Legislature(1997 - 1998)

05/06/1997 02:31 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 0071                                                                   
 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."  He asked Representative Vezey to explain changes            
 in the new proposed committee substitute (CS), 0-LS0845\K,                    
 Chenoweth, 5/5/97.                                                            
 Number 0086                                                                   
 REPRESENTATIVE AL VEZEY, prime sponsor, explained that page 2, line           
 22, of the proposed CS clarifies that at the discretion of the                
 department, a geologist may be brought in.  In addition, the same             
 paragraph clarifies that it is the party wishing to gain the tax              
 credit who must retain and enter into a contract with the                     
 geologist; however, the department retains the right to approve               
 both the selection of the geologist and the contract.  The third              
 change, on page 3, "around line 28," clarifies that once the credit           
 is applied for under one statute, it cannot be applied for under              
 Number 0270                                                                   
 JULES TILESTON, Director, Division of Mining and Water Management,            
 Department of Natural Resources (DNR), testified via teleconference           
 from Anchorage on the proposed CS.  He commented, "I also have the            
 department's lead for the existing exploration incentive credit               
 bill for a new and reopened mine."                                            
 MR. TILESTON stressed the DNR's intent and willingness to work with           
 the sponsor, the legislature and the industry to craft this new               
 program.  He concurs with the sponsor that HB 238 differs radically           
 from the existing incentive credit program.  Although the work                
 draft goes a long way towards responding to questions raised by the           
 DNR, questions remain.                                                        
 MR. TILESTON explained that his fundamental concern as an                     
 administrator of the existing program is the "degrees of confusion"           
 that create potential risk for the existing program.  He explained,           
 "So my comments are geared to keep the existing program and this              
 new program going down similar but parallel tracks.  To this                  
 extent, I strongly recommend that, as we work through this, that              
 the final version, whenever it comes out of the next committees,              
 either be as an independent chapter from AS 27.30 or, perhaps less            
 desirable but probably workable, a wholly independent subpart of              
 the existing AS 27.30."                                                       
 Number 0449                                                                   
 MR. TILESTON referred to Section 1, which adds geological mapping             
 as an eligible cost for the new program.  He stated, "Very frankly,           
 under the existing program, if an applicant came forward as a                 
 result of a new mine or a reopened mine and presented the                     
 department geological mapping, we would consider that an eligible             
 cost on its own merits.  So the first question I've got is:  Do we            
 mean something different from the new program than the existing               
 program?  When I read the language of Section 2, which talks about            
 additional, supplemental information, it suggests there is a                  
 difference.  And I very honestly don't know what that difference              
 MR. TILESTON stated, "One of the major unanswered questions in the            
 new program is:  How will eligible exploration costs for projects             
 that predate enactment of the new program be treated?  And page 3,            
 lines 1 and 3, talks about credits for work done prior to the                 
 effective dates.  Also, how will future exploration costs be                  
 treated for work at existing mines that are not eligible for the              
 existing program because they now have all of their permits?"                 
 MR. TILESTON cited examples of questions:  Does HB 238 intend to              
 provide a credit for work last year at the Greens Creek Mine if               
 they produce a geologic map of their work that has not previously             
 been available to the public?  Can past or future exploration costs           
 at the Red Dog Mine be deducted?  He mentioned other examples,                
 suggesting these can be answered but that the present language                
 leaves uncertainty.  "And uncertainty leads to litigation or                  
 problems in the future, which we would like to resolve," he added.            
 Number 0617                                                                   
 MR. TILESTON said in summary, the DNR has worked hard to develop              
 the existing program.  They believe this is a good idea but there             
 are issues of clarity they would be happy to discuss as this goes             
 through the legislative process.                                              
 MR. TILESTON referred to page 2, lines 22 and 29, and said that               
 language refers to the consulting geologist being at the cost of              
 the applicant.  He stated, "Yet when we go back to the definition,            
 Section 7, of eligible costs of this bill, the costs for                      
 consultants are expressly excluded.  Is this really intended?"  He            
 said these are the sorts of things they need to work out.                     
 MR. TILESTON emphasized that Steve Borell, Executive Director of              
 the Alaska Miners Association, Incorporated, had telephoned him the           
 previous week to set up a meeting that included Mr. Wiltse, Mr.               
 Tileston, the sponsor and other stakeholders; although an initial             
 date of May 16 had been established, Representative Vezey was not             
 available.  He stressed that the DNR stands ready and willing to              
 work with the sponsor and stakeholders as HB 238 moves forwards.              
 He advised that his written comments provide details of other                 
 Number 0742                                                                   
 REPRESENTATIVE VEZEY advised that the drafters had not wanted to              
 create a separate statute.  He stated, "All the other items that I            
 heard, I believe we have addressed.  I'm not going to say that it's           
 perfect, but we're a long way from being completely through the               
 legislative process also."  He said he believes they have addressed           
 the problems thoroughly enough to go on to the next step of review.           
 REPRESENTATIVE VEZEY referred to possible credit for work done                
 prior to the effective date of this act.  He said the bill is clear           
 that this is totally at the discretion of the department, which               
 must determine that the information is of such value to the state             
 of Alaska that they want to issue a credit for it.  He stated,                
 "Everything we do in here always loops back to give maximum                   
 discretion to the department."                                                
 REPRESENTATIVE VEZEY said, "The concern about confusion, as far as            
 mixing up the two:  It has been put together carefully, and so far,           
 nobody has said anything that causes me to think that we have made            
 an error.  I certainly encourage all the review and do intend to              
 work on this this summer, but I really, unless this committee just            
 wants to work on this more, I think it's ready to go to the next              
 step of review."                                                              
 Number 0890                                                                   
 CO-CHAIRMAN HUDSON said he had heard enough to understand that the            
 department and the Administration were willing to work with the               
 sponsor.  While there may be crafting to be done, he saw no reason            
 for not moving it to the next committee.  He suggested in the                 
 interim, the sponsor would have the opportunity to work with the              
 Administration to come up with a substitute bill.                             
 Number 0955                                                                   
 CO-CHAIRMAN OGAN made a motion to adopt as a work draft version 0-            
 LS0845\K, Chenoweth, 5/5/97.  There being no objection, it was so             
 CO-CHAIRMAN HUDSON asked Mr. Wiltse whether he had reviewed that              
 Number 0982                                                                   
 MILTON WILTSE, Director, Division of Geological and Geophysical               
 Surveys, Department of Natural Resources, testified via                       
 teleconference from Fairbanks.  He said the main section he was               
 reviewing was AS 27.30.012.  Referring to page 2, beginning at line           
 22, section (A)(ii), he said it keeps much of the expense of                  
 implementing this away from the DNR; he concurs with that.                    
 MR. WILTSE stated, "I do have a little bit of reservation yet of              
 whether we've completely separated that financial responsibility;             
 it's nothing that can't be worked out.  I think that we do have to            
 recognize that in implementing this thing, that there's going to be           
 some resources necessary to get it off the ground, but after that,            
 I think the cost of running the program can be brought back to a              
 very nominal amount that is not a great burden on anybody.  But I             
 think it has to be recognized that there will be some sort of a               
 cost to keep this going, and there will be some start-up costs."              
 He agreed those can be worked out in the process, so that people do           
 not feel they are "trying to build a little mini-kingdom around               
 this bill."  He applauded the intent of the bill.                             
 MR. WILTSE referred to page 2, line 21, and said he thinks it is              
 possible to read that statement as if the applicant would have a              
 choice of "coming in and dumping his material on the department,"             
 in spite of language in (ii).  He suggested it would be somewhat              
 more comforting if (i) on line 21 said something to the effect that           
 "the department, at the expense of the person requesting the taking           
 of the credit, or at the discretion of the department."  He said              
 that would ensure that separation is clear, that the cost of                  
 getting this information in shape to join the public domain would             
 be at the applicant's expense and not something the DNR would have            
 to shoulder.  He acknowledged it is possible a lawyer would look at           
 it differently; however, he is uneasy about the current wording.              
 He stated, "If we could get that out of the way, I think we've gone           
 a long way to decrease that fiscal note by a lot."                            
 Number 1163                                                                   
 CO-CHAIRMAN HUDSON commented that when he looked at that, he felt             
 it could be left to the regulatory process rather than added in the           
 statute.  "But that is, again, something that can be fine-tuned, I            
 think, over the interim," he commented.                                       
 MR. WILTSE agreed.                                                            
 Number 1195                                                                   
 REPRESENTATIVE BEVERLY MASEK asked whether the DNR believes this              
 will provide an incentive to increase the state's data base on                
 minerals, without the state giving up more than it should to mining           
 Number 1227                                                                   
 MR. TILESTON replied that it is the belief of the department that             
 the concepts that the prime sponsor has set forth and has testified           
 on will indeed result in data that is not now available to the                
 public being made available; he believes that is to the advantage             
 of the state as a whole.  What the long-term consequences of the              
 trade-off of that data against the tax credit will be, he cannot              
 Number 1267                                                                   
 CO-CHAIRMAN HUDSON asked, "And Mr. Tileston, doesn't that rest                
 entirely with the commissioner as to whether or not it is in the              
 state's best interest to offer, as well as the application of a               
 potential minerals explorer?  Is that the way you read it?"                   
 MR. TILESTON replied, "This is one of the areas that we need to               
 explore very carefully, because the present language that this bill           
 has now incorporated provides that an application is automatically            
 approved if the commissioner takes no action.  And these are the              
 sort of things that we need to work through, taking your statement            
 and the prime sponsor's statement that this is something that if              
 it's not of value, it would not be accepted.  And those are things            
 that we can craft in, in making sure that it does not do something            
 that's undesirable."                                                          
 CO-CHAIRMAN HUDSON said that is how he reads it as well.                      
 Number 1319                                                                   
 REPRESENTATIVE MASEK stated concern over whether there is quality             
 control on data coming in and whether there are problems with                 
 conflicts over raw data and the interpretations of that data.                 
 Number 1336                                                                   
 MR. WILTSE said what establishes data quality in his business is              
 peer review.  He stated, "And what we would be doing by going out             
 to the consulting community would be establishing sort of a                   
 private-sector peer review process that the applicant would bear              
 the cost of.  But there are clearly professional consultant                   
 geologists within the state that have the training and the                    
 experience to conduct a peer review of this data for the department           
 at the expense of the applicant, and who are knowledgeable and                
 ethical professionals, that we have no qualms about engaging in               
 this process.  And we then, of course, would have oversight on the            
 type of report that they return to us and the format of the data              
 that was returned to us, so it would go seamlessly into the public            
 data base and be available to the public.  That's a procedural                
 thing that I think that we can craft.  And I feel comfortable that            
 we can get to that end in an objective and professional manner."              
 MR. WILTSE said he did not see a conflict of interest issue because           
 there are many consultants in the state who work for many clients,            
 and there are ways of handling conflict of interest issues through            
 contract language, for example.  He said that is something any                
 professional engineer deals with all the time.  "I don't think that           
 that is a major concern in this area," he stated.                             
 Number 1454                                                                   
 REPRESENTATIVE VEZEY advised that there is another change in the CS           
 as a result of similar comments made earlier.  He referred to page            
 3, beginning at line 20.  He stated, "We clarify that the time                
 schedule set out for submission and approval of data for                      
 exploration tax credits do not apply for this type of a tax credit.           
 So basically, we've given the department an unlimited amount of               
 time to review the data."                                                     
 MR. WILTSE said while in practice there would be a practical limit,           
 he appreciated the fact that the sponsor recognized that evaluating           
 that data may take a significant amount of time.                              
 Number 1520                                                                   
 REPRESENTATIVE REGGIE JOULE asked if there was another committee of           
 referral in the House.                                                        
 CO-CHAIRMAN HUDSON advised that the only fiscal note is from the              
 DNR, for $270,000.  As they had heard, probably that would be                 
 reduced once the DNR sits down with the sponsor and determines some           
 of the cost factors that are still unclear to the department.  He             
 suggested it would probably go to the House Finance Committee.                
 REPRESENTATIVE VEZEY concurred.                                               
 Number 1586                                                                   
 REPRESENTATIVE JOULE noted that everybody agrees with the concept             
 but nobody has come out in support of the bill itself.  He said               
 this can have important impacts on shallow gas and other mining               
 activities, and he asked whether perhaps the committee should do              
 further work on it.                                                           
 Number 1677                                                                   
 REPRESENTATIVE MASEK asked what Representative Vezey plans to do              
 during the interim to work out some of the problems, and which                
 areas he plans to work on.                                                    
 REPRESENTATIVE VEZEY stated his belief that there is concern                  
 because of getting into the state's tax code.  He had worked a lot            
 on the bill and its predecessor, and he suggested it was ready to             
 go to the next committee.                                                     
 Number 1752                                                                   
 CO-CHAIRMAN HUDSON said he believes from a policy perspective, the            
 bill had been adequately reviewed by the committee.  He said even             
 the testimony of Mr. Tileston and Mr. Wiltse indicates they see it            
 as a valuable tool, although an imperfect one at this stage.  He              
 suggested the House Finance Committee's review of the tax                     
 implications would address whether the credits offered are of                 
 sufficient value to encourage development of the mineral resources.           
 Number 1788                                                                   
 REPRESENTATIVE BILL WILLIAMS made a motion to move the committee              
 substitute, version 0-LS0845\K, Chenoweth, 5/5/97, from committee             
 with individual recommendations and the attached fiscal note.                 
 CO-CHAIRMAN HUDSON asked if there was any objection.  There being             
 none, CSHB 238(RES) moved from the House Resources Standing                   

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