Legislature(2015 - 2016)BARNES 124
02/19/2016 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB253 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 253 | TELECONFERENCED | |
HB 253-ELCTRNC TAX RETURN;MINING LIC. TAX & FEES
1:02:33 PM
CO-CHAIR TALERICO announced that the only order of business
would be HOUSE BILL NO. 253, "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."
1:03:04 PM
CO-CHAIR TALERICO opened public testimony on HB 253.
1:04:20 PM
SCOTT OGAN stated that he was testifying on behalf of himself,
and related that although he is a member of Alaska Miners
Association (AMA), he does not have any direct financial
interest in the outcome of the proposed legislation other than
being a citizen of Alaska. He expressed his concern that the
focus of the legislature is to raise taxes and figure out how to
use permanent fund earnings and reduced permanent fund dividends
(PFDs), rather than the topic of his testimony. He referred to
a report that he had prepared when he served in the Alaska State
Legislature titled, "New Programs in State Government 1981-
1998." He stated that Senator McGuire had additional work done
on the topic, and there is a new report that has since been
completed titled "Legislative Research Report November 3, 2010,
11.018 New Programs in State Government 1988-2011." He posited
that it is extremely misguided to have the focus of the
financial discussion be new taxes and use of the permanent fund.
One of the new taxes being discussed today is increased taxes on
the mining industry.
MR. OGAN surmised the committee may be aware of new mining
prospects in the state. He recounted that while serving on the
House Resources Standing Committee, he visited the Donlin Creek
prospect, where millions of dollars had already been invested
and a camp set up. He said 20 years later they are still trying
to figure out whether the project is viable. Mines are capital
intensive, and the risk is high. He maintained that it would be
misguided to add another layer of tax and uncertainty to the
mining industry, which provides fantastic, high-paying jobs that
positively impact local economies. He proposed that rather than
looking for new taxes and ways to get into people's wallets, the
collective efforts of the legislature be focused on determining
exactly what type of basic, fundamental government Alaska should
have. He said the cost of doing business in Alaska will always
be higher than in other states. He expressed appreciation for
government services, such as the Alaska State Troopers and
winter road maintenance, but contended that Alaskans act like
"kids that grew up with a trust account" and will have to grow
up. He reemphasized that it is misdirected for the starting
place of the financial discussion to be new taxes and accessing
the permanent fund, which he said is the most regressive tax
possible. He warned that this sends a message to potential
investors that Alaska is not a good place to do business right
now. He noted that commodity prices are down concurrent with
the price of oil. He said it is premature to discuss a mining
tax, especially with regards to new investments. He concluded
that it is ill-advised to penalize people who are exploring now
and may provide a generation of jobs for young people in Alaska.
1:08:18 PM
REPRESENTATIVE OLSON asked if Mr. Ogan could provide copies of
the referenced report.
MR. OGAN agreed to provide the report. He said he would like to
see hearings on which parts of the statutes will be removed from
the statute book, and advised that the constitution should be
the driver of that discussion.
REPRESENTATIVE TARR asked what impact the tax might have on
investment and noted that deterred investment may be more
closely linked to commodity prices than a tax increase, which
could be perceived as a relatively minor change.
MR. OGAN replied he probably isn't qualified to answer that
specific question, but suggested it would be appropriate to have
an objective economist conduct an analysis of the potential
impacts of these taxes on the mining industry.
1:10:10 PM
REPRESENTATIVE SEATON noted the State of Alaska offers an
exploration tax credit for mining that is tied to production but
does not benefit investors. He noted that mines receive a 50
percent tax credit only after going into production and becoming
profitable and inquired how to incentivize the exploration and
developmental stages of mines. He asked whether, since there is
no credit at the time of exploration or development, the tax
credit on production is actually an incentive.
MR. OGAN responded that it is certainly one of the components
that mining companies consider when considering development. He
stated that most companies operate worldwide and the time it
takes for a mine to go from exploration to production in Alaska
can be decades. He said his opinion is not as valuable as an
objective study by an economist qualified to assess the impact,
and added that he fought for and believes in the idea that
Alaska must remain open for business. He said what struck him
when he visited the Donlin Mine was the discussion regarding the
impact that hiring for the mine had on the social fabric of the
area. He stated that it was a profound economic development
program for the surrounding region and the same held true for
the Red Dog mine. He related that at first not many young
people passed the drug and alcohol screenings, but, as benefits
[of the mines] were visible in the communities, more applicants
began passing the screenings. He stated that this impact is
more cost-effective than any government program, welfare, or a
check from a village corporation. He reemphasized the
importance of not giving investors the impression that Alaska is
not a good place to do business.
1:14:37 PM
GRAHAM NEALE, Director, Center for Mine Training, School of
Career Education, stated that the mission of the University of
Alaska Southeast, Center for Mine Training (UAS/CMT), is to
provide world class workforce training in occupational fields
leading to employment in the mining industry. The gateway to
mining employment is the semester-long introduction to mining
occupation and operations class offered at University of Alaska
Southeast (UAS), which has enrolled approximately 200 students
since 2011. He said most of the students are high school
students who are ready to train for and work in what should be a
developing workforce. Alaska's mining industry has tremendous
potential for growth, he noted, but that growth can only occur
if projects are explored, permitted, and developed. He
acknowledged the state's financial issues and said now is the
time to evaluate how the state can attract investment in order
to multiply future revenues and economic benefits.
MR. NEALE related his specific concern with the removal of the
3.5-year tax exemption for new mines, describing it as "a
shortcut to a problem that doesn't exist." He said it would not
contribute much to state revenue, as there are not any large-
scale projects that are slated to become new mines in the near
future. However, there are several advanced-stage projects in
the state that are anticipated to become future mines and would
be forced to re-evaluate their feasibility in the absence of the
tax exemption. The UAS/CMT has been working with these projects
to develop training timelines and put Alaskans on pathways to
mining careers. He said, like any business, a mine's financial
load occurs at start up and during construction. If these
projects are unfeasible to develop due to an initial tax-heavy
burden, the program could be putting Alaskans on pathways to
careers that don't exist.
MR. NEALE warned that removal of the 3.5-year exemption could
also discourage investment, not only in existing projects, but
also in any exploration activities. Investment in the future of
Alaska's mining industry, and subsequent government revenues,
begins with exploration, and many program students begin their
mining careers working on these types of projects near their
home communities. Alaska competes for limited global capital,
with jurisdictions having competitive mineral potential in
fiscal terms. He said Alaska has excellent mineral potential,
one of the top-rated in the world, but a discouraging tax regime
does not make for attractive fiscal terms.
MR. NEALE said that as a University of Alaska employee, he would
be remiss if he did not mention a recent report from University
of Alaska Anchorage's Institute of Social and Economic Research
(ISER). The report researched the economic effects of Alaska's
fishing, tourism, and mining industries and shows that mining
revenue to the State of Alaska is 6-8 times the cost of managing
the industry, and that mining pays its way in the state through
state government revenues, property taxes, Native corporation
revenues, services and supplies spending, and jobs. Alaska's
miners pay taxes and contribute to the economy, he added, so it
behooves Alaska to encourage investment in development, because
it would offer more opportunities for Alaskans to work in
Alaskan mines - precisely the mission of the UAS/CMT training.
1:17:39 PM
REPRESENTATIVE JOSEPHSON asked whether Mr. Neale is a professor
or professor equivalent.
MR. NEALE replied he is the director. He explained that he does
not teach the courses and that there is an instructor on staff
who actually teaches the courses.
REPRESENTATIVE JOSEPHSON inquired if Mr. Neale's position was
equivalent to a provost, chancellor, or vice-chancellor.
MR. NEALE explained that he is the director of the program; he
works under the dean, who works under the provost.
REPRESENTATIVE JOSEPHSON remarked that Mr. Neale's testimony is
particularly interesting in that it could describe the entire
session. He explained the legislature's conundrum: it is being
proposed that the University of Alaska's undesignated general
fund (UGF) budget be cut by 20 percent, but to keep the
University's budget robust, the state needs revenue. He asked
how it is possible for the two competing demands to be met.
MR. NEALE answered that this specific university program is
primarily funded by industry donations or gifts, especially from
Hecla Greens Creek Mining Company. He said the program does
still receive funding from restricted funds, but the majority is
from industry funding. He said he does not know the answer to
that question and he recognizes Alaska is in a difficult
situation and that there is no easy answer. He stated that
looking for shortcuts is also not an option.
1:19:47 PM
REPRESENTATIVE TARR asked for the name of the center.
MR. NEALE replied that it is the UAS/CMT.
REPRESENTATIVE TARR asked whether Mr. Neale was representing UAS
in an official capacity in presenting opposition to the proposed
legislation.
MR. NEALE replied that he was representing the UAS/CMT in an
official capacity and that UAS/CMT is affiliated with UAS.
REPRESENTATIVE HERRON asked whether Mr. Neil believes the
proposed mineral licensing tax rates are competitive and would
stimulate investment in Alaska.
MR. NEALE stated he is not an economist and does not know the
answer to the question.
1:21:24 PM
RICHARD HUGHES stated that although he is a member of the Alaska
Miners Association (AMA), he was representing himself, as his
points do not necessarily reflect those of the AMA. He said the
mining industry is currently depressed globally, not just in
Alaska. In relative terms, commodity prices are as low as they
have been in a long time, and this economic conundrum is ongoing
and appears to be long-lived. Mining companies like Kinross
Gold Corporation, Barrick Gold Corporation, Rio Tinto Group,
Anglo American, and others are undergoing major restructuring,
which results in selling mines, layoffs, and other actions. He
stated that HB 253 would increase the mining license tax rate on
net incomes over $100,000 by 29 percent. Additionally, the 3.5-
year hiatus that the mining industry currently enjoys for
capital recovery purposes would be eliminated. This would have
a significant effect on the economy of Alaska, he said,
especially on the placer mining industry. He opined that this
is not the best way to foster development of mines within
Alaska. The growth potential for the mining industry in Alaska
is huge, but the state competes worldwide for revenue to explore
and develop mines and increasing the tax rate will discourage
investment. He noted that Argentina recently decreased its tax
rate by 5 percent to attract new mines and said Alaska should
consider doing the same. He clarified he is not encouraging a
tax reduction, but stability in the mining license tax.
1:24:13 PM
REPRESENTATIVE TARR noted that seven major mines are operating,
three are in the permitting stage, and seven are in the pre-
permitting process. She asked how HB 253 would affect those
mines that are in the permitting or pre-permitting process.
MR. HUGHES replied that the bill would have a discouraging
effect on exploration and could have a discouraging effect on
developing mines, such as Donlin Creek or the Ambler project.
He pointed out that those mines would have to undergo another
feasibility analysis given a tax increase if HB 253 passes.
1:25:37 PM
REPRESENTATIVE HERRON asked if the industry could withstand a
smaller increase in the tax.
MR. HUGHES replied he cannot speak for the industry, but that
his personal opinion is the industry may be able to withstand a
small increase. However, he continued, economies of the
exploration and development industries would change
significantly, and investment in the Alaska will be discouraged.
REPRESENTATIVE HERRON asked whether Mr. Hughes would support a
scenario where the 3.5-year exemption was retained and there was
a significantly smaller increase in the tax.
MR. HUGHES responded that he would have to look at the economic
impact on each mine individually to accurately assess the impact
of a change like that. He said it could drive marginal projects
toward a sub-economic state, and he stated that it is difficult
to give a definitive answer.
1:27:10 PM
REPRESENTATIVE SEATON noted that the tax credit is not applied
during exploration and development but is deferred until the
developer designates the mine as profitable; therefore, all of
the currently developed mines do not receive a benefit from that
until after they are actually turning a profit. He asked why
removing the credit would be a burden on the exploration and
development process if the credit cannot even be applied during
those stages.
MR. HUGHES answered it will affect the feasibility study done
for a producing mine, and an increase in taxes will drive the
economics down. He posited that if Alaska wants to improve
exploration, then permitting obstacles should be removed.
REPRESENTATIVE SEATON reiterated that the exploration tax credit
does not apply during exploration or development, and asked how
that encourages or accelerates exploration.
MR. HUGHES replied that the application of exploration incentive
tax credits improves the economic feasibility of a project,
which attracts industry to the state.
1:29:56 PM
ROGER BURGGRAF testified that he recently represented the
Fairbanks Chamber of Commerce in Juneau and has been a long-time
member of the AMA, but is speaking today on behalf of himself.
He held that the state should encourage development of its
natural resources and other industries, which would generate
revenue and put Alaskans to work. He expressed concern
regarding the proposed increase in mining taxes and explained
that the mining industry is very fragile and controlled by world
markets, over which it has no control. He said there are
several mining projects in the proposal stages that could be
adversely affected if the cost of permitting and developing a
mine becomes prohibitive. [The proposed tax increase] could
affect both small and large mining operations. He noted that HB
253 would require electronic filing for all mining tax returns
and that many small mines are located in remote areas;
therefore, it would be difficult for many of them to comply with
the requirement. Removal of the 3.5-year exemption would be a
significant disincentive to undertaking the regulatory process
and startup costs associated with development. He said the
current exemption provides an incentive to any mining company,
and assures that if a company does go into production it will
recover some of its expenses. Increasing the tax rate from 7
percent to 9 percent would cut deeply into the profit margins of
mining companies. [The proposed increase] is of particular
concern during times when commodity prices are low and costs for
equipment and fuel are high. He warned that increasing the tax
fees on exploration and mining applications will also increase
the burden on small mining companies. He said the mining
industry is already over-regulated, and urged the committee not
to "kill the goose that lays the golden egg," noting that the
industry provides many high-paying jobs to Alaskans. He stated
that many of the smaller mines contribute strongly to their
local economies.
1:34:27 PM
REPRESENTATIVE TARR noted the state's current tax structure has
been in place for over six decades, since 1955. She asked Mr.
Burggraf whether the industry expected that there would never be
a change in applicable tax statutes and if he believes [the tax
statutes] should be reevaluated when they become "that
historical in nature."
MR. BURGGRAF replied that he did not consider the current tax
structure outdated, and he posited that the state needs to
attract capital in order to develop mines. He stated that when
taxes are increased, it is another financial factor that needs
to be considered by investors. Many of these projects are on
the drawing board and, if taxes are increased, smaller mines
will have to reevaluate their viability. He pointed out that
many of the larger mines don't have a huge margin, but if they
go into production they will provide significant employment,
income, infrastructure, and opportunities for Alaskans.
REPRESENTATIVE TARR asked which mines would be most impacted
and, specifically, what types of mines could be categorized as
"small mines."
MR. BURGGRAF replied that the placer mines would be the small
mines most influenced by these changes. He stated that placer
mining was once a very large industry and the federal government
is making it very difficult for small placer mines to operate.
The state looks favorably on placer mining and realizes that
placer mines have a positive impact on small communities. He
noted that if the Donlin Creek and Tower Hill mines move into
production, they will positively influence rural communities.
REPRESENTATIVE TARR pointed out that the tax increase would only
apply to mines with a net income of over $100,000, and asked
whether many placer mines would fall into that category.
MR. BURGGRAF replied that some would, depending on the size of
the placer mine and the number of employees.
1:39:18 PM
DONALD STEVENS, PhD, stated that he is a certified professional
geologist from the University of Alaska Fairbanks (UAF) and has
worked full time in the minerals exploration business in Alaska
since 1970, conducting field projects in most areas of the state
that have mineral potential. He related that in 1981, he
discovered the "Channel A Deposit" at Valdez Creek, which became
the largest placer gold mine in North America for several years.
He said over 1,200 man years of employment resulted from that
discovery. He stated he was testifying on behalf of himself and
not any of the professional organizations to which he belongs,
such as AMA. He said over the last 45 years he has observed a
number of cycles in the availability of exploration funding for
projects in Alaska. Much of that funding comes from other
countries, with Canada being the principal source. Over the
last five years it has become increasingly difficult to make a
living as a consulting geologist. He stated that the Pebble
Deposit is widely known in the global mining community, and the
industry is aghast that development of this world-class deposit
was stopped. This has seriously damaged the industry's
perception of Alaska as a good place to invest in minerals
exploration. He added that Shell's Chukchi Sea decision
similarly hurt Alaska.
MR. STEVENS said that in Alaska the average length of time
between discovery and actual production is probably the longest
in the Western Hemisphere, and is due to the slow regulatory
framework applied to mining. He said he was devastated by news
of the potential 29 percent increase in the mining license tax
and termination of the 3.5-year exemption, and that the proposal
contributed to Alaska's negative reputation in the world's
mining and investment community. He held that in the last 45
years, this was the worst possible timing for this proposal.
MR. STEVENS explained that even during difficult times for the
mining industry, mining pays its own way; state tax revenue from
mining is approximately eight times the cost of regulating the
industry. He said for years his consulting business provided a
decent income, allowing him to offer the opportunity of a
college education to his two daughters. However, he continued,
business is now terrible - his clientele dropped from an average
of five foreign mining companies a year to less than one per
year over the last five years. He shared that his business has
cut every possible cost in an effort to remain viable and he
would like to see state government do the same.
MR. STEVENS recommended the state decrease the mining license
tax to 5 percent, increase the 3.5-year exemption to 4 years,
and publicize the actions among mining companies. He said this
would get the attention of the mining industry and do more to
increase revenue from the exploration of mining than tax
increases or elimination of exemptions. He said a single new
large mine going into production would create far more tax
revenue for the state than the changes outlined in HB 253. In
order to increase tax revenues, Alaska must take actions
demonstrating that it wants a vibrant, strong mining industry.
He said this cannot be done by increasing mining taxes and
removing the 3.5-year exemption for new mines.
1:43:57 PM
BILL JEFFRESS stated he has been involved in resource
development and mining for over 40 years and actively involved
in Alaska mining for almost 25 years. He said he has worked for
several of the major mining companies in Alaska, served as
former Director of the Office of Project Management & Permitting
for the Department of Natural Resources, and worked as a mining
consultant. He related he is a member of the AMA and is honored
to serve as a member of the Alaska Minerals Commission. As a
member of the Alaska Minerals Commission, he noted, he supported
the commission's top 2016 priority for Alaska to move quickly,
on a bipartisan basis, to establish a stable fiscal climate that
will protect Alaska's future and the opportunity to develop a
diverse economy.
MR. JEFFRESS said he found the Department of Revenue's February
3, 2016, testimony on HB 253 and its companion bill SB 137
disconcerting. He recounted that the testimony discussed a
perception by the public that the mining industry is not paying
its share; to which the Department of Revenue responded that if
the public does not view the mining industry as paying its way,
it would help if the mines are paying more taxes. He stated he
was certain that Department of Revenue employees are thankful
their salaries are not based on public perception. Referencing
the December 2015 ISER report, he stated that the average state
revenue from mining was $96.4 million, while state operating
expenditures were $10.7 million, with an average capital
expenditure of $4 million, which resulted in a surplus of $81.7
million and $22.5 million in average municipal revenues. He
stated that this indicates that the mining industry is
definitely contributing more to the state than it costs to
administer the program and provide oversight of the industry.
The global mining industry and the industries that provide
support to it are currently experiencing a long downturn in
commodity prices. He said the proposed increase in the mining
license tax, from 7 percent to 9 percent, results in a 29
percent higher payment for operations.
MR. JEFFRESS held that losing the 3.5-year exemption on paying
the tax after production begins is not the kind of message that
Alaska should be sending to potential investors. He said Alaska
competes with other states and nations for investment dollars
based on regulatory and fiscal certainty. Alaska's mining
industry has tremendous potential for growth, which is already
demonstrated by the operating mines, and has huge potential to
generate revenues and economic benefits for Alaska. He
maintained that HB 253 sends a message that Alaska's policies
are based on perception, not real-world economic reality.
1:47:27 PM
REPRESENTATIVE TARR stated she would like to talk to the
previous two witnesses off line.
1:48:02 PM
MARLEANA HALL, Executive Director, Resource Development Council
for Alaska (RDC), said RDC is a membership funded, statewide
business association representing the tourism, forest products,
oil and gas, mining, and fishing industries. She spoke as
follows:
RDC strongly opposes HB 253 as this is clearly not the
time to raise taxes on Alaska's mining industry. The
mining industry is suffering through a deep and
prolonged downturn in commodity prices while
development and operating costs continue to rise. In
fact, the mining sector has been in a deep global
recession for at least the last four years. Companies
are cutting budgets and making tough investment
decisions. Future prospects and projects in Alaska
are at risk. Exploration activities are sharply down.
Increasing taxes on the industry at this time will
compound a bad situation and risks halting investment
in future projects that will ultimately create new
revenue streams for Alaska. Conversely, the more
Alaska taxes companies to produce a commodity, the
less likely a company will invest in future
production. HB 253 moves us in the wrong direction.
As you've heard, the bill proposing to increase the
Alaska Mining License Tax payment by 29 percent
removes the 3.5-year exemption designed to attract new
mines. Not only does removing the exemption offer no
immediate or near-term revenue for the state, it
potentially impacts the feasibility of future mining
projects. [The state] should not risk projects and
the corresponding jobs and increased private sector
economic activity. One large mine would bring in more
revenue to the state than what is estimated to be
generated by this flawed bill.
A major concern RDC has with HB 253 is that the
administration has not conducted a risk analysis on
the bill's impact on the mining industry. The effect
of this tax proposal must be fully reviewed, and
unintended consequences, including potential impact on
future investment, must be considered.
I would like to point out that the mining industry
pays its way in Alaska and is a revenue producer for
the state. Moreover, it is the largest producer of
revenue for the Northwest Arctic Borough and the
largest payer of property taxes in the Fairbanks North
Star Borough and the City and Borough of Juneau. For
more than 20 years RDC has advocated for a long-term
fiscal plan, including efforts to limit unrestricted
general fund spending to a sustainable level, support
some use of the permanent fund earnings as part of a
fiscal plan, and a tax policy and incentives that
encourage future investment in Alaska's resource
industries.
In closing, HB 253 will harm the industry at a time
when it is struggling with low commodity prices and
tight capital ... markets. The industry is not asking
for a decrease in taxes during this commodity bear
market, like other countries are considering as you
heard earlier, but instead asking, as the state
considers changes to tax policy, that the state do no
harm.
1:51:12 PM
REPRESENTATIVE TARR inquired whether Ms. Hall thought every
provision in HB 253 was problematic.
MS. HALL responded that the components of the bill that she did
not mention are not something RDC necessarily opposes, for
example the electronic filing, although it has not been fully
vetted and RDC would appreciate it if a risk-analysis were
conducted.
REPRESENTATIVE SEATON noted the mining license tax was computed
based on net income, which is computed by subtracting expenses
from revenues. The same formula was used for the royalty
payment. The oil and gas industry in Alaska pays its royalty on
the point of production, the fisheries industry pays on the
first wholesale value - the value of the resource to Alaska -
and that applies to most industries that have a royalty. In
this instance, the royalty is not based on the value of the
minerals extracted, but instead based on the profitability of
the company. He asked, recognizing that most of the industries
Ms. Hall represents are based on net smelt return or point of
production value, whether RDC opposes the state collecting
royalties based on the value at the point of production.
MS. HALL replied she would get back to the committee with an
answer, but suggested that the industry might be better able to
answer that directly when it testifies before the committee.
REPRESENTATIVE SEATON explained that part of the purpose behind
his question was to make sure that the industry is aware of it
when they testify before the committee.
1:54:24 PM
JASON BRUNE said he was testifying on behalf of himself. He
stated that the cost of doing business in any jurisdiction
matters and Alaska is no different. Given the state's
remoteness, for mines to come to fruition in Alaska, huge
capital projects must also be constructed to bring necessary
infrastructure such as road, power, ports, pipelines, and much
more. He said these costs are not insignificant and add to the
costs of building a mine in Alaska, especially in rural Alaska.
Simply put, taxes are just another cost of doing business. He
said HB 253 proposes to increase the tax rate by 29 percent,
which will not help attract investors to our state; it will show
that Alaska is not open for business.
MR BRUNE stated that his authority on the issue is derived from
being a casualty of higher costs, which caused his previous
employer, Anglo American, to withdraw from Alaska. High costs
were one of the leading factors which lead to its withdrawal and
the loss of his job. He stated that Alaska competes worldwide
for capital, and he saw it first hand in Anglo-American's
boardroom in London. He maintained that rather than considering
this legislation, Alaska should grow the mining industry. He
said his former project has and Economic Impact Analysis on its
website, which shows the amount of tax revenue the state would
collect from that project going into production could be nearly
$200 million per year to both state and local governments. He
said adding this single mine, or even a number of new mines,
would provide more mining industry revenue to the state than the
proposed legislation would, with the additional benefit of
providing jobs for thousands of Alaskans.
MR. BRUNE posited that Alaska should be doing all it can to
encourage this kind of development in the state, which would be
executed with high levels of care for the environment.
Alternatively, if Alaska increases taxes, as proposed in HB 253,
it would send a message that Alaska is an expensive place to
conduct business and would discourage companies from doing
business here. He held that even passing HB 253 out of
committee would negatively impact Alaska's investment climate.
1:57:18 PM
REPRESENTATIVE TARR noted that British Columbia has a 13 percent
net proceeds tax and a lot of mining activity. She requested
Mr. Brune to comment on that with regard to other opportunities
outside the U.S. She asked what impact low commodity prices may
have had on Mr. Brune's former employer's decision to scale back
operation in Alaska.
MR. BRUNE responded it is important to look at the existing
infrastructure in British Columbia and other jurisdictions
around the world. In those instances infrastructure is not
something that the industry would have to cover. [British
Columbia and other jurisdictions] have significant
infrastructure that has already been paid for, often by the
government. Rural Alaskan projects have to be huge projects in
order to cover costs like ports, 100-mile roads, 300-mile
pipelines, and all of the added infrastructure. The tax adds to
the cost of doing business. Alaska already has one of the
highest costs worldwide, and thus can't afford to have higher
tax rates than the rest of the world. With regard to the
question of commodity prices, Mr. Brune stated companies like
Anglo American are in it for the long haul; they understand that
there are ups and downs in the commodity cycle and make their
business calculations based on a mine life of 20-40 years. They
anticipate the ups and downs of the commodity cycle and
understand that it must be factored into their equations. He
agreed that [commodities] are in a downturn that has lasted much
longer than most, and offered his belief that although the
downturn impacted [the company], ultimately it did not impact
their decision to leave Alaska.
1:59:48 PM
ROBERT FITHIAN, Miner, stated he is representing himself and is
opposed to HB 253 for reasons he feels are in the best interest
of Alaska. He said he has been involved in Alaska's mineral
industry for many years and is currently working to develop a
new, underground hard-rock gold mine in Southeast Alaska. This
mine should complete its permitting and begin underground
development this year, and that it will provide direct, local-
hire, annual employment opportunities at the standard mining
sector compensation of $100,000 per year, with exceptional
benefits. He stated that when reviewing the many aspects of
building a new mine in Alaska, the 3.5-year tax exemption for
new mines was one of the few aspects that weighed in on the
positive side of the many challenges. He said the current 7
percent license tax was high relative to the risk and challenges
that miners deal with, but seemed doable. He stated that the
increase to 9 percent would increase the tax burden by 28
percent, which he considers a serious overreach. Without the
new mine exemption and proposed tax increase, he said he
possibly, not probably, would have made the decision to move
forward with the much-needed project, which is located near a
community that needs jobs, [an improved] economy, and children
for its school. He stated that after many years of major mining
companies exploring Alaska for large mineral deposits, many
smaller deposits, which are not viable for larger operators,
have been defined. These deposits can become environmentally
friendly, smaller-scale mines and strong economic drivers for
Alaska. He held that if the new mine exemption were removed and
taxes increased, these projects would become much less viable
and probable. He noted that there are vast differences between
sectors of the mining industry, and minerals in particular,
throughout the state. A mineral deposit located near
infrastructure will have different viability than a comparable
deposit located in a remote region. One may be able to afford
new tax burdens, while the other may not become a mine despite
being located in a region in need of jobs and economy.
MR. FITHIAN recalled the Fort Knox mine as an example of the
fine line between viability and non-viability, as it was working
through its feasibility stages. He stated that had this
proposed tax level been in place at the time, it would
unquestionably have affected the decision to move forward or
not. He noted that this mine has been a boon for Alaska. The
challenges for miners, and especially new miners in today's
world, are extreme. He encouraged the committee to take no
action on the proposed removal of the new mine exemption and the
mining tax increase, in order to allow the entrepreneurial
spirit that has benefitted Alaska in many ways to continue to do
so. Well-paying jobs and reciprocal service industry economy
are more important than an additional squeeze on a challenged
industry. He suggested that the committee focus on risk
investment, the ultimate factor in developing many natural
resources, and posed the question, "Do your actions maintain a
prudent window for risk investment?" He stated his belief that
HB 253 works to close that window for Alaska projects. He
stated that he agreed with Mr. Stevens' comments about
decreasing the tax rate and increasing the new mine exemption.
2:03:59 PM
REPRESENTATIVE JOSEPHSON requested the location of Mr. Fithian's
mine in Southeast.
MR. FITHIAN answered the mine is called the Dawson Mine and is
located on the Hollis-Klawock Highway near Hollis on Prince of
Wales Island.
2:04:28 PM
REPRESENTATIVE TARR referenced Mr. Fithian's statement that a
tax increase would have made him reconsider the viability of his
mine, and she asked how increased commodity prices would have
factored in to his decision making process.
MR. FITHIAN responded that Alaska's balance and the global
balance for operating and producing mines frequently hinges on
market values, which are nearly impossible to forecast. His
project calculations were based on a $1,100 value for gold. If
gold values drop below that price, the project would become
challenged. If gold prices remain above that point, the mine
would stay viable. He recalled operating a mine many years ago
where the same figure was $340; if gold dropped below $340 he
was losing money. If gold prices held at $400 or above, the
mine was profitable. He noted that mines do not have control
over commodity prices, especially small mines. He held that
Alaska holds promise for small mine operators and he hopes to
provide an example of how small to medium size mines can prove
viable in Alaska. He stated that dealing with world markets is
a challenge; each deposit is different in terms of both
operating costs and metallurgical circumstances. He
reemphasized the vast differences that exist with many aspects
of the same metal commodity. He stated that Donlin Creek is
dealing with a refractory ore, which demands high energy to
extract gold from the ore. He stated that he will be dealing
with a free-milling gold and quartz deposit on Prince of Wales.
He noted that they are entirely different concepts, but both are
still dependent on world markets.
2:07:07 PM
REPRESENTATIVE SEATON noted the mining license tax is based on
net income and assumed that [Mr. Fithian] had taken the
difference into account. He asked if increasing the threshold
for the 9 percent tax from $100,000 net income to $200,000 would
be more acceptable and diminish the impact on the smaller, more
marginal operations. He explained that in this circumstance,
the tax would be 5 percent from $50,000 to $200,000.
MR. FITHIAN replied that he would like to answer, but would like
more time to evaluate the considerations. He offered that the
industry may want to weigh in on that question when it testifies
during the next meeting. He stated that he would be glad to
answer the question via e-mail.
REPRESENTATIVE SEATON noted he was asking the question without
expectation of an immediate answer, and asked that Mr. Fithian
send the e-mail to Co-Chair Talerico, who could then distribute
it to the rest of the committee members. He stated that the
bill was designed to be balanced and provide a structure that
would be functional for both the State of Alaska and the mining
industry, which is a very valuable industry. He asked Mr.
Fithian to include in the e-mail any other suggestions he might
have on how the bill could be structured.
2:09:57 PM
JULIA MICKLEY, Northern Alaska Environmental Center, posited
that the current tax structure is outdated, and said she would
like to see it addressed. Development does not come without a
cost, she stated, and the public should be compensated for the
minerals removed from public lands. Royalties should be
structured to provide real returns to the public and provide
compensation for the inevitable environmental degradation. She
indicated that she would like to see an even higher tax
structure implemented. Mining pays a very small percentage of
state revenues, especially when compared to the oil industry,
and this amount needs to be increased. She stated that the
proposed 2 percent increase, only on the most profitable mines,
is not enough. All portions of the mining industry in Alaska
should pay increased taxes and the most profitable should be
increased by 5 percent so that Alaska's tax structure is more in
line with other states, like South Dakota. She pointed out that
the ISER report does not include infrastructure costs, such as
road construction and maintenance. She pointed to the Ambler
Road as an example of these types of costs.
REPRESENTATIVE TARR requested that Ms. Mickley share the
information she referenced on South Dakota's mining tax.
MS. MICKLEY responded that South Dakota taxes its mining
companies at 14 percent, which is 5 percent higher than the
proposed increase.
REPRESENTATIVE JOSEPHSON noted that there is more infrastructure
needed in Alaska, as everything is much closer in South Dakota.
He asked Ms. Mickley to clarify her point about infrastructure.
MS. MICKLEY said Representative Josephson's point is reasonable;
however, she pointed out that the proposed Ambler Road to the
Ambler Mining District would cost the State of Alaska $430
million, but the proposed tax would only provide an estimated $6
million, leaving a $424 million cost to the state.
REPRESENTATIVE JOSEPHSON understood Ms. Mickley's point and
thanked her for her testimony.
REPRESENTATIVE JOHNSON asked which organization Ms. Mickley
represents.
MS. MICKLEY said she is representing the Northern Alaska
Environmental Center.
2:13:02 PM
REBECCA LOGAN, General Manager, Alaska Support Industry Alliance
("the Alliance"), testified that the Alliance represents 680
Alaska businesses and the 30,000 employees that provide support
services to oil, gas, and mining operations in Alaska. She
noted that HB 253 has been identified by Governor Walker as an
integral component of the new sustainable Alaska plan, which is
billed as providing a balanced and sustainable budget for
Alaska's long-term fiscal stability. While the Alliance
appreciates the governor's efforts to address Alaska's spending
problem, it is concerned about bills like HB 253 that have a
singular focus on raising new revenues in the short-term,
without assessing potential long-term impacts on the state
economy. Alaska needs to take a long-term budget view, she
opined, not a one-year snapshot. As resource development
companies plan projects and identify areas to invest, they use a
long-term, balanced approach that accommodates the highs and
lows of commodity cycles, and Alaska should do the same. Like
the oil and gas industry, the mining industry is experiencing a
downturn in commodity prices and is not in a position to
shoulder additional costs through taxes. There is no vision for
Alaska's future resource development economy in a tax bill that
does not assess the impacts of that tax on the private sector.
She posed the question to the committee: "Do we, as Alaskans,
want slow economic progress in a low commodity environment, or
do we want no economic progress?"
2:14:59 PM
REPRESENTATIVE JOSEPHSON stated that this is the fourth bill in
the fiscal plan that he has looked at that calls for new money
from industry, noting that the alcohol bill is a consumer tax,
but it does impact industry. He said there has been push back
on all of them, which he said he understands, but he stated his
concern that at the end of the day, all that would be left would
be taxes on individuals or a cut to the PFD. He asked Ms.
Logan's opinion of the governor's plan that everyone share in
the state's economic burden.
MS. LOGAN stated that if it was true that everyone was going to
share in the burden, she would support the governor's plan. She
said she would be very interested in seeing [proof of such
shared burden] and added that the industry is already making
significant payments to the State of Alaska. She emphasized
that industry is frustrated that the legislature, instead of
reducing the operating costs of state government, is turning
immediately to industry to solve its problem.
REPRESENTATIVE JOSEPHSON commented that the focus of the
legislative session so far has been on budget cuts. There have
been hearings on revenue, but cutting has been the focus. He
asked Ms. Logan if she was aware of that.
MS. LOGAN responded she was aware that people were saying
cutting was the focus of the session, but she had not yet seen
the proposed budget to assess the state of reductions promised.
2:16:57 PM
REPRESENTATIVE JOHNSON pointed out that the proposed increases
are not legislatively driven, but are instead proposals from the
administration and it is the duty of the legislature to review
them. He said it does not mean that any of the proposals would
go anywhere, but he wanted to be clear that HB 253 was not a
legislatively driven agenda.
2:17:22 PM
REPRESENTATIVE SEATON said several people had given testimony
stating that no action should be taken until an economic impact
analysis has been conducted for a proposed change, but
questioned the possibility of getting a definitive study
conducted due to the variable nature of commodity prices.
Noting the Fraser Report provides comparative tax figures for
Alaska and other states, he asked about the feasibility of
conducting a comprehensive economic study that would indicate
how the proposed mining tax increase from 7 percent to 9 percent
would impact the closed-door decision making of the industry.
MS. LOGAN responded that she has seen several ISER studies that
examine different financial scenarios and tax structures and
their potential influence on the private sector. She said it is
as simple as finding an economist to examine that specific
question.
REPRESENTATIVE SEATON inquired if, given a scenario where an
ISER study found that changing the tax rate from 7 percent to 9
percent would have little decisional influence on whether or not
to proceed with a mine, Ms. Logan would be in favor of the
legislature proceeding with the proposed legislation.
MS. LOGAN replied, "Absolutely not." Following results like
that, she continued, there would be enough information to answer
the question whether the best decision would be to raise $6
million in taxes on the mining industry or to reduce operating
expenses in state government by $6 million dollars.
REPRESENTATIVE SEATON offered his hope that testifiers would
refine the answer to that question. He noted that formerly many
had suggested there should be a document defining the economic
impact this tax change would have on industry behavior. Now he
was hearing that testifiers aren't looking for that impact
study, but rather a study examining the comparative value of the
options: cutting PFDs, cutting the University of Alaska budget
by $6 million, or other measures. Those are quite different
studies, he pointed out.
MS. LOGAN responded that her previous statement was not made on
behalf of the Alliance, but rather she was saying that the state
needs a long-term plan that addresses the needs of the
government and private sector, and that this was a short-term
answer and there was not information to assess whether it was
the best answer.
2:21:37 PM
REPRESENTATIVE TARR referenced the portion of Ms. Logan's
testimony that discussed singling out the mining industry, and
said testimony from the fishing industry indicated a willingness
to contribute to solving the problem, provided they were not
unfairly burdened. She asked Ms. Logan to explain how the
mining industry saw itself differently. She acknowledged Ms.
Logan's long-term service in the industry and the 61-year time
period since Alaska had changed the mining tax structure, and
asked if people thought it would never change. She stated that
she would like to understand when people thought that it might
be updated, considering it has been more than six decades.
MS. LOGAN clarified she had not said anything about singling out
the mining industry, but instead said the singular focus of this
bill was to raise revenue, without consideration of the impact
on the private sector. She stated that she would not assess the
need to change a tax based on how long it had been in place.
The more appropriate assessment would be whether or not it was
doing what it should.
REPRESENTATIVE TARR stated that state government has changed
dramatically in 61 years and that's the reason for reassessing
whether these taxes were working properly at this time.
2:23:35 PM
REPRESENTATIVE HERRON commented that because the legislature had
no choice, it would reduce government services that would impact
the lives of all Alaskans. He noted the budget proposal was
from the governor and was being considered by the legislature.
Although studies from sources such as ISER exist, when special
interest groups, such as the Alliance, testify, they frequently
bring their own [studies]. He asked if the industry could
provide any studies supporting the stance that raising the tax
rate from 7 percent to 9 percent does not make sense. He said
the legislature does not need to contract an independent study,
but rather that industry should provide its own justification as
to why the tax is regressive if they think it is.
MS. LOGAN allowed she may have misunderstood the question and
clarified she does not represent the mining industry but rather
represents support industries to the mining industry. She
suggested that the number of jobs being lost in a low-commodity
environment is good evidence that comes from industry. She also
stated that the policy and philosophy that the group she
represents adheres to is that increased taxes deter investment.
She said the members of the support industry are not economists
and would not have access to the type of mining industry
information for which Representative Herron was asking.
REPRESENTATIVE HERRON acknowledged Ms. Logan's response and
clarified the industry he had referenced was the support
industry. He explained that the legislature needs more
information, specifically how individual support industries
would be directly affected by the tax increase proposed under HB
253. He said the legislature does not have time to conduct
analyses of the potential effects of the tax increase specific
to the support industries.
MS. LOGAN replied it is likely the Alliance could identify the
potential impact of a tax increase on many member companies.
2:27:48 PM
BEN MOHR stated he is testifying on his own behalf. The mining
industry, like many commodities, is in a prolonged slump, he
said. He said Mr. Brune's company was the financial and capital
partner in a project in which he was involved. When commodity
prices and other factors came in to play, the company didn't
just scale back in Alaska, it left. When the company left, Mr.
Brune was one of hundreds of Alaskans who suffered as a result.
He recounted that earlier in the day he was at his office, and
told a coworker that he intended to take some time off to
testify on a mining bill. The coworker inquired as to Mr.
Mohr's premise, to which he replied, "How do you get more blood
from a turnip?" He stated that the answer in this case is, "You
have to have more turnips." He said the state can't get much
more blood from the industry; the margins that the mining
industry operates on are pretty slim in the first place. Thin
margins combined with upfront capital expenses and the numerous
regulatory and public affairs hurdles that exist in Alaska
create a challenging business environment. He stated that
people do want to mine in Alaska and the state has incredible
resources, but the public policy perception by investors does
not come close to matching the resources present. Increasing
the state's mining taxes doesn't attract investors, it raises
the hurdles. Decreasing the period of time that mines can enjoy
tax relief before starting to pay does not encourage investment
in the state. Alaska will not receive new investment by making
the changes that would be implied by HB 253, he posited.
2:30:44 PM
REPRESENTATIVE TARR asked for clarification regarding what Mr.
Mohr meant by his comment that the public policy perception does
not match the opportunity, in light of the fact that Alaska has
not changed its mining tax policy for 61 years. She asked where
the public policy perception has gone wrong.
MR. MOHR referenced the 2014 Fraser Institute Report, which
conducted an inventory of mining industry perceptions toward 122
jurisdictions worldwide. He said the report ranked Alaska tenth
worldwide in terms of investment attractiveness but twenty-
seventh in terms of public policy perception, which includes tax
and regulatory hurdles.
2:31:34 PM
REPRESENTATIVE JOSEPHSON asked for clarification regarding the
factors contributing to the rank of twenty-seventh in the public
policy perception category.
MR. MOHR confirmed that tax and regulatory hurdles are two
components within the public policy perception section of the
report. He offered to follow up on the question.
REPRESENTATIVE JOSEPHSON commented that Alaska has not changed
the mining tax since right after the Korean War; therefore, it
must be regulatory policy that has caused the drop in rank from
tenth to twenty-seventh.
MR. MOHR clarified that the 2014 Fraser Institute Report that
ranked Alaska twenty-seventh under "Public Policy Perception by
Investors" was based on 2013 data. He said he assumed the
perception was driven by the legislature's treatment of oil and
gas policy at the time and the thought that the mining industry
might be next.
2:33:32 PM
REPRESENTATIVE SEATON requested that Mr. Mohr forward the
applicable pages of the Fraser Institute Report to the chair for
distribution to the committee.
MR. MOHR agreed to forward the documents.
2:34:07 PM
RANDY POWELSON, Placer Miner, stated he is a mining engineer,
has been in the mining industry for over 20 years, and has
worked for several different size companies, ranging from small
to large. He currently runs a small, family owned placer mine
and has work experience in a variety of mining operations. He
said Alaska has a resource based economy; the state cannot
survive on tourism or manufacturing. Given Alaska's geographic
location it is only economical for the state to develop its
resources, and if Alaska is going to survive it must do that.
He explained that placer miners, like him, are "price takers,
not price makers." Placer miners are subject to the variability
of their market.
MR. POWELSON noted he has listened to several comments about
mines becoming profitable, but pointed out that Kensington is
the only major new mine in the state in the past ten years. He
posited that if mines were profitable, there would be more large
and small mines in the state; therefore, mines are marginal. He
said he opposes the removal of the 3.5-year exemption. As a
small placer miner, banks will not lend to him for equipment
purchases, so he must finance out of personal savings. He
purchased and financed almost $150,000 in equipment over a
period of years, and if he had to pay taxes during the start-up
years it would have made his operation uneconomical.
MR. POWELSON stated his opposition to increasing the licensing
tax from 7 percent to 9 percent. The problem with referencing
the 1955 tax as outdated, he posited, is that it may have been a
high tax when it was implemented. He added that it may not be a
tax issue so much as a regulatory issue. In 1955 the Surface
Mining Control and Reclamation Act of 1977 (SMCRA) and the Clean
Water Act (CWA) did not exist, the U.S. Army Corps of Engineers
(USACE) was not charging thousands of dollars for wetlands
disturbances, and conservation banks did not exist, all of which
are problems that modern miners have to address. Anytime a
small business owner hires a new employee, the rule of thumb is
that 50 percent is added to the employee's wages for payroll
taxes and overhead. Even if the tax hasn't changed since 1955,
everything else in the world has, which makes it uneconomical.
MR. POWELSON said he spent over $50,000 in Fairbanks last year
on supplies and materials and makes a point of buying from
locally-owned and run businesses, not conglomerates, in an
effort to keep money in the community. He gave the example of a
sporting event coming to a town and every dollar spent in
association with the event turning over three or four times in
the community. He said if this adage holds true then his
single-family mining operation produced $150,000-$200,000 worth
of benefit to the Fairbanks community. He said there are ways
for the state to generate revenue. For example, sometime between
2010 and 2012, the Department of Transportation & Public
Facilities (DOT&PF) put out a gravel crushing contract between
Chitina and McCarthy near highway mile 52. The University of
Alaska Fairbanks (UAF) is a land grant university, it is
supposed to use that money and land to pay for UAF's operation.
The university chose not to lease the gravel pit to DOT&PF.
After six months of negotiation and an offer to pay six times
the going rate for the gravel, UAF turned down $200,000 worth of
royalties. Conversely, the Alaska Mental Health Trust Authority
(AMHTA) actively uses its land to create revenue.
2:39:31 PM
MR. POWELSON said mining is a significant contributor to AMHTA.
He said taxes are a punitive, regressive form of increasing
revenue; every time money is taken from one [industry] it makes
that occupation less attractive. He compared taxes to a big
rubber band and recounted that a few years ago the state thought
it would be wise to tax the "rich" cruise ship industry, and
cruise ship activity in Alaska and the associated revenue
plummeted as a result. That regressive tax was repealed. He
predicted the same pattern would occur in the mining industry.
He suggested the state find a way to tax everyone, not just the
miners, perhaps in the form of a small tax on cell phones, which
could be considered either necessities or luxuries. If there
are 400,000 cell phones in the state, a tax rate of $1.25 per
month would raise $6 million. Such a tax, spread across the
entire state and all its citizens, would be a fairly small
amount compared to the $45.00 to $90.00 per month that people
pay for cell phones. He provided the example of the Yukon
Territory's aggressive promotion of the mining industry, because
the Yukon Territory realizes that mining brings in money rather
than costs money.
2:41:48 PM
REPRESENTATIVE JOSEPHSON said the most compelling portion of Mr.
Powelson's testimony was his explanation of the vast increase in
regulatory authority over the mining industry since 1955. He
commented that the University of Alaska (UA) generated five
times more money than AMHTA and UA owns a land area equivalent
to the island of Molokai, Hawaii.
MR. POWELSON allowed that Representative Josephson's statement
could be true. He said when he hears about UA claiming to have
financial problems on the news it bothers him, because he knows
that UA has turned down a significant amount of cash flow.
2:42:46 PM
REPRESENTATIVE TARR stated her appreciation for Mr. Powelson's
views on what has changed in Alaskan mining since 1955, but said
it is important to distinguish between federal and state
regulatory requirements, as well as the differences between
federal and state land. She said it would be interesting to
hear from Mr. Powelson on whether there are regulatory
challenges specific to state land.
MR. POWELSON replied that many of the federal regulations apply
on state land. In terms of permitting, he said a person in 1955
could simply start mining; whereas, now it takes anywhere from 5
to 15 permits and the associated record keeping. For example,
for water quality monitoring the state requires a turbidity test
unit that costs about $750. However, the state does not accept
as a replacement a turbidity tube, which is a $35.00 piece of
plastic with a slide rule on it. While the tax may be from
1955, all the other cumulative effects of regulation are
massive. He maintained that saying something is bad because it
is old is not valid, especially when considering all the costs
associated with mining operations. As a private business man
and a small, family mine operator, he is fighting for every
dollar of bottom line, he continued. It costs a tremendous
amount of money to run a mining business correctly.
REPRESENTATIVE TARR responded that the purpose of her previous
comment was to highlight that state regulations are something
the legislature can actually change. She clarified she was not
referring to the overlapping jurisdiction issue, but is
interested in Mr. Powelson's thoughts about what could be
changed in state regulation. She related that if Mr. Powelson
had other examples similar to the turbidity test kit, she would
be interested in hearing them.
MR. POWELSON offered to follow up outside the meeting.
2:45:33 PM
DOUG TWEET, Placer Miner, NB Tweet & Sons, stated he is a third
generation placer miner and opposes HB 253. He stated that from
the perspective of a small placer miner, he understands the need
for the state to increase revenue, but he posited that this
legislation would lead to an overall decrease in revenue.
Specifically, it would harm the economic climate for new placer
miners, especially in rural areas where there is very little
economic activity. He stated that for a new placer miner, the
process of acquiring financing is very difficult. Having a new
mine exemption for 3.5 years is very important, because miners
get a return on their investment right when they need it.
MR TWEET stated that increasing the tax from 7 percent to 9
percent would have a negative impact as well; even though
$100,000 sounds like a high threshold for that increase, it
isn't when there are several partners in a family-oriented
partnership. For example, the large company in Nome, Nome Gold
- formerly Alaska Gold - is struggling. It was not making money
last year and he has heard it would be back next year but would
be significantly downsized. He explained that costs are
incredibly high in Nome. The Nome Port Commission recently
decided to raise tariffs on the port by 10 percent. Although
still subject to city council approval, the City of Nome needed
the revenue increase because activity has slowed. Reiterating
the high costs in Nome, he noted that fuel at the pump is around
$5.00 per gallon. He asked the committee to please consider not
lifting the 3.5-year exemption or raising the tax. He offered
that it is more important to the state in general, as it will
affect larger mines trying to become operational.
MR. TWEET said there is a large graphite deposit on the Seward
Peninsula, and with low commodity prices, junior companies are
having a hard time with financing. One company has spent
approximately $12 million on exploration on the Seward Peninsula
and has found the largest deposit of high grade graphite in the
U.S. and potentially the world. The deposit is large enough
that it could drive the market for 100 years. For the deposit
to be developed the company needs financing. The potential loss
of the 3.5-year exemption and tax increase from 7 percent to 9
percent would negatively impact the company's feasibility
studies and make financing the project even less likely. The
vast majority of claims for graphite deposit are state claims,
he pointed out, which would result in a large production royalty
if the project ever came to fruition. It would be wonderful for
the area to have a large mine. He concluded by stating he
understands and appreciates the legislative challenges of trying
to find revenue and balancing the state budget.
2:50:35 PM
REPRESENTATIVE SEATON pointed out that this tax would apply only
to net income. He inquired whether it would make a difference
to Mr. Tweet, as a small placer miner, for the tax to stay at 5
percent from $50,000 to $200,000. He explained that in this
scenario the tax rate would still increase from 7 percent to 9
percent above $200,000. This would give the small miner, with a
net income of less than $200,000, a significant tax advantage.
MR. TWEET replied that would be helpful in terms of his family's
business. His business is organized as a limited liability
company (LLC) and all family members own a share. He said he is
a third-generation miner and his sons are fourth-generation
miners. This is their only source of income and $200,000 is not
that much when divided three ways, he explained, but extending
the upper limit of the tax increase would be helpful in his
circumstance and for other small miners.
2:52:58 PM
GEORGE PIERCE stated that Alaska's mineral industry was worth
almost $3 billion dollars in 2009 but paid less than 2 percent,
counting all forms of taxes, fees, and royalties to the state
and local governments. Taxes on other industries are much
higher. The oil and gas industry paid about 20 percent of its
market value, which is still the lowest in the world. The
fishing industry paid about 5 percent. Coal mining was also
about 5 percent. While low taxes for mining are attractive to
corporations, some organizations and legislators argue that they
don't represent a fair, long-term value for Alaskan resources,
particularly because the vast majority of mining corporations
are not Alaskan. He inquired why, given that all Alaskans are
going to have to pay in the current budget circumstance,
resources should not also be taxed. Everyone should pay, he
opined. The state has had the same mining tax since 1955, but
has visited the oil and gas taxes six times in ten years. The
tax circumstance needs to be overhauled. Mines leave a mess,
destroy habitat, and the damage is continuing. The resource is
non-renewable. He implored the committee to raise taxes on
Alaska's resources to get the best deal for Alaskans, and cited
the example of numerous abandoned mines in the state. He
posited that taxes should apply to gross income, not net income.
He suggested the taxes be raised to 20 percent as with gas and
oil, or even higher. He said government exists to provide
services, and corporations exist to make money. Alaska has the
best resources in the world and the legislature gives breaks and
gives the state's resources away for dirt cheap. Alaska should
get the top dollar because its resources are the best, he said.
He concluded, "Do your job, let's fix the budget and raise the
taxes on mining."
2:55:53 PM
CO-CHAIR TALERICO asked if anyone else would like to testify.
[No one came forward.]
[HB 253 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB253 ver A.pdf |
HRES 2/19/2016 1:00:00 PM |
HB 253 |
| HB253 Sponsor Statement - Governor's Transmittal Letter.pdf |
HRES 2/19/2016 1:00:00 PM |
HB 253 |
| HB253 Sectional Analysis.pdf |
HRES 2/19/2016 1:00:00 PM |
HB 253 |
| HB253 Fiscal Note-0924-DOR-TAX-01-13-16.pdf |
HRES 2/19/2016 1:00:00 PM |
HB 253 |
| HB 253 Tax presentation MINING 1-29-16 ka.pdf |
HRES 2/19/2016 1:00:00 PM |
HB 253 |
| HB 253 DOR Response to House Resources Committee - 2.15.16 (Part 1 of 2) signed JB.pdf |
HRES 2/19/2016 1:00:00 PM |
HB 253 |
| HB 253 Opposing Testimony Jeffers 02_19_2016 (1).pdf |
HRES 2/19/2016 1:00:00 PM |
HB 253 |
| HB 253 Frazer Institute 2014 Survey of Mining Companies 02_19_2016 (2).pdf |
HRES 2/19/2016 1:00:00 PM |
HB 253 |