Legislature(1997 - 1998)
04/17/1997 01:10 PM House RES
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 238 - MINING EXPLORATION INCENTIVE CREDITS Number 0819 CO-CHAIRMAN HUDSON announced the next item of business was House Bill No. 238, "An Act amending the program of exploration incentive credits for activities involving locatable or leasable minerals or coal deposits on certain land in the state; and providing for an effective date." Number 0844 REPRESENTATIVE AL VEZEY, sponsor, explained that HB 238 resulted from trying to come up with a method or means to expand the airborne geomagnetic survey program that the state has been conducting on a small scale. It is one of several things the state has done over the last few years that resulted in an economic boom in Alaska. Despite its small scale, it has generated a tremendous amount of excitement and economic activity. REPRESENTATIVE VEZEY advised that in 1995, the Mineral Exploration Incentive Program, a tax credit program, was enacted. He noted that airborne geomagnetic mapping is a form of geophysical research. Geophysical surveying, geochemical surveying and geological mapping, which provide valuable data in cataloging the state's resources, have clearly resulted in an economic boom. Number 0988 REPRESENTATIVE VEZEY said in today's environment, he does not believe it is feasible for the legislature to appropriate more money to conduct surveys, catalog information and release it after compilation. That is where HB 238 comes in. There has been tremendous success with the mineral exploration tax credit. Now they want a tax credit for companies that do this type of work and release information to the public. REPRESENTATIVE VEZEY explained that right now, such information is considered proprietary and not released to the public. In essence, vast amounts of geological data about the state are hidden in vaults of various companies. Giving companies an incentive for releasing data would allow great expansion of the library of geological information available to the public. REPRESENTATIVE VEZEY said frequently when one party sees no value in certain data, others looking from a different perspective will see great value. He cited an example in Fairbanks and said it is common throughout the mineral exploration industry. This bill places an incentive to get the private sector to use private sector dollars and then put information into the public domain, at minimum cost to the state. REPRESENTATIVE VEZEY said the state will benefit in several ways. If a tax credit is used, there is a tremendous time lag between when the information is obtained, when it is made available to the public, and when the tax credit can actually be used. It expires after 15 years. Representative Vezey said he suspects only a small fraction of exploration tax credits will actually ever be utilized, even for those that are filed. There is a tremendous amount of leverage for the state without any direct appropriation. Number 1127 REPRESENTATIVE VEZEY acknowledged that the Department of Natural Resources (DNR) had raised questions. However, he believes those have been answered in the bill. It is not intended to create an additional state function. In fact, information can be released by the private sector directly to the public for a tax credit. Representative Vezey concluded by saying the bill is complex because it puts this fairly simple idea into the same statute as the existing tax incentive tax credit, and the two are radically different from each other. Number 1217 CO-CHAIRMAN HUDSON asked whether this is a one-time tax application. REPRESENTATIVE VEZEY said no, although a company could use any given tax credit one time. The program would be ongoing. He does not believe there would be many tax credits; he believes that is the smallest part of the bill. He stated, "The major part of the bill is that hopefully it will be a shot that's heard around the world." He advised that because of the mineral exploration incentive tax credit, the whole mineral exploration industry knows that Alaska wants to work with them. Number 1268 REPRESENTATIVE GREEN referred to HB 200 from the Eighteenth Alaska State Legislature, a similar tax incentive bill for the oil industry. He said larger exploration companies had been a little reticent to share information; when they had agreed to share it, they experienced "all kinds of trouble" with the DNR. He asked whether Representative Vezey had checked with the mining industry and the DNR to see whether they would honor something like this. REPRESENTATIVE VEZEY replied that he expects most exploration entities to consider the information proprietary and not release it in a manner that would make it acceptable. They would probably sit on it so long that the industry format for data would change by the time they were ready to release it, and it probably never would become a tax credit. He stated, "It's really the message that we're sending." REPRESENTATIVE VEZEY noted there is an airborne geomagnetic program in place, with regulations as to data format. He suggested a small portion of the data collected could fall in this domain, and he expects that the DNR would work with those providing it. REPRESENTATIVE GREEN commented that he wishes the mining industry better luck with the DNR than the oil industry has had. Number 1463 CO-CHAIRMAN HUDSON suggested as these incentives are put in the hands of public officials regulating these industries, that there should be a responsibility to report to the legislature annually about applications and justifications for turning them down, for example. Number 1515 CO-CHAIRMAN OGAN asked what kinds of parameters there are. For example, what prevents a company from trying to obtain tax credits for unloading data? REPRESENTATIVE VEZEY said there are several parameters. He does not believe it is possible for the legislature to write a law that defines the quality of professional data. The intent under the bill is to give the DNR "total edit authority" over what they accept. Unacceptable, for example, would be duplicative data or data in a format the industry cannot use. The other control is that the credit is only good for up to 50 percent of the taxes owed, within a 15-year period. Number 1591 CO-CHAIRMAN OGAN asked whether this is retroactive. REPRESENTATIVE VEZEY said it has an effective date of January 1, 1997. He advised that there is a whole set of problems in trying to collect old data. Number 1619 CO-CHAIRMAN OGAN asked whether it would apply to geological surveys conducted from the effective date forward. REPRESENTATIVE VEZEY replied that the intention is really not to give away tax dollars but to provide an incentive. "And you can't give people an incentive to do something last year," he said. Number 1640 CO-CHAIRMAN HUDSON referred to page 6, line 10, and pointed out it says the act is retroactive to January 1, 1997, and applies to activities that qualify for this incentive credit that are undertaken after December 1, 1996. REPRESENTATIVE VEZEY said, "We have to remember that if this property goes into production, those expenses related to the production site, as defined in our original bill, are a tax- creditable item. What we're doing here is bringing in the data that is outside that zone. So in all likelihood - I would say in most cases - there would probably be a ten-year lag between the information being collected and the company saying that `we see no value here; we want to let it go.'" Number 1697 JULES TILESTON, Director, Division of Mining and Water Management, Department of Natural Resources, testified via teleconference from Anchorage. He reported that the "three entities that are directly involved" had met a couple of times, and they had recently held informal, preliminary discussions with the Alaska Miners Association relating to HB 238. MR. TILESTON said the overall concept of increasing the availability of basic geologic survey data in Alaska, regardless of land ownership, is definitely meritorious and deserving of serious consideration. However, he agrees it is radically different from the exploration incentive credits now in place. Given that, he believes it is important to proceed carefully, so they do not inadvertently disrupt a program now recognized worldwide for its importance to Alaska. MR. TILESTON said there are areas of uncertainty. Although he believes those can be resolved, when he reads the bill and the sponsor's intent, he does not know the answers but must make assumptions. "And if you have to assume on legislation, that's probably not good," he commented. MR. TILESTON listed areas of uncertainty. When does data for a mineral property or area that does not otherwise qualify for an exploration incentive become stale? Is it 5, 15 or 30 years? How is data that partially or fully duplicates information already available in the public arena to be credited? How is the new credit to be considered when it involves a mineral property that subsequently qualifies for the existing program because it went to production with a history of a series of companies taking action? For example, what if the fifth company actually developed the mineral property but the second company took the credit? How can that be taken into account, and is it part of the $20 million cap? Number 1837 MR. TILESTON suggested there are reasonable answers and that these questions should be discussed to ensure everyone is on the same wavelength. He continued: What is the standard of public availability? A professional publication? A draft report on file in a company office in Alaska or elsewhere? A report on file with the Division of Geological and Geophysical Surveys? How are new credits that are totally or partially developed with federal, state or other public funding to be treated? He advised there are programs that provide federal funding; for example "small operators on coal" can get 100 percent federal funding to develop this type of information. He then asked what the standard is for determining whether eligible costs for a new credit are reasonable. MR. TILESTON advised that applications for the existing exploration incentive program over the past two years involve 139 individual mineral properties, for a total of about $50 million. Supporting information suggests that up to $37 million might be eligible costs under HB 238 if none ever resulted in a producing mine. He questioned whether that is the intent of the legislature. Number 1909 MR. TILESTON stated, "Another minor thing is the existing bill has a three-year confidentiality on data that is provided to the department. Is that to be provided to this one?" He emphasized that a close working relationship has resulted among the legislature, the mining industry, the Office of the Attorney General, the Department of Revenue and the DNR during development of the basic program that this would amend, which is under AS 27.30. MR. TILESTON discussed the bottom line, stating, "It is our recommendation that we use the existing stakeholders' relationships to 1) respond to the variety of questions that I've just asked and some of the questions that the committee itself asked and 2) as appropriate, develop specific amendments to HB 238 to make sure that we're all on the same page. This could take place over this summer, with amendments developed with the sponsor prior to next session. At that time, the Administration, the sponsor and the mining industry can be in a position to develop consensus to the maximum extent possible, and for all to understand any rationale for any differences, because there might be some." MR. TILESTON concluded that they support the concept. They believe it merits consideration. They also believe there are reasonable answers to the questions. However, these questions need to be addressed. Number 2006 MR. TILESTON responded to an earlier question by Representative Green, saying he was not personally familiar with the DNR's actions relating to oil and gas. "But I can tell you for a fact that there have been no appeals, so far, over the way we have been handling the mining side of the exploration incentive credit," he said. "And again, I think that's in part because we had a complete and full understanding of how we were going to proceed, and we've had the direct involvement of all of the players." He stated that the Administration is not, when it comes to the mining side, setting up road blocks; at least he has heard no adverse feedback relating to that. Number 2050 REPRESENTATIVE GREEN commended Mr. Tileston and stated his belief that the attitude of the director involved has a major impact on cooperation between industry and the state. He suggested there might be answers to Mr. Tileston's questions that could be taken from the "oil and gas arena" and applied as a starting point for the mining industry. He said Mr. Tileston's questions are "very, very valid." Number 2125 CO-CHAIRMAN HUDSON encouraged Mr. Tileston and others in this professional field to look for recommendations on actions the legislature could take to try to expand access to critical information, for example. Number 2187 MILTON WILTSE, Director, Division of Geological and Geophysical Surveys, Department of Natural Resources, testified via teleconference from Fairbanks. He said as the scientific arm of the DNR, for years they had known this type of information existed. However, there had been no way to tap into it. Mr. Wiltse said this is intriguing to them. He stated his hope that if the glitches or questions, such as those pointed out by Mr. Tileston, could be worked out, that this would not simply result in sending a message to the mining companies encouraging them to invest in Alaska; he also hoped they could acquire a great deal of information. MR. WILTSE discussed a similar program begun in British Columbia in 1947. He had contacted the director of the geological survey there to find out how their program functions. The minimum requirement is a property report of 10 to 15 pages in length. In addition, there is a voluntary contribution in some cases of geological drill hole, geochemical and geologic mapping information. MR. WILTSE reported that the down-side of maintaining that data base has amounted to one full-time professional geologist to audit the reports to ensure they pass the threshold of acceptance; two full-time professional geologists dedicated to organizing and archiving the reports and information; a systems analyst who works one-quarter- to one-half-time; and a contractor who microfilms the data and puts it out for public consumption. Number 2321 MR. WILTSE advised that microfilming is not a technology the state would want to pursue. Furthermore, there are more mineral properties in British Columbia than in Alaska. However, he believes if HB 238 is successful in getting companies to generate data, potentially there would be a multimillion-dollar volume of data coming to the DNR annually. That data would only be valuable if organized and readily accessible. MR. WILTSE emphasized that this is not a pitch for immediate addition of three more geologists, a program analyst and contractual money. "But I am saying that somewhere we have to pull together that type of roster of resources," he stated. "Because I don't believe allowing the data to stay in the hands of the individual companies, to be doled out, would be a long-term workable model for the state. Companies are ephemeral in Alaska. They come and they go. They form, they merge, they go out of business. And this data is valuable. And it becomes more valuable as it is accumulated and organized and made accessible easily to various people." MR. WILTSE said if details can be worked out, he would work hard to ensure data is available statewide via the Internet and in physical form. He agreed there are questions that need worked out. However, they find the idea intriguing and would willingly go to work to find solutions. Number 2402 REPRESENTATIVE VEZEY said this gave him food for thought. They had tried with HB 238 to recognize the DNR's limited resources. For $10 million a year, there could be an aggressive geophysical exploration program in Alaska. But lacking that, HB 238 gives the DNR edit authority over accepting the data. He acknowledged that still takes time and effort. REPRESENTATIVE VEZEY suggested, "I'm not sure that it's necessary that we put it in the bill, but we could put it in the bill authorizing the DNR to designate certain professional consulting geologists in the state of Alaska to be authorized to do this review at the expense of the applying party. They would have to contract as independent consultants to give the DNR assurance that the data was of use." Number 2447 MR. WILTSE replied that these innovative ideas are the same types of things he himself would be trying to come up with. He stated his belief that if they sat down and worked together, they could find a way to make this work. Number 2457 CO-CHAIRMAN HUDSON asked, "Do we do any proactive marketing of minerals possibilities up in here?" MR. WILTSE said yes, and that a lot of that is done by Richard Swainbank and Al Clough of the Department of Commerce and Economic Development. TAPE 97-44, SIDE B Number 0006 MR. WILTSE commended those two men for spreading the word through the industry, including articles in international journals. He said there is vigorous marketing done by just a few people. He said it was creative and has obviously been effective. Number 0062 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division, Department of Revenue, came forward to testify. He addressed the technicalities of how HB 238 would work regarding tax credits and changes from the current program. He advised that they had provided a list of issues and questions to the sponsor. MR. BARTHOLOMEW explained that the impetus of the current mining credit on the books was the hope that once the state began receiving tax revenues from the mining industry, they could give the industry some sort of credit or pay-back for the heavy investment for exploration. At the time they would start paying revenues, companies would get a tax break to help recover prior exploration costs so that they might do more exploration. MR. BARTHOLOMEW said the main difference with HB 238 is that some mines that do not go into production and produce tax revenues for the state may still receive credits if they have other productive mines. He said the trade-off is that the state will receive geological data that may end up in a public library. Number 0122 MR. BARTHOLOMEW stated that the fiscal impact would be small. The two tax programs that the Department of Revenue has with the industry are the mining license tax, from which they currently collect only about $400,000, and the corporate income tax, from which they collect somewhere between $300,000 and $400,000 a year. These are relatively small numbers. They hope that as the industry matures and the recent growth in exploration leads to production, that will lead to profitability for the companies and revenues for the state. "And if that happens, then you might be able to take advantage of the tax credit programs," Mr. Bartholomew stated. "And that would be part of the work you'd go through in estimating the fiscal impact of the bill." MR. BARTHOLOMEW said in addition, there are questions about whether the credit would be towards one or both taxes. That needs to be clarified. He restated that the other big change is that the prior credit only was allowed when mines became successful and went into production. This would open up to all companies and to all exploration that meets the definition of mapping and surveying. Those costs would, upon approval of the DNR, be eligible for tax credits. Mr. Bartholomew said the Department of Revenue had not yet come up with a fiscal estimate. Number 0192 CO-CHAIRMAN HUDSON advised that there are no fiscal notes in the packet because they are trying to understand the bill and will not know the fiscal impact until a final version and understanding are reached. Number 0220 DAVID ROGERS, Attorney/Lobbyist for Council of Alaska Producers, came forward to testify, saying the council is a nonprofit corporation that consists of most of the major mining companies doing business in Alaska today. He said they really like the idea. They believe it is an innovative approach that makes a lot of sense. However, they are not ready to sign off on details; the bill is complicated and he is still reviewing it. Mr. Rogers said they would like to sit down with the DNR, the Department of Revenue, the sponsor, the committee and anyone else who is interested, as they have in the past, to try to work out remaining issues. He concluded by commending Jules Tileston. Number 0294 CO-CHAIRMAN HUDSON advised that the committee would hold HB 238 over.
| Document Name | Date/Time | Subjects |
|---|