an
economy through the government structure. Some agree that is
appropriate and some disagree, but it is something that can
occur at $107 a barrel oil and not something that can occur at
$30 a barrel.
He said the state's tax policy seems to be looking to continue
that government economy even though the state doesn't have the
revenue. He supported some of the measures that have come before
the legislature this year, but he worries that they are trying
to harvest too much from the producers in the state that really
have the potential to provide jobs at $30 a barrel oil and
provide a sustainable job market as the oil price recovers in
the future. He said Alaska is a resource rich state with nothing
but potential and he hoped they weren't dis-incentivizing future
projects with some shortsighted revenue outlooks today.
CHAIR GIESSEL thanked him for those comments.
MR. BURNETT continued that the mining tax proposal increases the
tax rate on the highest bracket from 7 to 9 percent and removes
the 3.5 year exemption for new mines. It requires electronic
filing and adds an application and renewal fee for the tax
license, which is a substitute for a business license.
SENATOR MICCICHE asked the department to provide an approximate
bracketed government take that isn't related to actual income.
The other taxes, which are in the public record, could
supplement that approximation.
MR. BURNETT said he would do his best to get that information.
SENATOR WIELECHOWSKI said that this was the first time in his
tenure as a legislator that mining taxes were being deliberated.
He also asked for details about how Alaska stands relative to
the mining industry in other states and countries.
SENATOR COSTELLO also want to know how long the average
permitting window is for mining in other states.
5:02:11 PM
ADJOURNMENT
CHAIR GIESSEL adjourned the Senate Resources Standing Committee
meeting at 5:01 p.m.