Legislature(2015 - 2016)BARNES 124
02/23/2016 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 | |
| + | TELECONFERENCED |
HB 253-ELCTRNC TAX RETURN;MINING LIC. TAX & FEES
1:04:19 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."
1:05:20 PM
BRONK JORGENSEN, Fortymile Mining District, provided his
organization's concerns regarding the potential impacts that HB
253 could have on placer miners in Alaska. He paraphrased from
the following written testimony [original punctuation provided]:
I would like to thank the Committee for letting the
Mining District testify on HB 253 today.
The Fortymile Mining District was established on the
Fortymile Bar of the Fortymile River on March 25th,
1898 under the 1866 Mining Act and the 1872 General
Mining Act. The District is the oldest and longest
standing Mining District in the State of Alaska. We
encompass approximately six thousand square miles.
Since 1898, the District has been actively engaged
with Governmental agencies to promote family placer
mines and create a healthy and vibrant environment for
all user groups of the Fortymile River watershed.
Currently we have just over a 100 family placer miners
that make up the Mining District. This group along
with all placer miners in the state are currently
facing an unprecedented obstacle in dealing with
regulatory agencies like the BLM [US Bureau of Land
Management, EPA [US Environmental Protection Agency],
DEC [Department of Environmental Conservation], and US
Army ... [Corps] of Engineers.
Family placer operators on Federal Lands are being
inundated by Instructional Memoranda's,
reinterpretation of regulations and forcing any new or
revised plans of operations to comply with a
complicated "REM [Reclamation Effectiveness
Monitoring] Policy" for reclamation, along with a new
BLM policy of being forced out of using the State of
Alaska Bond Pool. The State Bond pool is an extremely
important asset to our placer miners on both state and
federal mining claims.
Placer mining in the Fortymile is a clean process, no
acid leaching or other chemicals are used, just water
and hard work. The overall footprint is minimal to the
extent that the 1986 Environmental impact statement
[EIS] showed that collectively all placer mining in
the Fortymile District would have no significant
impact. The number of acres that the EIS assumed in
1986 would be mined by 1996 hasn't even been reached
today and we are 30 years out. Total all placer
activity in the Fortymile is smaller than an Iowa
Farm.
I bring this up to show the economic power of our
family placer mining and the minimal area it takes to
do so.
Family Placer Mines are a huge force in driving the
Alaska economy especially in rural Alaska where there
is very little other economic activity. I would like
to point to the McDowell report that was done on the
Economic Impact of Placer Mining in Alaska. A couple
highlights from the report.
- Family Placer Mines have been steadily increasing
on average over the last decade.
- 88% of all expenditures made by placer miners are
spent in the state of Alaska.
- Total Impacts: 1700 jobs in Alaska, $65 million
of labor income in Alaska and $150 Million in
Total spending on goods and services.
In this house bill,
- The Requirement for Electronic Filing of Mining
License Tax Returns. We believe we will problem
for our members. The exemption for this should be
in statute and allow exemptions for operations
with less than 10 employees or a tax liability of
under $10,000.
ƒ Many of our members don't have internet or
can barely run a computer.
ƒ I personally tried to use the current
electronic system. I'm probably one of the
more tech savvy operators and I stopped and
used the good old paper system, because it
is difficult and problematic to use.
- This bill is eliminating the Requirement to file
returns in Juneau. This is a positive step for
family placers. Placer miners should be able to
file their tax returns and pay their tax at State
DNR [Department of Natural Resources] information
offices in Fairbanks and Anchorage just like
Rental Fees, water license fees and APMA
[Application for Permits to Mine in Alaska] fees.
This eliminates worry and hassle that returns are
timely filed.
- It is purposed that we Increase Mining License
Fee of from $0 to $50.
ƒ This $50 annual fee may not seem like a big
thing but it actually is. Currently it is
estimated this will bring in only $25,000.
This $25,000 is a minor amount of money that
will have a significant impact on family
placer miners.
· In order for a placer operator to get
permitted, they have to pay the
following regulator fees and all these
fees add up and make it more difficult
for us to operate:
o APMA fee of $150 for one year.
Alaska Placer Miners Application.
o Non refundable Bonding fees can be
as much as $370 per year.
o Temporary Water License is $50 per
year.
o BLM Camping fees every year for
dredgers is $250
o State Mining Claim Rental Fees and
Federal Maintence fees every year
cost most of our miners a minimum
of $300 per year.
In the end the $50 dollars will have a significant
impact, and if it is the straw that breaks the camels
back on just one or two family operations, it is not
worth it.
Anything you do that adds to the burdon of family
placer mines with have a negative effect on both our
family miner and the state economy. CACFA the Citizens
Advisory Commission on Federal Areas has been a huge
asset to the Mining District in dealing with ANILCA
and Federal Agencies.
The Fortymile District would like to be positive and
what we need to be doing is helping family placer
operations so they can be successful and add revenue
to our state.
I encourage all of you to remember that the
trickledown effect in the economy of losing just a
couple family placer mines has a significant impact on
the general state economy. Let's try to work on
reducing the regulator paperwork and encourage more
people to go out and develop small placer operations.
As at State we need to be making it easier to comply
and meet regulations. We need to keep the bond pool
strong, and pursue our State rights under ANICLA.
Continuing to move forward on issues like the
navigable waters, RS2477 and we need to support and
fund CACFA. In the long term these things will help
our overall long term fiscal issues.
Thank you for giving me the time to address the
committee.
1:13:54 PM
REPRESENTATIVE SEATON referred to Mr. Jorgenson's comment that
the state bond pool money had not been used up, and asked for
details as to where the bond pool is and what it is used for.
MR. JORGENSEN replied that the bond pool is something every
federal operator has to use and any state operator that disturbs
over five acres of ground. In the event a miner defaults, the
bond pool money can then be used to reclaim the land and remove
equipment.
REPRESENTATIVE SEATON surmised that the payment into the state
bond pool ....
MR. JORGENSEN interjected that it is still funded by the small
miners in that every year miners pay $37.50 and it goes for
managing the pool and continuing to grow it. He noted that the
issue for federal operators is that BLM is claiming the bond
pool isn't strong enough and BLM is using that to force federal
operators to use their financial guarantee system, which
essentially means putting up a $500,000 to $1 million bond.
From his operation he estimated it to be approximately five to
six times the cost.
REPRESENTATIVE SEATON asked how much money is currently in the
bond pool.
MR. JORGENSEN responded that it is approximately $1.1 million.
1:15:39 PM
REPRESENTATIVE JOSEPHSON asked how many of the hundred families
are making a living principally on placer mining.
MR. JORGENSEN estimated that approximately one-half of the
operators are principally placer miners.
REPRESENTATIVE JOSEPHSON asked for clarification regarding the
$37.50 per year payment.
MR. JORGENSEN explained that it is $37.50 per acre, so the
bigger the area left disturbed the more the miner pays. Until
the state or federal agency signs off on the ground the miner
must continue paying every year, although there is a refundable
portion so that once it is completed the miner receives his/her
refundable bond.
1:16:36 PM
CO-CHAIR TALERICO asked what has been the largest acreage
disturbance for any one individual claim.
MR. JORGENSEN answered that the largest operator in the
Fortymile has approximately 15-20 acres disturbed.
The committee took a brief at ease.
1:17:32 PM
KAREN MATTHIAS, Managing Consultant, Council of Alaska Producers
(CAP), provided her organization's concerns regarding the
potential impacts that HB 253 could have on large metal mines
and major metal development mines in Alaska. She paraphrased
from the following written testimony: [original punctuation
provided]:
For the record, my name is Karen Matthias and I am the
managing consultant of the Council of Alaska Producers
(CAP). Thank you for this opportunity to testify on HB
253.
CAP is a non-profit trade association formed in 1992
and serves as a spokesperson for the large metal mines
and major metal developmental projects in the state.
I watched the testimony of the Administration last
week so I know you have been given an overview of the
mining industry and an explanation of the current tax
system. I will focus my comments on the impact of this
bill on Alaska's 5 large metal mines and major
projects and my colleague, Deantha Crockett of the
Alaska Miners Association, will be speak to the
broader industry which includes coal, placer mining
and exploration.
CAP has two major concerns about HB 253:
1. How does the proposed 29% higher AMLT payment
impact Alaska's current mines and projects?
2. Will it attract or deter investment to Alaska?
First, I would like to state CAP's position on fiscal
sustainability.
As businesses that have had to make tough decisions to
optimize operations, cutting budgets and positions
over the past four years of declining mineral prices,
CAP appreciates the depth of the State's fiscal
challenge and concurs with many key elements of the
Governor's fiscal plan for Alaska.
CAP's position has been consistent. To achieve fiscal
sustainability and a stable investment climate, we
support strategic reductions in the cost of
government, use of the Permanent Fund earnings and
broad based revenue measures to fill the remaining
gap. However, CAP believes that targeting one or a few
resource industries for tax increases is divisive,
discourages investment and does little to balance the
budget.
The fundamental question is what should Alaska's
mineral tax policy be? Presumably we want to find the
balance between a reasonable share for the state and a
competitive rate for industry that attracts
investment. Why? Because a robust, responsible mining
industry contributes to Alaska's economic diversity by
providing good jobs, procurement and contract
opportunities for local businesses, state and local
government revenue and revenue sharing to Alaska
Native Corporations.
I know the administration already touched on these
points and underscored the importance of the mining
industry to local communities, particularly in the
Interior, Nome, Northwest Alaska and right here in
Southeast.
Proposed AMLT increase
In his State of the State address in January, Governor
Walker said that if Alaska were a country, we would be
the 8th most mineral rich nation in the world. But
despite billions of dollars spent on dozens of
exploration projects since the 1980s, we currently
only have five large metal mines. Why? Simply put, it
is very expensive and takes a long time to develop a
mine in Alaska due to our state's lack of
transportation and energy infrastructure. If our rich
deposits were in Nevada closer to roads, rail and
power, they would probably already be operating mines.
The State's annual Mineral Industry Report recognizes
the negative impact of declining metal prices and
paints a grim picture: fewer jobs, lower net revenue
and a significant drop in exploration spending. This
prompts numerous questions from our industry. What is
the rationale for raising the Alaska Mining License
Tax (AMLT) at a time of low metal prices? We have not
seen a detailed analysis from the Administration about
the impact of a tax hike. CAP is concerned that it
will it affect the economic feasibility of mines that
are under consideration or in permitting. Just one new
large metal mine would bring more revenue to the state
than this proposed increase.
CAP has members that are very concerned that at our
current low metal prices it doesn't take much to tip
into neutral or negative cash flow. Yes, the AMLT is
based on net income, but at these prices, net income
is low and a 29 [percent] higher tax payment would be
a hard blow. The Department of Revenue has clearly
illustrated how difficult things are for the industry
in their estimation of the revenue impact of the
higher tax rate. When the Governor rolled out his
fiscal plan in December, Appendix A of his narrative
stated that the increase in AMLT would result in an
additional $12 million to the state. The fiscal note
to this bill says $5.9 million in 2018. The difference
is a recalculation of estimated net income and the
reality of low commodity prices.
CAP is also concerned that the tax increase will deter
investment. The 2014 Fraser Institute Annual Survey of
Mining Companies ranks Alaska 22nd out of 122
jurisdictions around the world in regard to mining
taxation policy as approximately 70 [percent] of the
respondents said that our tax policy encouraged or did
not deter investment. At a time of increasing
competition for few global exploration dollars, what
will be the impact of the proposed AMLT increase on
global perception of investing in Alaska?
Many people are surprised that our major competition
are not countries in Africa and South America, but
Canadian provinces and other US states like Arizona
and Nevada which have more attractive investment
climates. They offer both lower tax rates and more
infrastructure which often means a better return on
investment.
We should be encouraging, not discouraging new
investment in Alaska. New mines, of which Donlin Gold
is just one example, could potentially bring more
revenue to the State of Alaska than the modest revenue
to be gained by this measure.
3.5 year AMLT exemption for new mines
It is equally important to question the proposed
elimination of the 3.5 year exemption of the AMLT for
new mines. Is it fair to remove the exemption for
mines that are currently under consideration or in
permitting and whose economic models count on the
exemption? Since no new large mines have received
permits to start construction, it is clear that this
change will not result in any new revenue in the near
term. On the contrary, it sends a negative message to
potential investors and possibly tips the scale for
economic feasibility of some developing projects so it
could actually have a negative impact on future state
revenue. Surely this is not the goal of the State of
Alaska. Please consider amending the bill to remove
this proposal.
In closing I want to emphasize that CAP's position on
fiscal sustainability has been consistent:
· The State of Alaska cannot cut its way out of the
budget deficit, however additional cost-
containment and efficiencies are still needed.
· Use of the Permanent Fund earnings is a viable
option to fill the greatest portion of the
deficit.
· No one industry should be singled out to cover
the remaining gap.
· As Alaskan businesses willing to do our share,
CAP would be supportive of broad based measures
to address any remaining deficit.
Thank you for the opportunity to provide these
comments. We urge you to look closely at the impact of
this bill on Alaska's ability to be competitive and
encourage investment in the mining sector. Many
Alaskan communities and thousands of Alaska miners and
their families depend on a healthy mining industry.
1:25:47 PM
REPRESENTATIVE JOHNSON commented that he has often heard
targeted taxes and explained that the process of the legislature
is not targeting taxes, but rather breaking the taxes out to
where policy committees, such as the House Resources Standing
Committee, the House Labor and Commerce Standing Committee, the
House Special Committee on Fisheries, and the House
Transportation Standing Committee, can address the policies. He
further explained that when all of these, on their merits or
not, get to the House Finance Committee they will be merged into
a package that should be broad-based and not singling anyone
out. Representative Johnson offered the following:
I want to be real clear that this is not an attempt to
single out a single industry. This is an attempt to
allow the public to weigh in, and for committees to
get a more in-depth look. If we were to take this to
Finance, you'd have two minutes to testify, every tax
person would be up there, public testimony once. And
we're probably hearing more on revenue bills now
because of the way it's been broken up. And it was a
conscious decision made just to do that so that we
could pay particular attention to all of these. So
... to characterize targeting, I know it may seem that
way, but I want to be very clear that this is part of
a package that's been broken out so that all the
legislators will have a chance. I was talking to
someone today and I think there are only three
legislators ... or majority members that will not sit
on a committee that hears a tax bill, as opposed to
just 11 in Finance. And in the minority, I think
there's another three that don't sit on committees.
So of all 60 legislators, only six will not sit on a
committee that hears some kind of a revenue bill. So,
we're much better today handling it this way than we
would have been if we'd just sent it up to Finance and
watched it on TV. And so this is an attempt to make
sure that we're able to drill down. So, I want to
dispel any preconception that we're targeting anyone.
REPRESENTATIVE JOHNSON reiterated that it is important that
people understand the motives and why the legislature is doing
it in this manner in that it is not singling people out.
Rather, the goal is to get more in-depth and receive some of the
information that Ms. Matthias has requested, as well.
1:27:58 PM
REPRESENTATIVE SEATON offered his appreciation for
Representative Johnson's explanation because there is a proposed
fisheries tax increase of 33 percent and he comes from the
fishing industry. He pointed out that elimination of $400
million in tax credits in the oil and gas industry is a
significant portion that is being considered, as well. With
regard to the 3.5 year exemption for large mines, he asked how
that half year of an annual tax is not collected; for example,
whether it is 50 percent of the third or fourth year.
MS. MATTHIAS deferred to the Department of Revenue (DOR) for an
answer in that she is unsure of the accounting.
REPRESENTATIVE SEATON surmised that the testimony of Ms.
Matthias isn't necessarily on the half year, but rather the
industry would like to be exempt from tax for some number of
years after the mine is profitable.
MS. MATTHIAS replied that currently the exemption is 3.5 years,
which the mines would like to stay because a proposal to remove
it entirely is problematic. She said she understands the half-
year possibly creates accounting challenges for DOR. With
regard to targeting taxes, she said she appreciates
Representative Johnson's and Representative Seaton's explanation
and the work this committee is performing to review policy and
impact. She noted that of all of the business community it is
the resources industries - fishing, tourism, mining, and oil and
gas - that have been targeted in terms of the four bills
proposing to raise taxes. From a mining industry perspective,
it feels like mining has been singled out with three other
resource industries for a large proportion of this discussion.
1:31:28 PM
REPRESENTATIVE HAWKER asked whether Ms. Matthias or anyone in a
managerial position in the industry had any contact with DOR
before the bill was introduced, as far as what DOR may be
thinking of doing and the consequences on the industry.
MS. MATTHIAS responded yes, CAP was contacted in late November
by the administration who asked for an opportunity to provide
information on its proposals. The DOR and someone from the
governor's office met with her board in November and said they
were interested in the board's view and also provided an
overview which at the time was still much more general. Prior
to actually seeing the proposed bill, CAP followed up the
meeting with a letter to Commissioner Hoffbeck in late November
expressing much of her testimony today, such as CAP's
understanding of the fiscal situation, its support to be part of
the solution, and its concern regarding targeting taxes. Ms.
Matthias advised that after reviewing the proposed bill, CAP
then followed up with another letter.
1:32:52 PM
MS. MATTHIAS, in response to Representative Hawker, advised that
once CAP had more information on the bill itself CAP followed up
with another letter.
REPRESENTATIVE HAWKER concluded that CAP did have an opportunity
to respond and express its concerns. He asked whether there was
any further dialogue between the agency and CAP before the bill
was introduced.
MS. MATTHIAS answered that to the best of her knowledge, no.
REPRESENTATIVE HAWKER asked whether, to the knowledge of Ms.
Matthias, the Department of Revenue in preparing this bill
performed any sort of impact analysis as to how it might affect
the industry, such as jobs, people, and revenues involved.
MS. MATTHIAS replied no, she did not see any economic analysis
or impact study.
1:33:47 PM
REPRESENTATIVE HAWKER opined that one of the claims in
introducing this bill is that it will take more money from the
mining industry and everything will be fine. He inquired
whether he is correct in recalling that Ms. Matthias testified
that the opposite might happen and the state could actually have
a decrease in revenues.
MS. MATTHIAS responded that that was in regard to her points
about the 3.5 year exemption for the mining license tax. In the
event it helps to tip the economic feasibility of a project that
then doesn't go into production, then there is less revenue for
the state through the Alaska Mining License Tax (AMLT), through
the corporate tax, less jobs, and impact for local communities.
1:34:45 PM
REPRESENTATIVE HAWKER asked Ms. Matthias to clearly state
whether she has had any conversations with the Department of
Revenue about the probability or likelihood of her concerns
actually coming to be should HB 253 pass, as opposed to the
department's presumptions that it is just dialing up a revenue
spigot for the state.
MS. MATTHIAS replied:
There was a meeting, and I'm sorry I didn't mention
this earlier. There was a meeting in January before
the session started, I wasn't present, where
representatives of CAP did express concerns about the
... current 3.5 year exemption for new projects and
asked the Department of Revenue to really consider the
implications before submitting the bill to the
legislature. But we were told it was too late.
MS. MATTHIAS, responding further to Representative Hawker,
reiterated that CAP was told it was too late, that the process
had already begun.
REPRESENTATIVE HAWKER stated the following:
Mr. Chair, thank you. And my own editorial. You know
I really don't care that the Finance Committee is
going to assemble a bill. I personally need to see
rational explanation in this committee before I'm
willing to move any product forward.
1:36:05 PM
REPRESENTATIVE HERRON, in regard to if HB 253 goes forward,
inquired as to what effect it is having and will have on the
global perception of investing in Alaska.
MS. MATTHIAS responded that tomorrow there will be an
opportunity to go through the whole mining industry update and
that she has a number of slides regarding the Fraser Institute
study that shows perception and it tracts where the investments
go. The Fraser Institute looked closely at the question of
investment attractiveness, policy perception, pure mineral
potential, and mineral potential based on the current policies.
She noted that Alaska's position over the last couple of years
has been in decline. Policy perception is not just taxation but
also regulation and other issues. She described this as a
concern for the broader investment community, and part of the
real issue is that commodity prices have been declining for the
last four years so it is harder for companies to raise
investment on the markets. Therefore, there is much greater
global competition for fewer dollars and Alaska has seen its
share of exploration spending go down significantly, and that is
not perception, that's the reality. That shows that companies
are looking at what's going on currently in Alaska and are
making assessments about what might be coming in the future and
some are choosing to put their money elsewhere.
REPRESENTATIVE HERRON asked whether this has changed since the
bill was introduced and whether the bill has been noticed in the
world.
MS. MATTHIAS answered that it certainly has been noticed by the
members of CAP. Some members have headquarters in other
countries and other parts of the United States, and they want to
know what is happening and where things might go so that they
can make decisions about how it will affect their current
operations and plans for the future.
1:39:01 PM
REPRESENTATIVE HERRON referred to the limited conversation with
the administration and the conversation before session started,
and asked whether the administration explained the basis for the
removal of the 3.5 year exemption.
MS. MATTHIAS answered no, that has been CAPs biggest question
because it doesn't seem to make sense because no mines are about
to go into production or have started construction. Therefore,
eliminating this exemption will not result in increased revenue
to the state in the near future simply because there are no
mines poised to take advantage of that exemption. She specified
that CAP has not received a clear answer as to why the
administration would make a decision that doesn't bring in new
revenue but does have the opportunity to discourage investment
or to send a negative message to the investment community.
REPRESENTATIVE HERRON surmised that CAP has performed analysis
on this issue and asked CAP to provide an answer as to the
potential loss of revenue to the state if it deters investment
and development.
MS. MATTHIAS replied that it is a tough to give a dollar figure
because a number of mines are in advanced development such as,
the Donlin Creek Project, Livengood Gold Project, Pebble Mine,
and others, and there is a wide range of projects in the
exploration phase. Obviously, she said, anyone exploring in
Alaska is hoping to find a deposit to develop and turn into a
producing mine. She explained that the change in attractiveness
or concerns by the investment community about changes to the
Alaska fiscal regime could impact any one of those because each
one is different, they all have different models, and their
ability to go ahead is determined on a number of different
factors. She said she can't put a dollar figure on it but if
the state lost one of those advanced projects from going forward
there is a significant impact. Just one of those projects
becoming a producing mine would raise so much more revenue for
the State of Alaska than this particular increase.
REPRESENTATIVE HERRON disclosed that he is a partner in some
gold claims and in speaking as a miner, opined that there is a
shortage of explanations on why this was put forward. He said
he echoes Representative Hawker in that this must be done
carefully and today it is premature to advance it until more
answers are forthcoming.
1:42:34 PM
REPRESENTATIVE JOSEPHSON recounted that the House Labor and
Commerce Standing Committee heard from the cigarette, alcohol,
tourism, and oil and gas industries that they also have the same
fear as the mining industry regarding the impact on economic
incentives and that a climate of welcoming for the production
will be impacted. He asked whether every industry could raise
that argument, such that retirees could determine they are not
retiring in Alaska because they are being threatened with an
income tax.
MS. MATTHIAS responded that CAP's approach for a fiscal
sustainability starts with cuts and efficiencies, and moves to
the permanent fund earnings. She said CAP recognizes that
neither of those will necessarily completely solve the problem
and that there will potentially be a need for revenues to fill
the remaining gap. She explained:
But we think that they should be broad-based and we
are willing to part of that solution. But I think
about ... some friends I have that have been laid off
in oil and gas and mining in the past year. And the
... the first thing they did when they got that layoff
notice was cut expenses so that they could make their
savings last as long as possible while they looked for
a new job that would bring in more revenue. And I
think ... that's a very individual point of view but
that's from a company perspective, that's all exactly
what we have done in these times of low metal prices.
I can tell you my companies have cut positions,
they've frozen wages, they have reduced benefits, they
have started ... requiring that their employees pay
more share for their health care costs, none of those
are easy or popular choices. But, that's what the
companies have done because times are tough.
1:44:51 PM
REPRESENTATIVE JOSEPHSON asked whether Ms. Matthias knows the
net income of the five major mines CAP represents.
MS. MATTHIAS answered she does not have the net income numbers
as the tax information is proprietary. It is all given to DOR
which amalgamates it for their publications, so DOR would be
able to provide a total.
REPRESENTATIVE JOSEPHSON posed a scenario of five large mines
with this proposal resulting in a $5 million tax that was about
$1 million per mine. He asked whether $1 million a mine is
meaningful in the view of worldwide competition given the size
of the mines and the potentiality for return of higher commodity
prices.
MS. MATTHIAS replied that the tax increase being discussed is
the Alaska Mining License Tax (AMLT) which is based on net
income. Currently, the reason the fiscal note is $5.9 million
is because commodity prices are very low, operating costs are
high, and net income is low. She stressed that a change in the
percentage could result in a very different total when commodity
prices are high because, going back four or five years, there
was a much larger payment to the state in AMLT because commodity
prices were high, mines made money, and the state received more
revenue. Therefore, she advised, it is not the right question
because it is a percentage on net income and it changes every
year.
1:46:51 PM
REPRESENTATIVE JOSEPHSON referred to the 3.5 year tax holiday,
and opined that the opposing side of the coin that Ms. Matthias
argued is the argument that, rather than interfering with new
existing production, this would be something the industry could
anticipate. He described it as a "no harm, no foul" tax in
that, as Ms. Matthias testified, no revenue is coming in right
now anyway. He asked whether there is an argument for that.
MS. MATTHIAS responded that removing the 3.5 year exemption of
the tax today puts it on the books in the future. Therefore,
when a new mine comes into production it would not have that
opportunity. She pointed out that it is very important to
consider some of the projects currently in advanced stages
because they have invested hundreds of millions of dollars into
exploration, and in some cases permitting. Those expenses are
not deductible, they are an investment. When the companies go
into production they are in debt by hundreds of millions of
dollars that are not deductible from the net income that is
assessed and determines the Alaska Mining License Tax. Also,
she stressed, when a mine goes into production there are hiccups
in that the ore body is unknown, and once mining actually starts
there are things that must be changed, things that require fixes
which means a mine's operations, initially, are not as efficient
as they will be as the mine matures and the ore body is known
and processes are in place. She argued that the ability to have
a good return on profit in those first few years is tough and
unforeseen things can happen initially. The Pogo Gold Mine in
its second year had a forest fire that closed down the road,
thereby having a huge impact on Pogo in the second year. So,
knowing there won't be an exemption from the Alaska Mining
License Tax (AMLT) during the first 3.5 years would have an
impact on a mine's economic feasibility.
1:49:37 PM
REPRESENTATIVE JOHNSON referred to the conversations that Ms.
Matthias had with the administration, and asked whether any of
her recommendations were incorporated within the legislation.
MS. MATTHIAS replied that CAP's November [2015] letter to
Commissioner Hoffbeck supported use of the permanent fund
earnings as part of the major solution to the fiscal challenge.
She noted that there is a bill from the governor on that issue.
Responding further to Representative Johnson, she said she could
not think of any recommendations, in particular, incorporated
into the legislation.
1:50:29 PM
REPRESENTATIVE JOHNSON noted there is tremendous low commodity
prices worldwide and the discussion is about companies investing
in Alaska. He inquired about which kind of investments are
happening today, whether investment has slowed down or stopped,
and whether companies are harvesting as opposed to investing.
MS. MATTHIAS responded that mining is a long-term investment and
many of the producers continue to explore and continue to define
their ore body to prolong the life of the mine because if the
life of the mine is prolonged the company can catch the
increases in the commodity price cycle. To make money in mining
those peaks must be caught because it is a volatile cycle and
there are many dips. There is ongoing exploration to delineate
ore bodies, she explained, but there have been cuts in some of
those investment decisions. For example, Pogo has advised that
it spent $15 million last year on its exploration but its budget
is less this year.
REPRESENTATIVE JOHNSON surmised that if investment is not
happening, then Alaska isn't going to miss anything. However,
if investment is happening, then there is the potential for
Alaska to lose development if HB 253 tips the scales.
MS. MATTHIAS agreed and said CAP believes that is the case both
for the long-term viability of the producing mines and also
mines in the exploration phase and looking to go into
development and production.
1:52:39 PM
REPRESENTATIVE SEATON recalled the statement by Ms. Matthias
that Alaska is the 22nd most favored fiscal regime for mining
out of 127 in the world. He questioned whether a 3.5 year
exemption is tipping the scale and asked whether CAP has any
economic impact studies that show that removal of that exemption
would actually change any of the economic decisions that would
be made by someone starting a mine in Alaska.
MS. MATTHIAS clarified that the number 22 is a question within
the Fraser Institute study based specifically on taxation, and
noted that a number of different questions were asked in the
study. She said CAP has not been able to perform an economic
analysis and suggested that the administration could do an
economic analysis of whether changes to the regime would impact
the existing mining industry and whether would attract
investment. There is strong concern amongst CAP members about
eliminating the 3.5 year exemption of the Alaska Mining License
Tax (AMLT), as well as concern about an increase in the AMLT.
1:54:42 PM
REPRESENTATIVE SEATON stated that he cannot understand how an
economic analysis could be performed regarding what the exact
impact would be of eliminating that one portion because the
mines in existence in the state are based on Alaska being the
22nd most favorable tax structure. What the impact will be is
hypothetical until that portion is actually eliminated. Perhaps
the Fraser Study could be looked at to see whether jurisdictions
that don't have an exemption are higher or lower on the scale
than Alaska. Otherwise, doing a study like that would cost
hundreds of thousands of dollars.
MS. MATTHIAS answered that it is important for anyone
considering changes to a tax to have some idea of what they want
to encourage or discourage in Alaska, and how that compares to
other jurisdictions. The important thing is to look at total
take because it's not just about a royalty or a net proceeds
mining tax or corporate income tax, as it is all of those things
together because from the mining company's point of view they
are all expenses. If the legislature as the State of Alaska
wants to encourage more investment in the mining industry to
have more mines, more jobs, and more opportunities, then it must
be looked at as to whether a tax regime is being set up that is
competitive with reasonable jurisdictions that Alaska would be
competing with. For example, how does Alaska compare Nevada and
Arizona, the top metal mining states in the US, and how does
Alaska compare with some of the Canadian provinces? That whole
picture is necessary in order to have a sense of whether
increasing taxes, increasing the burden, will deter the
investment into the industry and result in a smaller industry.
1:57:22 PM
REPRESENTATIVE HAWKER thanked Ms. Matthias for her testimony,
and requested her suggestions for what the legislature should
look at as a basis for measuring and comparing Alaska's
competitiveness with other jurisdictions. Regarding the
comments by Ms. Matthias about total government take, he said he
has not seen any emphasis on that in this process. He asked
whether Ms. Matthias had suggested that the people proposing the
legislation should take responsibility for the evaluation and
consequences of the changes being proposed, but said Ms.
Matthias did not have to answer that question.
1:58:30 PM
REPRESENTATIVE JOSEPHSON said he has practiced law for 12 years
and knows what it means to represent someone wholeheartedly and
believe in their cause. A criticism levied during the last
couple of weeks about the administration is that it didn't do
all these economic analyses. He continued:
It strikes me that had it done that, unless there was
some stipulation as to the report, the agency, the
author of the report, that it would be your job, if it
was unsatisfactory, to argue that the report was
flawed, which you may believe it was. But isn't that
one of the problems? I'm not saying that more facts
wouldn't be beneficial. But if the report had been
unfavorable, that is the report had concluded that yes
there would be some economic impact but that it's
critical we do this and the economic impact would be
survivable, you wouldn't have simply said, "Well,
that's just the report and we just have to live with
that report."
MS. MATTHIAS replied she is hesitant to analyze a hypothetical
report or the outcomes of a hypothetical report, but said tax
changes are very significant. It has been seen with proposed
oil and gas tax changes that there is intense scrutiny through
economic analysis modeling impact - the legislature hires
consultants, and the administration has its consultants. She
allowed that mining and oil and gas are on completely different
scales in terms of the contributions to the State of Alaska in
terms of the general fund revenue, but said that whether it's
tax on oil and gas, mining, or any other industry, it is
necessary to have a serious economic analysis and look at the
impact. It would be up to the administration, up to the
legislature, as to what kind of third-party consultants to use
in order to receive the best possible information to make
decisions.
2:00:48 PM
REPRESENTATIVE HERRON remarked that it is clear to many members
that 7-9 percent is too steep of an increase. He asked whether
CAP has a position that possibly a small increase is justified
or whether it should be left at 7 percent.
MS. MATTHIAS responded that the Council of Alaska Producers has
not taken a position on that number because it wants to question
the tax policy and the potential outcomes.
2:01:29 PM
CO-CHAIR TALERICO requested a copy of the letter CAP sent to the
Department of Revenue so he can distribute it to the committee.
MS. MATTHIAS answered that it is in the public domain and was
sent to the Department of Revenue and to Governor Bill Walker's
office. She said she will share a copy with the committee.
The committee took a brief at ease.
2:02:36 PM
DEANTHA CROCKETT, Executive Director, Alaska Miners Association
(AMA), provided her organization's concerns regarding the
potential impacts that HB 253 could have on the mining industry.
She paraphrased from the following written testimony [original
punctuation provided]:
Thank you. For the record, my name is Deantha Crockett
and I am the Executive Director of the Alaska Miners
Association. AMA appreciates the invitation to
provide testimony today.
The Alaska Miners Association is a professional trade
association established in 1939 to represent the
mining industry in Alaska. We are composed of more
than 1,800 members that come from seven statewide
branches: Anchorage, Denali, Fairbanks, Juneau, Kenai,
Ketchikan/Prince of Wales, and Nome. AMA is an
umbrella association, representing the large metal
mining operations in Alaska but also small family
mines, coal operations and projects, sand, quarry rock
and gravel mining, and the vendor and contracting
sector that supports the mining industry.
Each year, AMA distributes to this Committee and your
colleagues an "Issues of Concern" document. This
outlines our policy positions on issues that impact
the success of our industry. This year, given the
budget situation we find ourselves in, our very first
item of critical concern is a position on State Fiscal
Policy that reads, "Immediately implement a
comprehensive, long term fiscal plan in 2016 that
ensures responsible spending at a sustainable level.
Such a plan should include budget reductions, use of
Permanent Fund earnings, reduction in the Permanent
Fund Dividend, and new revenue from broad-based taxes.
Ensure State of Alaska fiscal policy includes
strategies to grow and diversify the Alaska private
economy."
I'd like to focus on the last part of that position
when offering comments on HB253. Strategies to grow
and diversify the private sector in Alaska could not
be more important as we look for a solution to our
budget imbalance. We ask you. How many industries do
we have in Alaska that we can look at and conclude,
they've got potential to be twice as large? How much
opportunity is there to multiply the taxpayer base of
a single sector? Alaska is home to over a dozen
advanced exploration mining projects, and just a
single one of them going into production will bring
the State of Alaska substantially more revenue than
what is being proposed in this Legislation.
The Alaska Miners Association and its members want to
be part of the fiscal solution. We aren't against
paying taxes. We already do pay taxes. But we fear
this proposal is short sighted, and wonder, what is
the goal of this tax policy? Is it to raise $6
million dollars? Is it, as was said in testimony at a
previous hearing, to address a perception that mining
doesn't pay its way? (I'll get to that point in a
moment). Or would we, collectively as a state, like
to grow mining's contributions to state revenues for
many years to come?
Recently, UAA's Institute of Social and Economic
Research completed a report prepared for the
Department of Commerce, Community, and Economic
Development that researched the fiscal effects of
Alaska's fishing, mining, and tourism industries. The
report shows that mining, despite some of the world's
highest environmental standards that require
stringent oversight, and highest capital and operating
costs due to the lack of existing infrastructure
throughout much of the state, brings in much more
revenue to the State coffers than what it costs to
manage the industry. Mining DOES pay its way in
Alaska, not only in state government revenues, but
also in property taxes, Native Corporation revenues,
and jobs and procurement spending. The mining industry
has spent hundreds of millions, if not billions of
dollars building infrastructure in this State. All
of this should be highlighted when we discuss any
supposed perception about mining's contributions to
Alaska. Alaska's miners are paying taxes and
contributing to Alaska's economy in a significant way.
The state must keep its eye on the prize and bring new
mines into operation to increase the taxpayer base.
To do this, we as Alaskans must focus on ensuring
there is policy in place to make that a reality.
Policies based on reasonable, predictable regulation
are important, and to the subject on today's agenda,
attractive fiscal terms are more important than ever.
The global mining industry is in a prolonged downturn,
as are the vendor and contracting sectors that support
and depend on its activity. A multi-year decrease in
commodity prices and increasing development and
operation costs has caused the industry to evaluate
projects and operations, just as we have seen with the
cessation of the Nixon Fork Mine, which suspended
operations in 2013, resulting in the loss of 90 jobs,
some of which were held by rural Alaskans.
The example of Nixon Fork is demonstrative of the
fragility of mining economics, and we are hopeful this
reinforces the message that Alaska should be creating
and maintaining policies that incentivize investment,
not adding new pressures that would deter investment.
Clearly, AMA's position is to grow Alaska's mining
industry. We need that just one new mine I mentioned
earlier, and should strive to develop dozens of new
mines. However, the removal of the 3.5 year exemption
for new mines does not achieve that goal. This is
simply bad policy. It offers no immediate or near-
term revenue for the State of Alaska, yet decreases
the feasibility for a future mining project such as
the Donlin Gold Project, which has projected 1,200
jobs at operation and would bring millions of dollars
of revenue to the State.
This Legislation proposes changing the Alaska Mining
License Tax rate from seven to nine percent.
Increasing the payments Alaska's larger mines make to
the State by 29% with no research, economic analysis,
or understanding about whether the industry can bear
the increase, is truly disturbing. Alaska's mining
industry is comprised of mines that are relatively
small in scale and run by one person to large mines
that employ over 600 people. Also, hundreds of
Alaskan businesses and individuals depend on mining
industry spending for their livelihoods. Any policy
that would impact this critical industry must be fully
contemplated, researched, and understood prior to
adoption, and we do not believe the State of Alaska
has reached that level of understanding.
Another component of HB253 that we urge the State to
research is the impact of the electronic filing
requirements on the small miner. Requiring electronic
filing of tax returns could be problematic for some
operations, particularly placer mines in remote Alaska
with limited connectivity to the Internet. The bill
references the possibility of securing exemptions from
electronic filing but offers no criteria or additional
information about the exemptions. We urge you to
ensure the impact of this requirement is understood,
and solutions are offered if necessary. In addition,
the creation of a $50 application and $50 renewal fee
may seem may seem insignificant, but fees required by
regulatory agencies have begun to amount to an
impactful cumulative increase for Alaska's small
miner. This requirement would be in addition to the
fee for an Annual Placer Mining Application, fee to
enter into the bond pool, camp fee permit, fees
required by federal agencies for mine permitting, and
more. The creation of a new fee, in addition to
substantial existing fees, is yet one more cost
mechanism that can only increase in the future,
placing further burden on Alaska's small miners.
Thank you for the opportunity to provide you with
AMA's position on HB253. To conclude, we urge you to
require a close examination of this proposal to fully
understand the impacts on every part of Alaska's
mining industry - from the large mine to the small
miner, and the Alaskan businesses that support the
mining industry, and determine whether this proposal
accomplishes a goal to further Alaska's economy.
2:09:21 PM
REPRESENTATIVE SEATON referred to the electronic portion of Mr.
Jorgensen's testimony that suggested a reasonable cutoff point
would be under $10,000 net income. He asked whether the Alaska
Miners Association (AMA) has a position or agrees with that
suggestion.
MS. CROCKETT asked whether Representative Seaton's question was
that Mr. Jorgensen suggested under $10,000 in the electronic
filing requirement.
REPRESENTATIVE SEATON said his understanding is that Mr.
Jorgensen thought that under $10,000 not being required to
electronically file would be a partial solution because most of
those that would have a problem with that would probably fall
under that $10,000 net income solution. He requested that Mr.
Jorgensen come forward to clarify his suggestion.
MR. JORGENSEN explained that the position of the Fortymile
Miner's Association is $10,000 tax liability, so if the tax
liability to the state is under $10,000 the miner is exempt, or
an employee-based 10 or fewer employees.
MS. CROCKETT answered that the association has not prepared any
sort of assessment on what the monetary threshold would be, but
the problem is that simply some of the miners don't have the
connectivity to do it. No matter how much money a miner might
make, there are some miners who simply don't have the capability
to do it.
2:11:53 PM
REPRESENTATIVE HAWKER presumed that the McDowell Group report,
[The Economic Impacts of Placer Mining in Alaska] was
commissioned by the Alaska Miners Association, and said it had a
lot of good information. He asked how much of the placer mining
in Alaska is conducted on state-owned land as opposed to
privately-owned land.
MS. CROCKETT replied she will get back to the committee with
specific numbers, but that the vast majority of placer mines are
on state land versus federal land.
REPRESENTATIVE HAWKER understood that the placer mining sector
is highly concentrated on state lands, and that the large mining
sector, large metal mines and large coal mines, is primarily not
on state lands. He advised that when the committee looks at the
difference between royalties and production taxes, whatever
decision the committee makes disproportionately prejudices one
or the other of that group. It is something the committee needs
to keep in mind as it looks for an appropriate policy solution.
2:13:29 PM
REPRESENTATIVE SEATON noted that Alaska has been under the net
income percent tax regime for about 50 years and a certain
number of mines have been developed and others have been
explored and not developed. He said he is having difficulty
understanding how changing from 7 percent to 9 percent, or
changing the 3.5 year exemption, will suddenly make "a whole lot
of difference when, if the case was that the existing fiscal
regime, which is the 22nd most favorable in the world basically,
wasn't enough to create these mines or they weren't profitable
enough or that a 2 percent difference in net income, net
profitability, in tax to the state would make the difference and
all of a sudden there's going to be all these mines that are
going to be under construction or one that's going to be under
construction that wasn't already that when they didn't take
place already." He asked Ms. Crockett to explain how the
committee can look at this and say that this is going to be a
determining factor.
MS. CROCKETT responded that it's not that particular tax piece,
but that it couldn't come at a worse time for the mining
industry. Tomorrow she will be offering several slides that
show the different external factors that mining companies are
facing in terms of costs and revenue streams that make it such a
tough time in the mining industry. She reiterated that it's not
so much the taxes, but rather that it's so incredibly expensive
to do business in Alaska and this is changing one portion of how
expensive it is. Millions and billions of dollars are put
forward by companies to develop and construct a project before
it goes into production, and then the revenue streams that come
after that. She respectfully requested that she be allowed to
answer this during her presentation tomorrow.
REPRESENTATIVE SEATON said he is putting out the questions early
so people can be prepared to discuss the different aspects of
the bill, royalties, taxes, and the differences between the US
and Canada.
2:16:42 PM
REPRESENTATIVE HERRON noted that Steve Borell [former executive
director of the Alaska Miners Association] is trying to raise
money for mining investments. He inquired what Mr. Borell would
say now while trying to raise money given the introduction of
this legislation.
MS. CROCKETT answered that when Mr. Borell retired from the
Alaska Miners Association he opened a consulting business
focusing on marketing Alaska's mineral potential around the
world. He spends a great deal of time talking to investors in
Asia and Australia, and promoting Alaska's mineral potential to
bring in investment. She put forward that Mr. Borell is having
an increasingly difficult time keeping Alaska in the focus of
investors and telling them why they should invest money in
Alaska In speaking for Mr. Borell she said he would be dismayed
by this proposal because the mining industry needs all of the
help it can get to attract investment in Alaska.
2:18:10 PM
REPRESENTATIVE HERRON noted that prior to introducing HB 253,
the administration testified in this and other committees that
it had had conversations with the industry. He asked Ms.
Crockett to share with the committee her conversations with the
administration prior to introduction.
MS. CROCKETT replied that she and Ms. Matthias work closely
together. All of CAP's members are members of AMA, so she has a
sort of ex officio seat on the CAP board because of that role.
Both she and the AMA board president were present at, and
participated in, the November [2015] meeting with the Department
of Revenue (DOR). She described the discussion as very general
in nature in that DOR offered what it was thinking and asked for
feedback. She advised that she will provide the committee with
a copy of AMA's letter also recommending that permanent fund
earnings be incorporated. She said it was rather evident at the
time that the Department of Revenue didn't have a great deal of
knowledge on how the mining industry works, so AMA's letter
suggested that DOR coordinate more with the Department of Nature
Resources (DNR) to understand how the mining industry works,
what the impact of taxation changes would be, and so forth.
That was a recommendation AMA hoped DOR would take into
consideration.
2:20:06 PM
REPRESENTATIVE HERRON stated that taxes are part of the
investment decision, and there is a criteria for risk and
reward. He asked Ms. Crockett to share a couple of points about
that criteria.
MS. CROCKETT responded that she will get back to the committee
with some real examples rather than hypothetical examples.
REPRESENTATIVE HERRON referred to the 3.5-year exemption plus
the $100,000. Noting there has been discussion about changing
that number, he asked whether $100,000 is a good number.
MS. CROCKETT answered that she hopes DOR would do that analysis
because DOR has the proprietary information and it wouldn't be
fair for her to ask the placer mining members how much money
they make. She said DOR should be able to provide very specific
information about what different thresholds would impact what
kind of placer mining operation. As one of the representatives
of the placer mining industry in Alaska, she said she
appreciates the question as it is important to know exactly what
thresholds affect what size of operations because these are very
real individual examples that will make a significant
difference.
REPRESENTATIVE HERRON stated that a colleague had posed the
question of increasing it and he was curious as to whether the
AMA had put any thought into it.
2:22:38 PM
REPRESENTATIVE HAWKER cited the history in the McDowell Group
report that in 1940, with federally fixed gold prices and
federal restrictions on the ownership and physical possession of
gold, nearly 750,000 ounces of gold were produced in Alaska
under those circumstances. However, by 2013, mining production
was approximately 82,000 ounces. He argued that this is not a
robust industry and there is a contribution to be paid, a tithe
to be extracted from everyone, and to keep in mind where this
industry is even in its historic development.
2:23:47 PM
REPRESENTATIVE SEATON stated that in keeping things in
perspective, there has been testimony that a $50 license fee
will be devastating to miners, yet there is a proposal to take
possibly $1,000 from the permanent fund dividends as the
preferred course. Presuming those miners are Alaska residents,
the legislature would be taking 20 times the amount of a $50
license fee. He requested that committee members review
everything in context because sometimes it's difficult.
2:24:42 PM
CO-CHAIR TALERICO understood what Representative Seaton is
saying, but said that he doubts the committee will impose a $50
mining license fee on every Alaskan resident so it is "oranges
and apples." Regarding the 2 percent tax increase, he explained
that the 7 percent fee that is charged is 100 percent of the
taxes. Therefore, moving from 7 percent to 9 percent really is
a 28.5 to 29 percent increase; this has been one of the main
questions that he has been asked to answer by quite a few
people.
2:25:44 PM
REPRESENTATIVE OLSON recalled that early in this process the
committee was told that the report by the Institute of Social
and Economic Research (ISER) would include the impact by each of
the tax breakouts. However, this report has been scaled back
and so far the committee has only received an executive summary
of the report, not the complete version. He asked whether the
committee could receive the full report from ISER or DOR before
making a decision on the bill in order to provide adequate time
to analyze the questions regarding the miner industry. He
further requested that any previous drafts of the report be
provided to the committee to help members cobble together the
impact of the other taxes.
CO-CHAIR TALERICO agreed to try getting as much of that
information as possible.
[HB 253 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 253 AMA Placer Final Report 11.15.pdf |
HRES 2/23/2016 1:00:00 PM |
HB 253 |
| HB 253 Tax electronic filing statistics 2-20-16.pdf |
HRES 2/23/2016 1:00:00 PM |
HB 253 |
| HB 253 AMA DOR mining tax letter.pdf |
HRES 2/23/2016 1:00:00 PM |
HB 253 |
| HB 253 AMA testimony.pdf |
HRES 2/23/2016 1:00:00 PM |
HB 253 |
| HB 253 CAP letter to Hoffbeck re taxation.pdf |
HRES 2/23/2016 1:00:00 PM |
HB 253 |
| HB 253 Fortymile Mining District Testimony 2.23.16.pdf |
HRES 2/23/2016 1:00:00 PM |
HB 253 |
| HB 253 testimony CAP-Matthias.pdf |
HRES 2/23/2016 1:00:00 PM |
HB 253 |