Legislature(2017 - 2018)ADAMS ROOM 519
05/04/2018 01:30 PM House FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB119 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 119 | TELECONFERENCED | |
HOUSE BILL NO. 119
"An Act relating to the dividends from the Alaska
Industrial Development and Export Authority; relating
to the meaning of 'mark-to-market fair value,' 'net
income,' 'project or development,' and 'unrestricted
net income' for purposes of the Alaska Industrial
Development and Export Authority; and providing for an
effective date."
1:39:22 PM
GENE THERRIAULT, DEPUTY DIRECTOR, STATEWIDE ENERGY POLICY
DEVELOPMENT, ALASKA ENERGY AUTHORITY, DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, communicated
that the original bill primarily dealt with expanding the
category of accounting adjustments that were backed out to
get to true net income on a yearly basis. The bill would
allow the Alaska Industrial Development and Export
Authority (AIDEA) to use the true net income figure in its
dividend calculation for the percentage of true revenue
shared annually with the state. Since the time the dividend
calculation had been put into statute, new accounting rules
had been implemented that caused the entity to book a
number of paper adjustments that over inflated,
artificially inflated, or suppressed income. The agency
would continue to follow all required accounting rules to
obtain its annual audited financial statement, but the
legislature would tell the agency what number to take into
the dividend calculation. It would be the agency's
preference to backout the paper adjustments and get back to
true net income. The number would be used in the dividend
calculation. The change would smooth out some of the ups
and downs in the dividend calculation and the amount of
money shared with the state annually.
1:40:59 PM
Co-Chair Seaton MOVED to ADOPT the proposed committee
substitute (CS) for HB 119, Work Draft 30-GH1677\J
(Laffen/Nauman, 5/1/18) (copy on file).
Representative Wilson OBJECTED for discussion.
JANE PIERSON, STAFF, REPRESENTATIVE NEAL FOSTER, addressed
the changes in the CS. The CS added a payment in lieu of
taxes (PILT) for the Ketchikan shipyard and Red Dog mine.
Additionally, some conforming and structural changes had
been made in the drafting of the bill by Legislative Legal
Services to ensure it conformed with legislative drafting.
Co-Chair Foster listed individuals available for questions.
He asked to hear from Representative John Lincoln.
1:43:07 PM
REPRESENTATIVE JOHN LINCOLN, relayed the additional
language in the CS regarding the DeLong Mountain
Transportation System (DMTS) was a reauthorization of a
property tax assessment exemption for the AIDEA-owned
property connecting the mine to the port site where the
concentrate was shipped out. The exemption had been in
statute for over ten years and had expired the past
November. The CS would reauthorize the exemption for
another ten years.
Representative Guttenberg referenced a backup document
[with information on the Red Dog mine and Ketchikan
shipyard] provided by Co-Chair Foster's office (copy on
file). He stated that over the years he had heard about the
relationship between the PILT and the borough. He thought
the bill would establish a village improvement fund. He
asked if it was part of the criticism he had heard over the
years. He asked for detail about where the taxes and PILT
had gone.
Representative Lincoln was unsure what criticisms
Representative Guttenberg was referring to. He relayed that
the Red Dog mine had been a blessing for the region and had
provided numerous jobs for the entire state. The Northwest
Arctic was a region with many unmet water, sewer, and
educational facility needs. The mine operator had recently
concluded strong negotiations, which had resulted in
increased funding to the borough and the establishment of
the village infrastructure fund and committee just getting
underway. The expectation was for an increase of investment
directly into the villages and the Northwest Arctic.
1:45:58 PM
Representative Wilson asked how the bill differed from what
Fort Knox Gold Mine had to do in the Fairbanks Northstar
Borough. She wondered if the exemptions were normal
pertaining to mining. She asked if all of the assets were
usually taxed for property taxes.
Representative Lincoln was unfamiliar with other mines and
their relationship with the property tax exemption. He did
not know whether other mines had AIDEA constructed or
funded facilities.
Representative Wilson wanted to know how the exemption
compared to how other mines paid in. She wanted to be
consistent.
Representative Lincoln replied that the exemption in the
bill was not for the Red Dog mine and property; it was an
exemption for DMTS connecting the mine to the port and was
owned by the state through AIDEA. He explained that if a
mine was already on the road system and had public access
to its facilities, it would not need the same type of
infrastructure investment provided by AIDEA for the Red Dog
mine. He believed there were possibly some fundamental
differences between the two operations.
1:47:52 PM
Mr. Therriault agreed that the primary difference was that
all Fort Knox facilities associated with the mine were
owned by the mine. Whereas, in the case of the Red Dog
mine, AIDEA owned the port and road facilities, which were
operated by the mine through a nonexclusive use agreement.
The issue was about how the asset, or the use of the asset
could or should be evaluated for purposes of local
contribution to education and things of that nature. He
clarified that the infrastructure associated with the Red
Dog mine was a state-owned asset whereas, the Fort Knox
facilities were owned by a private entity.
Representative Wilson asked why AIDEA still owned the
[road] infrastructure if it was there for the purposes of
the Red Dog mine. She understood the mine had probably
needed help financing initially, but she wondered if it was
normal for AIDEA to continue to own things after a long
period of time. She viewed the port as a completely
different situation and thought it would not be unusual for
someone other than the mine to own it. She thought the
situation put competing mines at a disadvantage. For
example, Fort Knox owned all of its facilities and roads,
which were counted as assets compared to the Red Dog mine
where the mine, road, and port were viewed separately.
Mr. Therriault answered there could be additional mine
properties developed that ultimately could use a portion of
the port facility or transportation system. When the road
had been created it had been determined that AIDEA would be
the owner and would use its ability to access the financing
market to secure favorable financing. He believed other
mines preparing to develop would benefit from working in
conjunction with AIDEA. He detailed that AIDEA was always
open to an entity proposing the idea of working together.
The agency was also supportive if companies chose to
develop with their own access to capital.
Representative Wilson thought Mr. Therriault had stated
that the Red Dog mine had an exclusive and was the only
mine with access [to the road]. She asked if the road
financing was complete or paid off.
Mr. Therriault answered it was still being paid off. The
original financing had time remaining. Additionally, there
had been a large expansion project that had been financed
in the past. He believed the payments would come back to
AIDEA for decades to come.
1:51:31 PM
Representative Wilson asked if the expansion was on the
road or Red Dog mine facility.
Mr. Therriault deferred to a colleague, John Springsteen.
Co-Chair Foster noted Mr. Springsteen was not available at
present.
Representative Kawasaki asked for an example. He asked for
verification that AIDEA owned the road to the Pogo mine.
Mr. Therriault believed so.
Representative Kawasaki asked if the road to the Pogo mine
was similar to the road to the Red Dog mine.
Mr. Therriault corrected his previous statement and
clarified that he did not believe AIDEA owned the road [to
the Pogo mine]. He stated the road was not a general public
road, but he believed it was just the way it had been
permitted with the Department of Natural Resources and
constructed.
Representative Kawasaki referenced Skagway docks that had
collapsed and been rebuilt by AIDEA. He asked if the
Skagway docks were similar to the Ketchikan shipyard.
Mr. Therriault answered in the affirmative; AIDEA owned the
asset.
Representative Kawasaki asked if the state would have
expected someone in Skagway to ask for something similar to
what Ketchikan was asking for at present.
Mr. Therriault replied it depended "what structure they
would have access to the infrastructure." He pointed to
page 2 of the bill, specifying it was an interest created
by an operating agreement or nonexclusive use agreement. He
continued it would be potentially covered if it was being
utilized under that type of a structure.
1:53:51 PM
Representative Lincoln added he was not totally familiar
with the costs of the expansion, but the initial investment
for road and port [for Red Dog mine] was approximately $265
million. He reported that to date Teck Alaska had paid
AIDEA almost $500 million and had paid AIDEA $24 million in
FY 17 for use of the DMTS. He elaborated that the property
was highly lucrative for AIDEA. People in the region and
his borough were interested in gaining some ownership of
the property.
Representative Wilson stated she had nothing against AIDEA
but would prefer to see the money going to the borough and
school system - there were extensive associated costs. She
wondered at what point AIDEA recouped its investment and
whether it would be better for the state at some point to
utilize the funds to pay property taxes and benefit the
region. She stated, "they can't pay both," and she would
prefer funds to now go to the borough versus AIDEA.
Representative Kawasaki asked if the Nenana Bridge and road
were AIDEA-owned.
Mr. Therriault did not believe so.
Representative Kawasaki was trying to think of other
examples that comparable to the projects in the bill. He
reasoned there had to be a municipality that received a
PILT and had an AIDEA-owned facility under some type of
agreement. He asked if Mr. Therriault could come up with
other project examples.
Mr. Therriault deferred to a colleague.
1:56:18 PM
YULIA ELLSWORTH, CONTROLLER, ALASKA INDUSTRIAL DEVELOPMENT
AND EXPORT AUTHORITY (via teleconference), did not have an
example on hand. She did not know of a similar arrangement
for any other AIDEA-owned assets.
Representative Guttenberg mentioned the Ambler Road, which
was under development. There was no associated borough and
the project included Doyon and national reserve lands. He
asked how the projects in the bill were different and
whether the model was relevant to both.
Mr. Therriault answered that a portion of the Ambler Road
would be in the Northwest Arctic Borough if it was
developed. The project was currently in the EIS
[environmental impact statement] process. There had been a
suggestion the road may be like the DMTS, but until the
permitting was concluded and financing was secured, knowing
whether the road would be operated under a similar
agreement was yet to be determined. There was the
possibility that the project would closely resemble DMTS.
Representative Guttenberg spoke about the context where
AIDEA would build a project and the mine developer would
pay to access the road, pay off the bonds, and pay for
upgrades and maintenance.
Mr. Therriault answered that it could be very much the
same.
Vice-Chair Gara surmised that the bill would allow the
lease hold interest used by Teck Alaska and owned by AIDEA,
to be taxed through a PILT through the borough at about
$800,000 per year.
Mr. Therriault answered that the language in the bill gave
an exemption for the value of the leasehold or operating
agreement interest to be excluded from the calculation of a
required local demand. He believed the mine actually did
give a PILT to local governments, but it was outside of the
bill. The bill ensured it would not be included in the
calculation of the state required contribution.
2:00:01 PM
Representative Pruitt referenced the backup document
provided by Co-Chair Foster's office with information on
projects included in the bill (copy on file). He pointed to
page 3 of the document highlighting that the Fed Ex hangar
and Skagway dock were leased, whereas, the Ketchikan
shipyard and DMTS were under operating and user agreements.
He underscored the difference between the structures. For
example, as a lease holder, Fed Ex had the ability to make
all the money it wanted and could sublease the hangar.
Whereas, the shipyard was required to have a certain amount
of money set aside for repairs and at a certain profit
level it had to give some of that money back to AIDEA and
the communities. He believed the explanation was the best
way to delineate the distinct differences between the two
projects and other AIDEA assets that may be leased to
individuals.
Representative Wilson asked about the current value of the
road and port. She asked whether there had been an
assessment by the borough.
Mr. Therriault did not believe there had been an assessment
[of the road or port] by the borough. He could provide
information on the total investment made in the facilities.
Representative Wilson asked if AIDEA had any existing
process that would enable an entity (e.g. the shipyard) to
purchase infrastructure after it had paid AIDEA a certain
amount. She understood it was lucrative for AIDEA to be an
owner. She wondered where the scale tipped for it to be
more advantageous for local communities to benefit versus
the state.
Mr. Therriault replied that at the current time AIDEA was
happy to continue its ownership, which had been lucrative
for the state. The ownership helped AIDEA achieve its
statutory mission to invest in infrastructure, pay a
dividend to the state off of the operation and use of the
infrastructure, and generate funds that could support an
additional economic activity. He did not believe there had
been any consideration of divesting of the infrastructure.
He was uncertain whether the mine had interest in
purchasing the infrastructure outright. He mentioned the
initial financing and expansion and believed the company
found AIDEA's ability to access financial markets at a
favorable rate desirable. The company had been supportive
of continued operation with state ownership.
Representative Wilson remarked that a good business would
opt to maintain ownership, which she believed was the
reason Red Dog would want to take it over. She thought
AIDEA's primary function was to be a financier on projects
that may be great for Alaska and may not have done as well
in the market. She wanted to ensure districts were not
impacted negatively.
Mr. Therriault referenced testimony by Ms. Pierson that
there had been some stylistic changes by the drafters. He
remarked that the concept included in the legislation had
been in the hopper for the past three years and it was the
first time a CS had been triggered. The legislative
drafters had a slightly different form to put the AIDEA
dividend language in. He reported that AIDEA was amenable
to the changes, which he had verified with the Department
of Law. He explained that Section 1 of the bill put the
exemption in place, the language was removed from Section
2, and the effective dates in the last section would
implement the exemption for ten years.
2:04:56 PM
Representative Guttenberg referred to an AIDEA sectional
analysis (copy on file). He noted the references in the
document were inaccurate, but it did not matter. He
addressed that the bill would amend statute to add a
definition for "mark-to-market fair value" adjustments that
are mandated by the General Accounting Standards Board
(GASB) and Generally Accepted Accounting Principles (GAAP).
He asked if there was an alternative way the calculations
could be made that had not been included in the bill in
terms of the way the mark to market fair value adjustments
were done.
Mr. Therriault answered that the accounting requirements
had not existed when the AIDEA dividend had been
established in statute. At the time the legislature had not
anticipated the new accounting rules coming into being. He
clarified that AIDEA would still follow all of the
accounting rules to obtain its appropriate audited
financial statement at the end of the year. The agency was
asking for the mark to market adjustments be added to the
list of things that were excluded or backed out prior to
making the dividend calculation. He pointed to existing
statute on page 6, line 7 of the bill that pertained to
excluding amounts [from the dividend calculation] related
to specific things. The legislature had known there were
some things it wanted backed out or excluded but they
anticipated the new accounting rules, making it necessary
to include additional items in the list of exclusions. The
bill would add items to the list of exclusions.
Representative Guttenberg asked if the option presented in
the bill was the only way to handle the accounting. He
wondered whether there were alternative methods. He used
oil taxes as an example and stated that taxed codes
"defined those things." He asked if the option in the bill
represented the exclusive remedy.
Mr. Therriault believed the option in the bill was the
exclusive way and it dovetailed the best with existing
statutory language where there were already certain
exclusions. The bill would add a few new adjustments that
had not been contemplated at the time.
Ms. Ellsworth agreed the method in the bill was the only
way to comply with the requirements mandated by GASB. She
furthered that to be in compliance with the requirements,
the bill provided one way to account for mark to market
accounting. She explained that each industry had different
options, but governmental entities had to follow the rules
in the way outlined in the bill.
2:09:12 PM
Representative Guttenberg asked for verification it was the
standard and exclusive method used by governments.
Ms. Ellsworth agreed.
Co-Chair Foster asked to hear from Representative Ortiz.
REPRESENTATIVE DAN ORTIZ, spoke to the Ketchikan shipyard
portion of the bill. He read from a prepared statement:
The State of Alaska through the legislature and the
Alaska Industrial Development and Export Authority
almost 40 years ago decided the shipyard in Ketchikan
would be a good investment to keep work on the Alaska
Marine Highway and local ship repairs to keep that
work within the state providing construction jobs and
overall benefit to the economy. The facility opened
for work in 1987 and expanded its services, its size,
and its workforce since then. It continues to expand.
AIDEA owns the shipyard and Vigor Alaska currently
operates the facility under a ten-year contract with
AIDEA. The agreement expires in 2025 and may be
extended to 2035. The Ketchikan shipyard is a success
story. The shipyard employs about 270 workers at an
average salary of over $80,000 a year.
The shipyard portion of the CS before us today would
clarify the question of whether the perceived value of
Vigor Alaska's long-term operating agreement for use
of the AIDEA-owned tax exempt property should be
included in the state's calculation of the Ketchikan
Gateway Borough's required minimum local contribution
to schools. When first established, the state treated
the shipyard operating agreement as outside the
required minimum calculation - it had an exemption.
The same as it treated the DeLong Mountain
Transportation System, the AIDEA-owned road and port
used by the Red Dog mine. But then, in 2012 the state
adopted a different position based on its reading of
the statute and started to include the assessed value
of the shipyard agreement in its calculation of the
Ketchikan Gateway Borough's required minimum
contribution to schools.
The bill before us today would extend the exemption
for the AIDEA-owned DeLong Mountain Transportation
System to 2027 and add language to clarify that the
Ketchikan shipyard shall be treated the same for
purposes of calculating the local minimum share of
education funding.
Representative Ortiz referenced Representative Wilson's
comment about treating companies consistently. He was
requesting the shipyard to be treated consistently with the
AIDEA-owned facility DMTS. He continued to read from
prepared remarks:
Much like AIDEA's decision to invest heavily in the
Interior Energy Project to serve Fairbanks, the
state's decision to help fund a gas pipeline extension
to Homer and consideration of a road to the Ambler
mining district, the Ketchikan shipyard helps put
Alaskans to work while boosting the economy.
Representative Ortiz appreciated members' support for the
CS.
Mr. Therriault elaborated that the CS would treat the two
AIDEA-owned facilities (not leased long-term) operating
under an operating agreement or nonexclusive use agreement
the same. He believed the consistent application of the law
would be beneficial for companies wanting to use the
structure with AIDEA in the future.
Representative Wilson asked about the issue pertaining to
an energy project in Fairbanks. She mentioned the recent
purchase of Pentex Natural Gas Company. She stated that
AIDEA's involvement in the gas project currently only
included loans, which constituents would pay back if they
ever received gas. She asked if the discussion was about
the overpriced Pentex that AIDEA authorized to buy.
Mr. Therriault answered that at the end of the month when
the deal closed, the locally consolidated and controlled
enterprise would be paid for with state grants and loans
constituents would be paying back. He explained it would
not be an enterprise with ongoing AIDEA ownership.
2:15:04 PM
Representative Wilson surmised there was no connection
between the gas project and how it was handled by AIDEA and
the shipyard where the entire facility was owned by AIDEA.
Mr. Therriault replied that the only similarity was that
the legislature had assisted with the infrastructure
through AIDEA.
Representative Wilson wanted AIDEA to assist with obtaining
loans. She was very concerned AIDEA would start owning
assets and "say that they're not part of the school
formula." She spoke to fairness. One of her complaints in
Fairbanks was that personal property was counted as part of
the formula. She strongly supported the state's military,
but when they were assigned overseas they received large
payments and typically moved from Alaska. Yet Alaska ended
up with "a big formula of what we then have to do, as far
as what our take is." She suggested that perhaps the
formula needed to be changed. She was concerned that the
issue pertained to actual facilities valued at high
amounts. She asked about the current value of the shipyard.
Mr. Therriault did not know.
Representative Ortiz deferred the question.
SCOTT BRANDT-ERICHSEN, FORMER BOROUGH ATTORNEY, KETCHIKAN
(via teleconference), shared that he had previously been
the borough attorney and was now a private citizen. He
replied that the assessed value for the Ketchikan shipyard
was approximately $27 million. He noted the figure may be
off by $1 million to $2 million. Two years earlier the
assessment had been $29 million - the amount had been
declining by about $2 million each year and the term
remaining in the current operating agreement was reduced.
Representative Wilson asked if there was a PILT with the
shipyard and borough.
Mr. Brandt-Erichsen answered there was not a PILT paid. He
elaborated that the operating agreement AIDEA had with the
shipyard included a number of components. He explained that
if the shipyard was profitable above a certain level there
was an opportunity for revenue sharing with AIDEA and the
communities. He relayed there had not been a PILT for the
past decade or two of shipyard operation.
2:18:10 PM
Representative Wilson asked whether there had been any
recent revenue sharing between AIDEA and the borough.
Mr. Brandt-Erichsen answered that he did not believe the
borough had received any revenue sharing from the shipyard.
Unlike the DMTS, the shipyard was not a terribly profitable
operation. The function was more about providing jobs and
service for marine highways. The breakpoint for profit
sharing to occur was about 7.5 percent net profit. There
was a dividend and payments that went to AIDEA, which were
put in a reserve fund for replacements; those payments were
made even if the 7.5 percent profit level was not reached.
The borough itself had not received payments.
Representative Wilson referenced Mr. Therriault's
discussion about the profitability of the Red Dog
infrastructure, which kept AIDEA's numbers up. She assumed
the shipyard did not achieve the amount of money AIDEA
targeted. She asked about the percentage AIDEA tried to
make off its projects. She asked what the shipyard brought
in.
Mr. Therriault cited the suggested return of 5.06 percent
AIDEA had been look for when it invested in the Pentex
asset. Within all of AIDEA's investments - the Ketchikan
shipyard made its payments but was not highly lucrative -
the returns were mixed. Depending on commodity prices the
Red Dog mine could be lucrative and could pay an extra
dividend to the state through AIDEA. The average had been
5.06 percent.
2:20:23 PM
Representative Wilson asked what the percentage paid to
AIDEA from the Ketchikan shipyard had been in the past
year.
Ms. Ellsworth replied that in FY 17 AIDEA received
approximately $400,000 in revenue sharing from the
shipyard. The money had gone into the R&R account used by
AIDEA to help the shipyard pay for maintenance and
replacement based on annual requests.
Representative Wilson surmised the shipyard had given AIDEA
$400,000, but the money was designated for repairs and
other things for the shipyard. She asked for the bottom
line number received [by AIDEA].
Ms. Ellsworth answered that AIDEA received about $400,000
that went into an account. Throughout the year the shipyard
could request assistance with replacement work - the
shipyard submitted a form with the amount and AIDEA paid it
back. She did not have the bottom line but would follow up.
2:22:02 PM
Representative Ortiz reminded the committee the shipyard
was a different kind of project AIDEA was supporting
(compared to the Red Dog mine). He explained that if the
Ketchikan shipyard tried to generate huge profit it would
be at the expense of repairs being done on the Alaska
Marine Highway System (AMHS). He elaborated it would mean
billing the state back in order to generate profits.
Representative Wilson considered whether it was time to
contemplate private ownership (that might handle things
differently) when AIDEA was not making the 5 percent
target. She surmised they may not be able to because the
AMHS ships receiving work at the port were state-owned
instead of private. She thought it was probably a bit
harder to come up with the numbers. The bill addressed two
very different projects - one used a PILT and paid
separately beyond a road and another that did not want to
be on the tax rolls where the state would have to pick up
extra because the numbers would change. She stated the bill
was a very different than the last time it had been heard
and amendments had been addressed.
Representative Guttenberg considered the difference between
the DMTS, which facilitated the world's largest zinc mine
with continuous production, and the shipyard that was not
producing things with the exception of fixing the state's
marine highways, perhaps building some boats, and
facilitating jobs. He stated he would love to think the
shipyard could provide AIDEA with dividends similar to the
DMTS, but he believed having the facility looked out for
the state's best interest.
Mr. Therriault agreed. Although he had provided the 5.06
percent as AIDEA's average rate of return at a given time,
AIDEA's purpose set by the legislature was to invest in
infrastructure and create opportunities for jobs in Alaska.
Sometimes supporting jobs was about all an investment could
do and sometimes it supported infrastructure that had an
ability to pay back more. He explained that the statutory
direction for AIDEA was to have the infrastructure in place
to support economic activity and jobs in Alaska.
2:25:23 PM
Representative Wilson WITHDREW her OBJECTION. There being
NO further OBJECTION, Work Draft 30-GH1677\J
(Laffen/Nauman, 5/1/18) was ADOPTED.
Representative Wilson reiterated that the bill was
different than the last time it had been heard and no one
had spoken to her about the projects that were now
included. She remarked that the two projects were very
different from one another. She was supportive of one of
the projects and remained uncertain about how it all
worked. She remarked that the legislature had been
approached earlier in the year about a graphite mine, which
seemed to fit AIDEA's requirements. She noted the mine was
not in her district.
Representative Wilson observed that AIDEA legislation
always liked to be "Christmas treed." She had always been
amenable to putting more projects in because if AIDEA did
the work and made sure the numbers penciled out it made
sense to her to help encourage more development. However,
she thought the shipyard was very different because they
were asking for the value "not to be done, only because
it's owned by AIDEA and not owned by private hands." Her
only question about the Red Dog mine was why the company
did not own the road. She surmised the company would
probably like to own the road. She did not want people to
start saying "I don't want to lease from AIDEA anymore, I
want them to own it, so I don't have to pay the property
tax that goes in it." She did not believe it was a path the
legislature wanted to go down.
Representative Wilson viewed the bill as a policy call. She
did not recall the details of the discussion on the
Ketchikan shipyard in 2012. She was concerned about going
in a different direction where AIDEA began to own
facilities versus leasing facilities. When AIDEA leased the
facilities, they were responsible for property taxes and
contributing to schools and other areas. She reiterated the
bill was a policy call and she did not know enough about
the history to feel comfortable.
Co-Chair Foster agreed that things were moving at a quick
pace, but unfortunately it occurred every session. He
agreed it was a policy call. He believed the best way to
move forward was put the bill to a vote.
2:29:13 PM
Representative Guttenberg asked if there was a companion
bill in the other body.
Co-Chair Foster believed so.
Ms. Pierson answered the companion bill was SB 57 and was
currently in the Senate Finance Committee. She explained
that HB 119 would meet up in the Senate Finance Committee.
Representative Kawasaki asked if there was a matrix AIDEA
and its board used to determine when a 10 to 20-year lease
made more sense as opposed to cases like the Ketchikan
shipyard and DMTS that had an operating and use agreement.
Mr. Therriault was not sure there was a decision making
matrix. Much of the decision was based on what the user of
the infrastructure wanted. He used a Fed Ex facility as an
example and explained there had been a desire for the
company to have a long-term lease for the facility. He
detailed the project had been proposed as a long-term
lease. Whereas, a decision had been made to advance with an
operating agreement for the Ketchikan shipyard and DMTS
projects. He addressed an earlier question and detailed
that when a project was proposed in an area, before AIDEA
could move forward it had to get support of the local
governing bodies. If the Ketchikan Gateway Borough had been
opposed to the structure, it could have withheld approval
at the time. He clarified that AIDEA did not invest in
things that were against the wishes of the local elected
bodies; it had to confer with and gain approval from local
governments.
2:32:12 PM
Representative Wilson wondered why the graphite project she
had mentioned earlier not been considered. She asked why
the merits had not been discussed. She reasoned the mine
was looking for the same consideration as Red Dog and other
mines. She wondered if anyone had determined how the
project measured up. She asked if AIDEA was in favor of
something like that.
Co-Chair Foster replied that the proposed graphite mine was
just northwest of Nome. The mine had wanted its project to
be included in a bill; however, there was concern in the
region by villages close to the mine including Teller and
Brevig with regard to subsistence and other related issues.
He had asked the mining company Graphite One to work the
issues out with local communities including Nome, with
original Native land profit, and get resolutions of
support. He explained the project had not been stopped but
was on pause.
Mr. Therriault added that AIDEA was happy to work with the
company [Graphite One] and viewed the project as exciting.
The company had decided the timing was not quite right. He
detailed that it had been suggested earlier to ask the
legislature for preapproval of bond authorization, but
before AIDEA could act it would have to interact with local
elected officials. He added that per AIDEA's statute, if
there was no local government, a group had to be appointed
to act and provide input like a local government.
2:34:19 PM
Representative Pruitt referenced Co-Chair Foster's comment
that moving the bill out of committee would be
differentiating the policy call opinions. He supported
moving the bill out of committee. He thought the change in
the dividend in the original bill was appropriate and he
believed the intent of the projects was appropriate. It did
not mean that at some point in time AIDEA may look at
selling the DMTS. He did not want the infrastructure to be
given to the borough or Teck Alaska because it was a state
asset. He reasoned if the infrastructure was sold to the
borough and the borough sold the asset it would be a win-
win. He did not support the legislature dictating to AIDEA
how it should manage assets under its care. He continued
that AIDEA was the state's infrastructure bank for a
reason. He remarked that AIDEA recommended adding the
projects in the bill because it was good for the projects.
The bill would allow those things to continue. He believed
when AIDEA came to the legislature requesting statutory
approval, it meant AIDEA had done the analysis and was
asking the legislature to join in the endeavor. He
continued that if AIDEA decided it wanted to sell DMTS in
the future, he would trust the agency to come to the
legislature to have the public discussion and move forward.
He believed the legislature had a terrible track record
with getting involved in and politicizing projects.
2:37:09 PM
Co-Chair Seaton appreciated the fact that there needed to
be local buy-in, but he did not see anything in the packet
indicating the taxing authority of Ketchikan had taken a
position on the issue. He suggested there should be
something from the taxing jurisdiction showing its support.
He reasoned it would be difficult on the [House] floor to
be violating the assumption there was agreement with the
shipyard and local taxing authority. He presumed that
Representative Ortiz would pass the request on.
Representative Ortiz agreed. He reported that a borough
resolution had been put forward in support of the measure.
He would provide the resolution to the committee.
Co-Chair Foster noted that Representative Lincoln was also
present and could help ensure the appropriate paperwork was
provided for the floor.
Vice-Chair Gara reviewed the three fiscal notes. The first
note was from the Department of Education and Early
Development (OMB Component Number 2804) and included a cost
of $79,600. The note was a fund capitalization to the
Public Education Fund. Due to the change regarding the
Ketchikan shipyard, the borough contribution of $79,600
beginning in FY 20 would become a state obligation. The
second note from the Department of Education and Early
Development (OMB Component Number 141) had zero fiscal
impact. The third note was from the Department of Commerce,
Community and Economic Development (OMB Component Number
1234) and had zero fiscal impact.
Representative Wilson referenced the fiscal note from the
Department of Education and Early Development (DEED) OMB
Component Number 2804. She pointed to language on page 2,
paragraph 2:
Additionally, the statutory exemption for the Red Dog
Mine sunset in November 2017. Under this bill, the
exemption for the Red Dog Mine would be retroactively
applied back to November 30, 2017...
Representative Wilson asked if anyone would be impacted.
She did not understand why the language had been included.
2:40:42 PM
ELWIN BLACKWELL, SCHOOL FINANCE MANAGER, DEPARTMENT OF
EDUCATION AND EARLY DEVELOPMENT, introduced himself.
Vice-Chair Gara believed there was a continuation of the
exemption, which was the reason there was no change in the
fiscal note.
Representative Wilson wanted to know if there was any
impact to the community by making the exemption
retroactive.
Mr. Blackwell replied that currently the exemption had
expired. The bill would create a continuation of the sunset
out to 2027 with no break. He believed the first extension
had occurred in 2012. He assumed the retroactivity would
negate any conflict about whether something was or was not
included in the assessed values for the Northwest Arctic
Borough.
Representative Wilson requested to have the borough ensure
it would not be negatively impacted. She remarked the
fiscal note showed the $79,600 would be paid with general
funds. She thought it should show the funds would go into
the Public Education Fund.
Mr. Blackwell answered that the fiscal note (OMB Component
Number 2804) showed the fund capitalization. The $79,600
would be the General Fund money going in to capitalize the
Public Education Fund. He detailed the Public Education
Fund was used to make foundation payments.
Representative Wilson agreed. She thought the fiscal note
should show a change in revenue or some indication of where
the money would be going. She explained that typically
money was taken from one place and directed somewhere else,
the fiscal note showed the money would be taken from
undesignated general funds (UGF) and transferred to
designated general funds (DGF) in the school trust fund.
Currently, the note did not specify where the money would
go.
2:43:39 PM
Mr. Blackwell replied that he would have to get back to the
committee.
Representative Wilson wanted to make sure they were
capitalizing what they thought they were. Typically, the
information was designated in the fiscal note.
Co-Chair Seaton stated his understanding that the $79,000
was a reduced required local contribution because of a
lower property tax value. He surmised the cost was shifted
to the state because the Base Student Allocation (BSA)
would still be the same and required local contribution
would be less. He asked for the accuracy of his statements.
Mr. Blackwell agreed. The formula worked by coming up to
basic need. Since there was no change to that side, basic
need would remain what it would calculate out as. Since the
required local effort for Ketchikan would decrease because
its assessed values would go down, the state would pick up
the difference. Who paid basic need was determined by
subtracting out the required local effort and any impact
aid; the remaining amount was paid by the state. When the
required local effort went down it flowed through and the
state aid ended up increasing.
Co-Chair Seaton recalled a bill where something similar had
been done but it had required local effort to be sustained
by what he thought had bene Nikiski. He asked if Mr.
Blackwell was familiar with bills passed in the last six or
seven years requiring local effort to be maintained by the
locality because the legislature had passed an exemption
for property tax but had not alleviated the required local
effort for the schools.
Mr. Blackwell was not aware of the bills that may have seen
a decrease in the assessed values or required local
contribution where they would have to maintain it.
2:46:20 PM
Co-Chair Seaton MOVED to REPORT CSHB 119(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes.
Representative Wilson OBJECTED. She clarified her objection
had nothing to do with ADIEA. She stressed that the bill
was a policy call. She was concerned because there was a
private company she was certain was not taking an annual
loss and the bill meant there was another portion the
company would not have to make up when addressing the
amount of money it made. She may have been amenable if the
company had been required to pay the $79,600 as part of its
lease, but she did not support exempting the company from
any property taxes.
Representative Wilson was concerned the bill would set a
precedence. She reasoned that when AIDEA went out, people
may think it was better for them to own a project versus
leasing. She did not know how much profit had to be made
before certain things kicked in (e.g. 10 or 15 percent).
She was supportive of the Red Dog portion of the bill. She
was fine if the mine or the borough owned the road.
Whatever fair market value was, she wanted to ensure the
legislature was not saying a company should not own a road
just because was a mine. She believed the company would
keep the road well maintained. She wanted more information
on the Fairbanks project and how Pentex would or would not
be taxed.
Representative Wilson wanted to know whether the bill may
hamper the borough's ability to tax any other kinds of
things related to AIDEA projects being owned. She had not
had ample time to understand what the bill did and whether
it was a good policy call for the state to take the cost
on. She thought a private company making a profit should
contribute something to the cost. Currently, the
infrastructure was contributing to jobs, but was not giving
anything else financially to Ketchikan. She thought perhaps
the details needed to be reworked so a project did not have
to make as much profit before being required to give back
to the community.
2:50:01 PM
Representative Pruitt appreciated the points made by
Representative Wilson. He did not want an organization to
get in the way of the private sector or do things the
private sector may be able to do. He used Fed Ex as an
example to highlight that sometimes AIDEA had to look at
the situation and change how it made an investment. He
detailed that Fed Ex did not own any of its buildings. He
provided detail about the owner who leased the facilities
to Fed Ex. The company's model was to lease all of its
facilities. Almost 30 years back AIDEA had asked Fed Ex how
it would guarantee it would bring a hub to and keep it in
Alaska. He believed there were also times when AIDEA had to
make some adjustments that may be a bit out of the
ordinary.
Representative Pruitt relayed it had been his experience
when visiting the Ketchikan shipyard in the past. He
recalled the shipyard had been concerned about closing at
the time. He believed there was an effort to think outside
the box. He acknowledged it brought cost to the state and
he understood the concern by Representative Wilson. He was
also concerned about a loss of jobs that could occur in
Ketchikan [if the shipyard closed] as the shipyard was a
big employer. He also wanted to ensure there was a local
location to send state ferries for work. He supported the
bill moving out, but he agreed the comments by
Representative Wilson needed to be taken into
consideration. He thought AIDEA needed to be cautious about
not doing something where the private sector should be
stepping in.
2:52:51 PM
Representative Stutes appreciated the comments that had
been made. She thought the Ketchikan situation needed to be
looked at differently because the shipyard was a
substantial asset to the community and the state in terms
of jobs and ferry repairs respectively. She believed there
was only one other shipyard that could possibly accommodate
the ferries, which had exorbitant rates. Whatever someone
thought the state may be losing related to the Ketchikan
shipyard was made up with the ability to address the AMHS
in that capacity. She thought the conversation about the
shipyard and the DMTS was an apples-to-oranges comparison.
Representative Thompson spoke about the option to have an
operating agreement or lease. He had always been under the
impression that having an operating agreement meant an
owner had hired someone to run something. Whereas, under a
lease, AIDEA or the state paid a company for the use of a
mine, shipyard, or other. He was confused by the language.
Under a lease something would be taxable. For example, the
Alaska Railroad had property in Fairbanks that people paid
to lease, which became a taxable product in the Fairbanks
Northstar Borough. He did not feel it was correct to use
the language "operating agreement" to get around taxes. He
thought the bill was significant for the Ketchikan shipyard
and the Red Dog mine, both of which were important ongoing
economic projects. He wanted to see the bill move though,
but he thought the lease and operating agreement were two
completely different things being intermixed.
2:55:42 PM
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Thompson, Gara, Stutes, Guttenberg, Kawasaki,
Ortiz, Pruitt, Foster, Seaton
OPPOSED: Tilton, Wilson
The MOTION PASSED (9/2).
There being NO further OBJECTION, CSHB 119(FIN) was
REPORTED out of committee with a "do pass" recommendation
and with one new fiscal impact from the Department of
Education and Early Development for Fund Capitalization,
one new zero note from the Department of Education and
Early Development, and one new zero note from the
Department of Commerce, Community and Economic Development.
Representative Wilson stated that one contract had already
come back and there were five more remaining. The contracts
would be approved automatically unless the committee chose
to review them. She requested to review the contract that
had come back. She stated that how one contract was treated
typically set precedence for how the others would be
treated. She thought it would be worthwhile to consider the
justification for including an $18 million increase in the
next fiscal year.
Co-Chair Foster recessed the meeting [note: the meeting
never reconvened]. He relayed he did not intend to have any
finance meetings over the weekend.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 119 KGB Resolution 2692 Mandatory - signed2.pdf |
HFIN 5/4/2018 1:30:00 PM |
HB 119 |