Legislature(2005 - 2006)BELTZ 211
04/22/2005 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB171 | |
| HB229 | |
| HB184 | |
| SB179 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 184 | TELECONFERENCED | |
| = | HB 229 | ||
| = | SB 171 | ||
| = | SB 179 | ||
SB 179-MINERALS TAX/PAYMENTS TO MUNIS IN LIEU
CHAIR GARY STEVENS announced SB 179 to be up for consideration.
2:35:07 PM
SENATOR THERRIAULT, Sponsor, said he wanted to give members an
update on the ongoing discussions, which address the concerns
voiced by various entities.
He clarified that the intent is that only the state assessor's
office would do the assessment for the full and true value of
the mining property that would be subject to tax in AS
43.67.010. He would work with legislative legal to clear up that
language.
There is no intent that any area that is annexed remain at the 4
mil rate. The intent is that if a borough forms or an area is
annexed into an existing borough, the mill rate would increase
by 2 mills to a cap of 6 mills. That too would be addressed with
modified language.
He said that language on page 6, lines 16-17 also needs
modification to make it clear that property used in the
production of minerals is subject to taxation. The idea is to
tax the economic activity associated with the mining and
production of the ore. He submitted language to the drafters to
clarify that point.
2:38:12 PM
The major question is whether the bill leaves sufficient
flexibility to allow an area to incorporate while providing
certainty for the purpose of securing financing for very large
projects. He mentioned that the Donlin Project infrastructure is
likely to amount to more than $1 billion.
In reviewing the taxes levied around the state, he found that
the total mill rate levied against mines is single digit. Often
it is complemented with some other sort of revenue base. The
Northwest Arctic Borough is an exception in that a payment in
lieu of taxes is paid and the Fairbanks North Star Borough
levies a double digit property tax against Fort Knox. It's
primarily the Railbelt areas that tax at the higher rate, but
it's also there that higher-level services are provided.
Another issue is the level of services provided by a given
municipality. Although the Railbelt municipalities provide
services such as water, sewer, garbage, roads, and police & fire
protection, they don't necessarily provide those services in all
parts of the borough. The City and Borough of Juneau divided the
roaded and non-roaded areas of the borough into different
service areas and they are taxed differently. The Greens Creek
Mine and the prospective Kensington Mine are taxed at a lower
rate of 6.6 mills in recognition of the fact that fewer services
are provided.
He suggested the bill strikes a reasonable balance. Although he
is very willing to work with others to resolve differences, the
reality is that if some certainty isn't given to the tax
consequences and tax load going forward, some mineral deposits
won't be developed.
2:42:42 PM
AL CLOUGH, Deputy Commissioner, Department of Commerce,
Community and Economic Development (DCCED), said the
department's first reaction is that the proposal has
considerable merit and it thanks the sponsor and industry groups
that worked on the legislation. That being said, several issues
merit attention.
The sponsor spoke to the issue of the state assessor being
involved and the department would concur. The bill deals with
three areas and DCCED is statutorily involved with all three.
First is the role of the state assessor. The issue of assessment
fairness and statewide valuations is important and will be
discussed as the bill moves foreword.
Second, because DCCED has a community role through the Division
of Community Advocacy, statutory restrictions on what would
normally be the powers of a municipality are of concern. It's
not unusual for a state to impose on a lower form of government,
but the department wouldn't want the legislation to be viewed as
a disincentive to forming regional governments. Although they
don't necessarily see that it is, the question is pertinent and
requires discussion.
Finally the economic development aspect is important to the
department. Adding stability into a long-term and significant
investment in a major mining project is a huge incentive for
people to come to Alaska and explore and develop mines that will
take billion dollar investments.
Each issue is valid and merits discussion. The department views
the bill in terms of an algebraic equation which is to marry the
economic development interest, the community interest, and the
interest of the state assessor in a fair tax regime for
everyone. The department hopes the equation can be solved and
looks forward to working with the sponsor to help with
implementation.
2:46:25 PM
CHAIR GARY STEVENS expressed surprise at the testimony in terms
of community protection. Although he could understand the idea
of wanting to make sure that industry operates with some
stability, the testimony seems to have abrogated the
responsibility of caring for and representing communities.
MR. CLOUGH replied he didn't intend to give that impression.
CHAIR GARY STEVENS said the issue as he sees it is to encourage
industry, while dealing with the constitutional mandate to try
to get the entire state into organized boroughs. You glossed
over that, he said.
MR. CLOUGH replied he didn't intend to do that. Furthermore, he
could state that the department has had considerable internal
discussion on whether or not this bill would be contrary to
borough government formation. That is a major concern of both
the commissioner and the department. He meant to say that the
local government has a legitimate concern and DCCED recognizes
and acknowledges that. From the department's perspective, they
hope the local government concern, the development concern, and
the assessor concern can be melded and that the agreement makes
sense.
2:48:24 PM
STEVE VAN SANT said he was available to answer questions, but he
had no testimony.
CHAIR GARY STEVENS expressed surprise that he had no testimony
since this is a major issue with enormous repercussions. He
noted the memo in the packets clarifying the value estimates for
the Tanana Basin Borough and asked for comment.
MR. VAN SANT, State Assessor, Department of Commerce, Community
& Economic Development (DCCED), explained the memo is an
estimate of value for the proposed Upper Tanana Basin Borough.
He issued it in response to requests to use values the assessor
has established for REAAs. Those estimates were based on models
that were built in the office and they haven't been in the field
to check how much property is there.
For the last year they have been working in the Delta/Tok area.
They built over 200 value models to come up with an estimated
value of the proposed borough. The summary page memo reflects
the total estimate. He mentioned there is a value in the summary
for the Pogo Mine because they had little paperwork for the
value. They used the estimate from the mine representative of
total expected expenditure, which is about $250 million. As of
2005 they were about 50 percent complete so 50 percent of the
value was used. If the borough were to form, the assessor would
conduct a detailed inspection and analysis of the books to
derive an estimated value. That was done with the Red Dog Mines
in the Northwest Arctic Borough.
2:51:19 PM
CHAIR GARY STEVENS asked Mr. Fuge with Placer Dome if he had any
comments.
Mr. Fuge said he had no comments other than to reiterate
industry support for the bill.
2:52:13 PM
PAT SCHLICTING, Delta Junction resident, spoke in opposition to
SB 179 saying it isn't good for Alaska, existing boroughs,
unorganized areas, or communities considering borough formation.
The tax amount offered is paltry and the terms locking in the
proposed tax rate for 15 years are reprehensible. This
represents corporate greed by primarily foreign companies.
The terms set forth would stifle growth in new boroughs and
create disparate tax rates between existing and developing
boroughs. Legislators have the responsibility to levy a
responsible mining tax in the absence of organized local
government. He suggested a severance tax would be fair because
it would share the risk and the wealth.
When a borough forms, that responsibility should transfer to the
municipality along with the tax dollars generated by the mining
assets. He is alarmed by the suddenness of the bill and the lack
of public input that has been solicited from constituents. The
message is that rich corporations have special access to
lawmakers and are allowed to set their own tax rates and terms.
2:55:04 PM
SENATOR THOMAS WAGONER asked if he is aware that mining
operations currently have corporate taxes, licensing taxes and
royalties levied.
MR. SCHLICTING said he is aware of the taxes. He recognizes
there is a cost for state oversight and he recognizes that in
some instances playing the tax game allows mining corporations
to pay no state tax.
SENATOR STEDMAN said his understanding is that the tax would be
at the true value of the tangible property and not at a book
value carried by the corporation. The state assessor would make
the assessment.
He recalled that when industrialized logging started in
Southeast Alaska, the communities brought in outside
professional assessors. This structure appears to be similar and
the state assessor would place the value.
Putting a cap on the property tax or coming up with some other
mechanism so industry will know whether or not to go forward is
a positive thing for the state to do. A 6 mill tax or a 4 mill
tax could be a substantial revenue stream for the surrounding
area and he doesn't' agree with the last testimony.
2:58:26 PM
CHAIR GARY STEVENS stated that the bill causes him serious
concern. Mining companies do require some stability so they can
develop, but if a maximum 6 mill property tax is locked in, it
might be a disincentive for borough development. The question
requires further discussion and study and he would also like to
hear from the department and the commissioner.
Directing his comments to the sponsor, he said the Legislature
sits as the assembly of the unorganized borough and he
questioned why the Legislature shouldn't decide what level of
tax would be reasonable in the areas that develop mining.
Certainly we don't want to overtax the mines, but it's this
committee's responsibility to take care of communities.
3:00:35 PM
SENATOR THERRIAULT said his intent is to work with the CRA staff
on a proposed committee substitute (CS) to clarify the issue of
the assessing entity, depreciation and other questions. In
addition, he would meet with the commissioner over the weekend
to iron out any difficulties.
Part of the discussion is complicated because the economic
activity and level of sophistication to support local government
isn't uniform in the unorganized borough. The balance is to
craft something that not only fits an area with no services, but
also fits a situation such as the Pogo Mine, which is on
Fairbanks North Star Borough boundary. It is in potential play
for the formation of a borough in the Delta Junction area.
With regard to whether the suggested millage rate is adequate,
he reminded members that currently the projects that move
forward in the unorganized area pay nothing. The balance is to
have a contribution and ensure that jobs and infrastructure are
created.
SENATOR STEDMAN remarked the Legislature could modify the
millage rate if it saw fit.
SENATOR THERRIAULT replied that's an area they could discuss
with the assessor to make sure the mechanism is adequate.
CHAIR GARY STEVENS said his understanding of the language is for
a 4 mill tax if the area is unorganized and a maximum of 6 mills
if government forms around the mine. That rate would be locked
in for 15 years.
SENATOR THERRIAULT said the Legislature certainly has the
authority to modify the legislation, but if balance is achieved
legislation that is reasonable now will also be reasonable in
the future.
SENATOR STEDMAN pressed the point that the Legislature would
have the authority to change the mill rate without exposing the
state to litigation.
SENATOR THERRIAULT said yes, but to remember that state law
applies everywhere and millage rates impact different properties
very differently. The Donlin Creek Mine expenditures will be
more that $1 billion and a low rate would generate a
considerable revenue stream. On the other hand, Pogo will have a
much smaller infrastructure.
SENATOR STEDMAN compared the proposal to the logging industry in
the 1950s and 1960s in Southeast Alaska and observed that 6
mills seems low, but the ability to change that exists if the
need arises.
SENATOR THERRIAULT remarked the comparison between logging and
oil development is good. Oil and gas resources have tremendous
value and although the North Slope Borough is remote and it's
hard to build infrastructure, the return on the commodity that's
produced is so high that no other resource in the state provides
the same kind of return for the investment.
SENATOR STEDMAN agreed with the Chair that the committee should
hear from the commissioner and the assessor.
CHAIR GARY STEVENS said he understands there are negotiations
going on with the Deltana borough charter commission and with
Pogo Mine representatives and this would trump those
discussions.
SENATOR THERRIAULT pointed out that they could form a borough
and under this proposal they would have a 6 mill tax cap plus
the opportunity for a sales tax and the Legislature could talk
about whether or not the 15 years that's proposed is
appropriate. In the Pogo area they hope to find reserves that
will extend the life of the mine and they have done that at Fort
Knox. Keep in mind, he said, we do want the initial investment
to be made; we don't want to discourage the activity from taking
place at all.
3:11:21 PM
CHAIR GARY STEVENS noted there are ongoing developments in
organized areas of the state and local government has the duty
of looking at what benefits itself in terms of jobs while not
overtaxing to the point that it discourages investment.
SENATOR THERRIAULT said when there's a local government to
conduct the debate that's one thing, but in the unorganized
borough there is no local government so the debate is taking
place in the Capitol.
3:12:33 PM
CHAIR GARY STEVENS repeated SB 179 has enormous consequences and
he would hold it in committee to learn more before moving
forward with a CS.
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