Legislature(1997 - 1998)

05/01/1997 01:15 PM House RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HB 238 - MINING EXPLORATION INCENTIVE CREDITS                               
 Number 0077                                                                   
 CO-CHAIRMAN HUDSON announced the first item of business was House             
 Bill No. 238, "An Act amending the program of exploration incentive           
 credits for activities involving locatable or leasable minerals or            
 coal deposits on certain land in the state; and providing for an              
 effective date."  The bill had been heard previously.  Co-Chairman            
 Hudson advised that the sponsor had a proposed committee substitute           
 (CS), 0-LS0845\F, Chenoweth, 4/21/97.                                         
 Number 0122                                                                   
 REPRESENTATIVE AL VEZEY, sponsor, came forward to testify.  He said           
 although the proposed CS looks like a substantial rewrite of the              
 bill, it is not.  It addresses concerns expressed by the Department           
 of Natural Resources (DNR).  Specifically, it provides a means of             
 evaluating data, giving the DNR explicit authority to use                     
 consulting services paid for by the party wishing to have its data            
 approved for a tax credit.  In effect, it would give the DNR the              
 necessary resources to accomplish the evaluation task.                        
 REPRESENTATIVE VEZEY advised there are minor changes taking into              
 account written comments and those received at the previous                   
 hearing.  The major change is that they moved a section to another            
 part of the bill to make it easier to read.                                   
 Number 0287                                                                   
 CO-CHAIRMAN SCOTT OGAN referred to Section 1 of the proposed CS,              
 page 1, line 10, and asked whether the state would be giving more             
 in credits than it would be getting back in revenue.                          
 Number 0323                                                                   
 REPRESENTATIVE VEZEY replied that the only change in Section 1 is             
 adding item (5) on page 2, which clarifies that geological mapping            
 is an allowable cost.  To date, $38 million in potential credits              
 have been filed.  By way of comparison, about $700,000 a year in              
 mining tax is collected; although Representative Vezey does not               
 know the number of actual credits taken, it is small.  The                    
 advantage to the state of these incentives is receiving a                     
 tremendous amount of leverage on its dollars.  Representative Vezey           
 said the state does not really lose any revenue.  It grants a                 
 credit when a tax liability is incurred, and that is usually years            
 after the credit accrues.                                                     
 Number 0401                                                                   
 CO-CHAIRMAN OGAN questioned the $700,000 worth of revenue per year,           
 when the state grants millions in credits.                                    
 REPRESENTATIVE VEZEY said $38 million in allowable credits have               
 been certified by the department, but the number actually used is             
 infinitesimally small in comparison.  The credits are "simply                 
 sitting in the bank, waiting for an opportunity to use them."                 
 Number 0454                                                                   
 CO-CHAIRMAN OGAN asked:  If only $700,000 in taxes is being                   
 collected in mining taxes, what problem are they trying to fix by             
 giving additional credits?                                                    
 REPRESENTATIVE VEZEY stated that the purpose of this bill is two-             
 fold.  First, it adds geological mapping as an allowable expense              
 for credits; that is a small "tweak" that probably could have been            
 interpreted as allowed under existing law.  Second, they are                  
 creating a new category of tax credits for geophysical, geochemical           
 and geological surveying work released to the public.                         
 REPRESENTATIVE VEZEY said the current mineral exploration incentive           
 tax credit only applies to exploration development on a piece of              
 property.  He explained, "In other words, if you do an exploration            
 and development program over 1,000 square miles and you develop one           
 square mile of that under the current program, only the cost                  
 associated with the one square mile that goes into development is             
 an allowable tax credit.  Now, the company will undoubtedly file              
 all the other credits, in the event that they someday become                  
 eligible, but it might be 15 years, or never, that they become                
 eligible for actual tax deductions.  They're just simply filed and            
 accepted; they're in the bank."                                               
 Number 0599                                                                   
 REPRESENTATIVE VEZEY said the airborne geomagnetic survey program             
 has unquestionably created an economic boom in Alaska, with only              
 $300,000 to $400,000 in yearly expenditures by the state.  As the             
 legislature is unlikely to provide more money to expand the                   
 program, they had come up with a plan:  If a private-sector company           
 did geophysical surveying, geochemical surveying or geological                
 mapping and released the data to the public, they would receive a             
 tax credit for that work.                                                     
 REPRESENTATIVE VEZEY explained, "And there again, we're getting a             
 tremendous amount of leverage, because it's not so much that we               
 expect everybody will take all their data and try to put it in this           
 bank and get a tax credit, because in the first place, until they             
 have a tax liability, they have no incentive.  What we're trying to           
 do here is send out a message that `Hey, we are open for business,            
 and we're going to offer this incentive to you.  If you go out and            
 do an exploration program and it turns up goose eggs, and in your             
 opinion, the data is worthless, you can release it to the public              
 and we'll give you a credit against your future mining tax or your            
 future income tax, if you'll just make it available to the                    
 public.'"  Representative Vezey emphasized that where one person              
 might see no value, somebody else with a different background,                
 training or objective may see real value.                                     
 Number 0705                                                                   
 CO-CHAIRMAN OGAN referred to page 1, lines 10 and 11 of the                   
 proposed CS, which says credits are given "regardless of whether              
 the land is state-owned land".  He asked whether Representative               
 Vezey believes it is advantageous to continue with that policy.               
 For example, if exploration was done on private or federal lands,             
 he assumed the state would not get the revenues.                              
 REPRESENTATIVE VEZEY said that is incorrect.  He referred to the              
 90/10 revenue sharing agreement between the state and federal                 
 governments; mineral severance taxes; and corporate taxes as                  
 sources of revenue regardless of land ownership.                              
 REPRESENTATIVE VEZEY said they had debated that.  If a company                
 surveys private land, he would assume the owner of the land is                
 interested in having it developed and would act like a prudent                
 business manager.  The company would have first priority to look              
 this data over.  If they do not want to use it, there is an                   
 incentive to make it public, which can be done at no cost to the              
 department by providing a tax credit against a mining license tax             
 or income tax.  Once the information is public, anyone may evaluate           
 it and talk to the owner of the land.                                         
 Number 0849                                                                   
 CO-CHAIRMAN HUDSON suggested the option for incentives rests with             
 entities wanting to explore for minerals or develop mineral                   
 properties.  If they choose the incentive, they must give back to             
 the state geological information, for example.  He stated, "It                
 doesn't cost us anything, because they have to come into production           
 before there's a tax obligation."                                             
 REPRESENTATIVE VEZEY concurred.  He emphasized that the primary               
 intent is to send a message.  "And we can do that," he said.                  
 "There is no value to a tax credit if there's no taxable income.              
 It doesn't mean they might have income from somewhere else that               
 might be taxable.  It's just this particular property may not have            
 developed.  And that's the big difference between this bill and the           
 bill that we worked on two years ago, is that this bill, ... the              
 property doesn't have to go into production.  We're trying to                 
 expand this library that catalogs Alaska resources.  Because we all           
 say that we're a rich state, but I defy you to tell me what's                 
 Number 0942                                                                   
 REPRESENTATIVE IVAN IVAN, cosponsor of HB 238, said he comes from             
 an undeveloped area, the Yukon-Kuskokwim delta region.  They need             
 to look at available resources, including possibilities for shallow           
 gas wells that could provide cheaper fuel than the diesel currently           
 used in communities.  He believes this legislation will afford                
 REPRESENTATIVE IVAN said his region contains 6.5 million acres of             
 private land.  Including state lands, it is the size of Oklahoma.             
 He stated the hope that the incentive will be available for some of           
 the small operators interested in production of shallow-well gas              
 and for cataloging the resources.                                             
 Number 1064                                                                   
 REPRESENTATIVE VEZEY said he would like to see the committee get              
 the bill moving.  Although he does not believe it will affect                 
 exploration this summer, he believes if the message goes out this             
 summer, it may affect the amount of exploration activity in Alaska            
 next year.                                                                    
 Number 1146                                                                   
 RUDY VETTER testified via teleconference from Fairbanks, agreeing             
 this may provide increased incentive for exploration.  He cited a             
 local example that he believes may ultimately become a mine bigger            
 than the Fort Knox Mine.  He hopes this bill, over the long term,             
 does not conflict with current law.  He noted that it does not                
 provide penalties nor is it mandatory.                                        
 MR. VETTER thanked "all of you people who helped us get the                   
 airborne data that we've had."  He emphasized that the mining                 
 industry does not want more taxes or state funding.  He said, "Give           
 us the freedom to operate and we can operate very well, and we can            
 take care of all of our environmental factors that are necessary."            
 Number 1320                                                                   
 MILT WILTSE, Director, Division of Geological and Geophysical                 
 Surveys, Department of Natural Resources, testified via                       
 teleconference from Fairbanks.  They had reviewed the proposed                
 committee substitute.  While they agree wholeheartedly with the               
 concept, they still have questions.  For example, they see                    
 confusion as to what old data may be eligible.  They also have                
 questions on the definition of "substantial value."                           
 MR. WILTSE said Section 4 is particularly difficult to interpret.             
 He stated, "It looked like part of that subsection voided some of             
 the new credits and possibly impacted some of the former bill."  It           
 is also unclear whether the credit has a one-time statewide                   
 limitation for each applicant or would be for any one set of data.            
 In addition, as the bill is written, he believes most material                
 would be given to the DNR to evaluate, placing the department in a            
 contractual situation.                                                        
 MR. WILTSE agreed with the concept of not building a bureaucracy              
 within the DNR to evaluate submitted data.  He believes this can be           
 a private-sector-supported, efficient operation.  They would like             
 to work out questions with the sponsor and stakeholders in the                
 mining industry.                                                              
 MR. WILTSE said some people had expressed concern, which he feels             
 may be somewhat valid, that if this is not done correctly, there              
 may be harm to the existing incentive, which is far from anybody's            
 intent.  He suggested the intent could be placed in a separate bill           
 to avoid that possibility.  He offered to work with others towards            
 a "consensus-opinion bill to go forward in the next session, that             
 we could all support with no reservation."                                    
 MR. WILTSE stated his belief that the concept is excellent.  It may           
 go beyond anybody's expectations in terms of building a geologic              
 data base of material that otherwise would not be available.  He              
 stated, "And I'd hate to see us act too much in haste and therefore           
 create a situation that we don't want to create and maybe lose the            
 opportunity of actually putting something like this in place for              
 the long run."                                                                
 Number 1599                                                                   
 REPRESENTATIVE VEZEY responded, "I do think we have addressed his             
 legitimate concerns.  Some of his concerns just pertain to exactly            
 what he's talking about.  I mean, it takes a lawyer to read some of           
 our statutes.  I believe that the only reason to move this bill               
 forward is to put the message out there, because people are making            
 decisions now, and in the next six months, as to how they will                
 spend money in 1998.  And I think this would be a good incentive to           
 have out there."                                                              
 REPRESENTATIVE VEZEY suggested a compromise for the "department               
 folks that are nervous about this" would be simply changing the               
 retroactive date to 1998 and making the effective date sometime in            
 1998.  As he visualizes it, if the bill became law this year, it              
 would not produce results for another year.  Changing the dates               
 would provide another year to work on the details, but the message            
 would still be out there, loud and clear.                                     
 Number 1679                                                                   
 CO-CHAIRMAN OGAN expressed concern about the fiscal note for                  
 approximately $260,000 to $270,000 per year.  Referring to another            
 bill, he pointed out the dive fishery was willing to pay costs to             
 get that fishery going.  He asked where this money would come from.           
 He referred to the analysis section of the fiscal note, which is              
 extensive, and advised that it discusses similar programs in                  
 Number 1753                                                                   
 REPRESENTATIVE VEZEY stated his belief that the fiscal note                   
 addresses the original bill, not the committee substitute.  He                
 stated, "It's assumed in this fiscal note that the DNR would be               
 handling this data, evaluating it professionally and publishing it.           
 The committee substitute spells out that it is a third-party                  
 consultant that will do the evaluation, paid for by the person                
 wishing to take the tax credit, and that the person wishing to take           
 the tax credit is responsible for the publication of the data.  So            
 it's zero cost.  Really the cost is some of the director's time,              
 because the director has total authority over whether or not to               
 accept this information."                                                     
 REPRESENTATIVE VEZEY suggested it will come down to the                       
 relationship between the director and the third-party consultant.             
 The director would basically either take the advice of the third-             
 party consultant or not use that consultant.  He stated, "So I                
 believe that we've eliminated this, for all practical purposes, to            
 a zero fiscal note."  He asked Mr. Wiltse, who had prepared the               
 fiscal note, to comment.                                                      
 Number 1808                                                                   
 MR. WILTSE responded, "What Representative Vezey says is partially            
 true.  And I'm sure that that is his intent."  He said his own                
 intent is that when the DNR finally puts a program like this into             
 place, it will function along the lines that Representative Vezey             
 is talking about.  However, as the CS is written, it provides for             
 an applicant to either submit material to the DNR or go the route             
 that Representative Vezey has articulated.  If they do the latter,            
 the cost is theirs.  But if they submit it to the DNR, the cost is            
 the department's.  The DNR had to prepare a fiscal note for the               
 bill as written, even though they know the intent, as the language            
 does not hit the intent.                                                      
 MR. WILTSE said Representative Vezey is correct that the DNR would            
 seek outside review.  What separates state data from other types of           
 mining data is the former undergoes independent peer review.  He              
 envisioned initiating a procedure, for example, with a panel of               
 certified reviewers that would meet criteria acceptable to all                
 parties; it would be codified not in legislation but in some                  
 procedure equitable to everyone.  Somebody submitting data for                
 credit could select a panel, probably of at least three                       
 professionals, to review it and pass on a recommendation or summary           
 of their findings to the director or someone else in the DNR.                 
 MR. WILTSE said Representative Vezey is also correct that under               
 that scenario, the cost would not be borne by the state.  The                 
 actual mechanism of retaining consultants, for example, can be                
 worked out.  However, the committee substitute leaves open the very           
 real possibility that people would opt to put those costs on the              
 DNR.  That is why the amounts in the fiscal note are still there.             
 Number 1969                                                                   
 CO-CHAIRMAN HUDSON said as he hears it, Mr. Wiltse believes this              
 bill can be worked out so as not to harm the current exploration              
 incentives program.  However, they need additional time and effort            
 to ensure nothing harms that.                                                 
 MR. WILTSE agreed and stated, "I think a safer way to do it would             
 be in a separate bill.  I think if there's a lot of effort put into           
 it, we can probably not do any damage to the original bill."                  
 Number 2025                                                                   
 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division,           
 Department of Revenue, came forward to testify.  He indicated he              
 had provided questions to the sponsor on issues needing                       
 clarification.  He agreed the dollar impact is small initially,               
 although it may grow in the future.  This bill is for costs of an             
 activity that never goes into production, but there are time lags.            
 Something may not go into production for eight years.  He asked:              
 What happens if a company takes credits currently and the mine goes           
 into production?                                                              
 MR. BARTHOLOMEW said these are technicalities.  However, if put               
 into law, these technicalities are what the private industry must             
 work with when their tax advisors decide what to do.  He cautioned,           
 "And so, if you put it out before it's ready, and you risk a bill             
 getting through next year to correct the technicalities, you may be           
 living with those; you may not get a correction through."                     
 MR. BARTHOLOMEW indicated his intention of having the sponsor and             
 the DNR resolve the program.  Then the Department of Revenue could            
 say what works on the tax schemes, helping to achieve the goals.              
 He does not believe the tax schemes should drive the legislation.             
 "And so we really haven't taken a position other than there are               
 some issues now that have not been worked out on how the current              
 tax credit would work and how the new program would ferret into               
 that," he explained.  "And I think what DNR has been saying is you            
 may want to do it in a completely separate section of the tax code.           
 You may just want to say, `Do it this way' and not merge them."               
 Number 2146                                                                   
 CO-CHAIRMAN HUDSON said he was looking at the concerns of both Mr.            
 Wiltse and Mr. Bartholomew.  He asked them whether it was possible            
 to do any rapid determination with the prime sponsor to clean this            
 up.  "But absent that, I'm not inclined to move this bill forward,"           
 he stated.  He asked for input from the committee.                            
 Number 2187                                                                   
 CO-CHAIRMAN OGAN commented that the state is not currently saying             
 it is unfriendly to mining.  He expressed support for the concept             
 of this legislation.  He asked Mr. Wiltse how the fiscal note                 
 relates to the committee substitute.                                          
 Number 2229                                                                   
 MR. WILTSE explained, "The note that is attached to the bill right            
 now is one that I drafted up yesterday.  I went back to the                   
 original one that we had drawn up, put dollar figures to it and               
 left it the same, because the way the bill is written, this would             
 apply right now.  And the reason for that is because there is the             
 choice, you know; there is a choice that people can submit their              
 data right to the department."                                                
 Number 2248                                                                   
 CO-CHAIRMAN HUDSON announced he was holding HB 238 over.  He said             
 he sensed vagueness on the part of testifiers, not displeasure with           
 the bill.  He suggested if the departments could meet with                    
 Representative Vezey about their major concerns, it would give him            
 a better feeling for the legislation.  (Note:  The proposed                   
 committee substitute was not adopted as a work draft.)                        

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