Legislature(2005 - 2006)CAPITOL 124

05/02/2005 01:00 PM RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHCR 13(RES) Out of Committee
Moved CSHJR 17(RES) Out of Committee
Moved CSHB 280(RES) Out of Committee
Moved Out of Committee
Moved Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
HB 280-MINERALS TAX/PAYMENTS TO MUNIS IN LIEU                                                                                 
CO-CHAIR RAMRAS announced  that the next order  of business would                                                               
be  HOUSE BILL  NO. 280    "An Act  relating to  the taxation  of                                                               
mining    property;   relating    to   contracts    approved   by                                                               
municipalities for payments  in lieu of taxes;  and providing for                                                               
an effective date."                                                                                                             
CO-CHAIR SAMUELS  moved to adopt  CSHB 280,  version 24-LS0933\F,                                                               
Kurtz, as a working document.                                                                                                   
There being no objection, it was so ordered.                                                                                    
REPRESENTATIVE SEATON asked if the intent was to hold the bill.                                                                 
CO-CHAIR RAMRAS said the intent is to get it rolling.                                                                           
2:23:11 PM                                                                                                                    
JIM  POUND,  Staff to  Representative  Jay  Ramras, Alaska  State                                                               
Legislature, said HB 280 was  proposed by the industry to provide                                                               
stability  to  the  mining industry,  especially  in  unorganized                                                               
boroughs.   It  will create  a 4-mill  property tax  on mines  in                                                               
unorganized boroughs that  will go to the state  and is suggested                                                               
to  be  used  for  education,  he  said.    Under  the  committee                                                               
substitute (CS),  when a  borough "is  organized, provided  it is                                                               
organized  currently, it  will allow  that local  municipality to                                                               
personal property tax the mine  at whatever the personal property                                                               
tax is that's established within that  borough."  If it annexes a                                                               
mine, it will move the personal  property tax levy up to be equal                                                               
with others  in that borough.   The bill will  restrict severance                                                               
taxes on the actual minerals being  extracted, and the term is 15                                                               
years after  production begins, then  the community can  levy its                                                               
tax.  Facilities that the public  use will not be taxed, under HB
280, he concluded.                                                                                                              
2:25:43 PM                                                                                                                    
REPRESENTATIVE KAPSNER asked which mines this is directed at.                                                                   
MR. POUND said for now it is for Pogo and Donlin Creek.                                                                         
REPRESENTATIVE KAPSNER asked the life expectancy of the mines.                                                                  
MR. POUND said he thinks Pogo is 20 years and Donlin is longer.                                                                 
REPRESENTATIVE KAPSNER said she thought it was 15 years.                                                                        
REPRESENTATIVE GATTO  noticed that mines producing  less than $10                                                               
million are  exempt, and he  asked if a  large, new mine  will be                                                               
exempt until the day it produces at that minimum.                                                                               
MR. POUND said the legislation is written to help small mines.                                                                  
REPRESENTATIVE GATTO repeated his question.                                                                                     
MR.  POUND  said  they  will  not  pay  taxes  until  they  start                                                               
producing $10 million worth of minerals.                                                                                        
2:27:31 PM                                                                                                                    
REPRESENTATIVE  LEDOUX said  this also  applies to  boroughs that                                                               
already are incorporated.                                                                                                       
MR. POUND said, "It does if they decide to annex a mine."                                                                       
REPRESENTATIVE LEDOUX said Section  3 says municipalities may not                                                               
impose a  severance tax other  than a tax imposed  before January                                                               
1, 2006.  Suppose they already have  a mine but they don't have a                                                               
severance tax, even  if they are an organized borough.   Can they                                                               
impose a severance tax? she asked.                                                                                              
MR. POUND said only if they impose it before January 1, 2006.                                                                   
2:28:20 PM                                                                                                                    
REPRESENTATIVE SEATON asked about current severance tax rates.                                                                  
MR. POUND said he didn't know.                                                                                                  
REPRESENTATIVE SEATON asked if the  bill relates only to personal                                                               
and not real property.                                                                                                          
MR. POUND said it is real and tangible personal property.                                                                       
2:29:24 PM                                                                                                                    
REPRESENTATIVE SEATON  asked, "So the exclusion  from taxation or                                                               
the ability for  the municipalities to impose taxes,  up to their                                                               
limit, is  that on personal  property, but they're  excluded from                                                               
putting their current rate on real property?"                                                                                   
MR. POUND said municipalities should be  able to tax the same way                                                               
they tax  any business within  the borough.  The  assessment will                                                               
be done by the state, he added.                                                                                                 
2:30:05 PM                                                                                                                    
REPRESENTATIVE SEATON  asked if a  mine within a  current borough                                                               
will now be assessed by the state.                                                                                              
MR.  POUND said  in  an existing  borough a  mine  will still  be                                                               
assessed  by the  municipality, and  he gave  the example  of the                                                               
Fort Knox mine in Fairbanks.                                                                                                    
REPRESENTATIVE  SEATON  said  the  only  reduction  in  tax  that                                                               
Fairbanks will see for the Fort  Knox mine will be the limitation                                                               
on imposing severance taxes.                                                                                                    
MR.  POUND said  that  was correct,  unless  Fairbanks imposes  a                                                               
severance tax before January.                                                                                                   
2:30:54 PM                                                                                                                    
CATHY WASSERMAN, Alaska Municipal League  (AML), said she has not                                                               
seen the latest copy of HB  280.  She thanked the mining industry                                                               
for  talking to  AML about  it.   The municipal  league was  very                                                               
concerned  about  the state  making  deals  with an  industry  on                                                               
taxing that  would take place  in a  potential new borough.   She                                                               
said she needs to look at  the CS and its severance tax addition,                                                               
but she is glad that the cap for the new borough was removed.                                                                   
2:32:35 PM                                                                                                                    
CO-CHAIR RAMRAS  said he  had the same  concern as  the municipal                                                               
league.  His  North Star Borough has the Fort  Knox mine, and the                                                               
Pogo mine  is 80-90 miles  from the  borough, and there  has been                                                               
some talk  of annexing it.   He said he  is in favor of  the self                                                               
assessment tax of  4 mills where there is no  tax now being paid.                                                               
He said 6  mills in an organized borough was  a concern because a                                                               
mine might go  to court to try to lower  their existing mill rate                                                               
to the 6-mill  rate.  There is  now no mechanism to  use the bill                                                               
to get out of  taxes, he said.  If a place like  Pogo mine was at                                                               
6 mills, in the original HB  280 the community of Delta could not                                                               
raise it if it  annexed it, so it could have  ended up lower than                                                               
the other commercial businesses for fifteen years, he said.                                                                     
2:35:14 PM                                                                                                                    
CO-CHAIR RAMRAS  said those  are the concerns  that he  had while                                                               
redrafting the bill, and he asked if AML is more comfortable.                                                                   
MS. WASSERMAN  said it is better  but AML wants to  look over the                                                               
severance  tax  provision.    If  the mine  is  annexed  into  an                                                               
organized borough,  would that mine  be paying less  than another                                                               
mine that was already in the borough, she asked?                                                                                
CO-CHAIR  RAMRAS  said there  shouldn't  be  any lack  of  parity                                                               
within  an  borough.   He  said  the  concern is  precluding  the                                                               
development of  a mine because a  community of 25 people  makes a                                                               
borough in order to get the mine to pay for the community.                                                                      
2:36:58 PM                                                                                                                    
REPRESENTATIVE  SEATON asked  if Ms.  Wasserman is  familiar with                                                               
the Deltana Borough charter commission  and its letter saying the                                                               
purpose of the bill is to prevent borough formation.                                                                            
MS. WASSERMAN said  AML has not addressed that  issue and focused                                                               
on the point  that taxes should be a local  decision.  The letter                                                               
has good points that could lead into good discussions, she said.                                                                
2:38:20 PM                                                                                                                    
REPRESENTATIVE SEATON asked if the  state assessor can comment on                                                               
the Deltana Borough charter commission letter.                                                                                  
STEVE VAN  SANT, State Assessor, Division  of Community Advocacy,                                                               
Department  of  Commerce,  Community, and  Economic  Development,                                                               
Anchorage, said the  department worked on this  bill with Senator                                                               
Therriault without any  public input.  He said he  is an assessor                                                               
so everything is  black and white.  He stated  that he "looked at                                                               
not  having  one  entity  shouldering the  entire  burden  for  a                                                               
community."   "The severance  tax issue was  an issue,"  he said.                                                               
He  added that  resources are  the property  of the  residents of                                                               
Alaska, so if  a severance tax is levied, it  should be levied by                                                               
the state, and it should be  consistent.  He said it appears that                                                               
some communities  use the  severance tax  to hold  mines hostage.                                                               
"We made recommendations based on the good of the state."                                                                       
2:40:55 PM                                                                                                                    
REPRESENTATIVE SEATON asked Mr. Van  Sant if he is proposing that                                                               
fishing communities do the same with their severance tax.                                                                       
MR. VAN  SANT said the CS  is only referring to  minerals.  There                                                               
are only  two communities that  have a severance tax,  Kodiak and                                                               
Denali, he stated.                                                                                                              
2:41:52 PM                                                                                                                    
REPRESENTATIVE KAPSNER asked average mill rates.                                                                                
MR. VAN  SANT said  it is  15.226 in Fairbanks  and 6.61  for the                                                               
Greens Creek mine in Juneau.                                                                                                    
REPRESENTATIVE SEATON said  Juneau has a rate of 6.61  for a mine                                                               
in a roadless area, and 11.5 if it is within the road system.                                                                   
2:43:48 PM                                                                                                                    
REPRESENTATIVE SEATON asked if a new  mine is limited to 4 mills,                                                               
and  then  it became  connected  to  the  road system,  could  it                                                               
2:44:21 PM                                                                                                                    
MR. VAN SANT said, "If a  new borough is formed, they're going to                                                               
pay 4 mills, unless  a local property tax is levied.   So if they                                                               
levy a  local property  tax ...  that's local  determination, the                                                               
state has nothing to  do with that.  I know we  have two or three                                                               
communities in the state that  have varying mill rates because of                                                               
lack of  access to  certain services  ... It would  be up  to the                                                               
local  community to  determine what  services they  are going  to                                                               
provide and whether or not  they're going to go with differential                                                               
tax zones in those areas."                                                                                                      
REPRESENTATIVE SEATON  said if the borough  had differential mill                                                               
rates dependant on services available,  under this bill would the                                                               
tax structure still be allowed.                                                                                                 
MR. VAN SANT said this bill would not touch a tiered mill levy.                                                                 
CO-CHAIR RAMRAS  said there  is a storm  around certainty  of oil                                                               
and gas  taxes.   He said  his understanding  is that  the mining                                                               
industry just  wants to  bring some certainty,  and there  is "no                                                               
devil" in  this CS.   He said  it is a  forthright effort  by the                                                               
industry who  has come forward  with a self-assessment.   He said                                                               
the CS  brings stability  to an  industry that  we are  trying to                                                               
nurture along.                                                                                                                  
MR. VAN  SANT said he thought  the first bill was  a problem, and                                                               
he was  incensed.   He said  it has  changed radically,  and, the                                                               
bill says now  "we will pay the same taxes  everybody else pays."                                                               
He said it  is good there is  an industry willing to  pay 4 mills                                                               
where it is paying none now.   He said, "Most of those exemptions                                                               
that were  there in the  first place, pretty much  exempted every                                                               
tax a  municipality could  levy.   It doesn't  read that  way any                                                               
more."   He said the  property tax will  be the same  as everyone                                                               
else, as well as the fees and excise taxes.                                                                                     
2:49:01 PM                                                                                                                    
REPRESENTATIVE  LEDOUX asked  if a  municipality could  raise its                                                               
mill rate if it already has a severance tax.                                                                                    
MR.  VAN  SANT said  he  is  not sure,  but  there  are only  two                                                               
municipalities levying a severance tax.                                                                                         
REPRESENTATIVE LEDOUX  said that the  Lake and Pen Borough  has a                                                               
severance tax.                                                                                                                  
MR. VAN SANT said they do not to his knowledge.                                                                                 
2:50:15 PM                                                                                                                    
STEVE  BORELL,  Executive  Director, Alaska  Miners  Association,                                                               
said it is  unique when an industry volunteers to  pay a new tax.                                                               
That tax  would be  a property  tax on  large mines  operating in                                                               
unorganized boroughs only, and it  would have a constant rate for                                                               
the first  15 years after production,  he said.  He  listed taxes                                                               
the  industry already  pays to  the  state.   In the  unorganized                                                               
borough,  there  is no  municipal  tax,  and  this is  where  the                                                               
industry is  proposing a  new tax,  he said.   He noted  that the                                                               
industry often complains of  uncertainty regarding prices, taxes,                                                               
and  regulations.   This  bill removes  the  tax uncertainty,  he                                                               
claimed.   "Given the  short time remaining  in this  session, we                                                               
urge  you  to  pass  this  bill  out  of  committee  as  soon  as                                                               
possible," he concluded.                                                                                                        
2:53:12 PM                                                                                                                    
REPRESENTATIVE GATTO  asked what the  benefits are to  the mining                                                               
MR. BORELL  said stability.   He  said a mine  might look  like a                                                               
cash cow, and companies fear investing in the state.                                                                            
2:55:08 PM                                                                                                                    
REPRESENTATIVE   KAPSNER  said   4  mills   sounds  really   low,                                                               
especially since it is over 15 in Fairbanks.                                                                                    
CO-CHAIR RAMRAS said to note the mines that are paying zero now.                                                                
REPRESENTATIVE ELKINS said the bill goes to finance next.                                                                       
2:56:23 PM                                                                                                                    
REPRESENTATIVE KAPSNER asked how 4 mills was derived.                                                                           
MR. BORELL said it is the school contribution amount.                                                                           
REPRESENTATIVE GATTO said,  "The 4-mill giveback is  based on the                                                               
true and  real value of  personal property throughout  the entire                                                               
borough, and this would only be  four mills based on the property                                                               
of  a mining  operation providing  it had  $10 million.  That's a                                                               
pretty wide distinction, isn't it?"                                                                                             
MR.  BORELL answered:  "If the  assessed value  is more  than $10                                                               
million--and the  purpose of that  was to make the  assessors job                                                               
significantly easier  because you don't  have to worry  about the                                                               
mom  and pops."   He  added that  right now,  the other  entities                                                               
within the organized boroughs pay nothing at all.                                                                               
REPRESENTATIVE  GATTO  asked  if Delta  Junction  is  considering                                                               
MR. BORELL said it is.                                                                                                          
REPRESENTATIVE  GATTO  said  Delta Junction  has  been  extremely                                                               
resistant to incorporating.  "What  is bringing about this change                                                               
of attitude," he asked.                                                                                                         
2:58:59 PM                                                                                                                    
MR. BORELL said he doesn't know.                                                                                                
JAMES  FUGUE,   Donlin  Creek  Project  and   Council  of  Alaska                                                               
Producers, said this bill is  about bringing certainty to the tax                                                               
structure in  the unorganized  borough.  He  said his  company is                                                               
facing an  investment decision with  Donlin Creek mine,  and with                                                               
an unknown tax structure, it  can't refine its investment models.                                                               
He  noted that  the bill  has generated  important dialogue.   He                                                               
said mill rates  across Alaska are very variable,  and for Donlin                                                               
Creek, 1 mill on  a $1 billion project is $1 million.   A $4 mill                                                               
property tax  would start out  at $4 million  per annum, and  a 6                                                               
mill property tax  would be of the order of  $6 million, and that                                                               
is what the Red Dog mine is paying, he declared.                                                                                
REPRESENTATIVE KAPSNER asked the life expectancy of Donlin.                                                                     
MR. FUGUE said 15 years is the number the company uses.                                                                         
3:02:23 PM                                                                                                                    
CO-CHAIR RAMRAS  asked what the  assessed value will be  after 15                                                               
years if it remains unorganized.                                                                                                
MR.  VAN SANT  said after  fifteen years  this tax  goes away  if                                                               
there is no organized municipality.                                                                                             
REPRESENTATIVE SEATON said the bill  states there can be no taxes                                                               
measured on  the gross or  net income from the  taxable property,                                                               
and he asked if it precludes the state corporate income tax.                                                                    
3:03:58 PM                                                                                                                    
BRETT  FRIED, Economist,  Department of  Revenue, said  he hasn't                                                               
had a chance to read the CS.                                                                                                    
REPRESENTATIVE  SEATON  said  he  also   wants  to  know  if  the                                                               
transportation  of minerals  and mining  transportation companies                                                               
would be  free of taxation.   He said he  wants to make  sure the                                                               
substitution  of   taxes  only  includes  taxes   that  would  be                                                               
authorized by a municipality and not taxation by the state.                                                                     
3:05:46 PM                                                                                                                    
MR. FRIED said he doesn't know.                                                                                                 
CO-CHAIR  SAMUELS  said  the  way  he  reads  the  severance  tax                                                               
provision is  that if it  exists now, it  will stay.   Other than                                                               
that, only  the state has that  right, he stated.   "I agree with                                                               
the bill on the  whole.  Someone who is going to  go in and spend                                                               
tens of millions  of dollars, and the local  government just sits                                                               
and waits and  waits, till you can't get your  money back out and                                                               
it  goes click.   It  is  almost a  game of  gotcha, because  you                                                               
cannot take  your equipment and go  anywhere else."  He  said the                                                               
amount  can be  argued,  but the  state still  has  the right  to                                                               
impose a severance tax, so he thinks it is a good compromise.                                                                   
3:07:20 PM                                                                                                                    
REPRESENTATIVE ELKINS  said there are some  unanswered questions,                                                               
but this late in the session it should be moved on.                                                                             
REPRESENTATIVE SEATON said  the direction of the CS  is good, but                                                               
there are questions  that need to be answered.   He said he wants                                                               
to know about taxes imposed before January 1, 2005.                                                                             
CO-CHAIR RAMRAS said the first draft  was a Trojan horse with the                                                               
devil inside.   The references on lines 12-14 relate  to the Pogo                                                               
and Fort Knox mines, and any  other existing mine operations.  "I                                                               
did not want an  ability for someone with a Fort  Knox to be able                                                               
to use  this vehicle to  go back and skinny  their way out  of an                                                               
existing tax.   The date was selected because as  of now, Pogo is                                                               
not in a borough, and Fort Knox  already is, so it puts a pivotal                                                               
date whereby Pogo is not in a borough and Fort Knox is.                                                                         
3:10:04 PM                                                                                                                    
REPRESENTATIVE LEDOUX  said she feels uncomfortable  with Section                                                               
3.  People know the mill rate can  go up when they buy a house or                                                               
a lodge, so the municipality should retain that prerogative.                                                                    
REPRESENTATIVE  GATTO said  gravel extracted  in his  district is                                                               
not taxed, and Section 3 takes away  the ability to levy a tax on                                                               
the gravel after January.                                                                                                       
CO-CHAIR RAMRAS  said the  gravel pit land  is probably  taxed at                                                               
the current mill rate.                                                                                                          
3:12:33 PM                                                                                                                    
CO-CHAIR SAMUELS said the borough  has property tax, but if there                                                               
isn't  a  severance  tax  provision,  it  will  keep  mines  from                                                               
entering an unoccupied  borough.  "Once the  municipality has it,                                                               
and they  wish to change the  mill rate, that's up  to the people                                                               
of that community."  It will affect all property owners equally.                                                                
3:13:30 PM                                                                                                                    
REPRESENTATIVE  LEDOUX said  Section  3 relates  to the  boroughs                                                               
that  are already  organized, so  there would  be those  sorts of                                                               
REPRESENTATIVE SEATON  asked if a  rate change is precluded  on a                                                               
severance tax.   He wants  that question  answered.  He  asked if                                                               
the bill  only applies to the  $10 million mines or  on the small                                                               
3:15:36 PM                                                                                                                    
CO-CHAIR RAMRAS  said the  intention is to  protect "the  dad and                                                               
the kid that are mining" from a 4-mill tax.                                                                                     
REPRESENTATIVE KAPSNER said  she is in favor of  the Donlin Creek                                                               
mine  but  her neighbors  upriver  are  talking about  forming  a                                                               
borough, and  the bill might preclude  that.  In order  to form a                                                               
borough state law  requires a 4 mill-school rate  and the borough                                                               
would need  to bond  for new  schools for  the children  from the                                                               
mining community.   It is also required to provide  for roads and                                                               
public safety, she explained.  Except  for this mine, there is no                                                               
way to cover those cost, and  she said she is concerned about the                                                               
upriver people  wanting to  set taxes,  but the  bill sets  it in                                                               
stone for the next 15 years.                                                                                                    
CO-CHAIR  RAMRAS  said,  "It  is  4  mills  until  a  borough  is                                                               
organized,  and   if  those  communities  you're   talking  about                                                               
organized a  borough, and then they  set a mill rate  at 10, then                                                               
the  mine would  rise to  that mill  rate within  that area.   It                                                               
would rise to the prevailing mill  rate.  That was the difference                                                               
between  the 280  and  the  CS for  280;  it clarifies  precisely                                                               
REPRESENTATIVE KAPSNER said she was looking at the last version.                                                                
3:20:47 PM                                                                                                                    
REPRESENTATIVE  SEATON said  if he  had  had the  CS earlier,  he                                                               
wouldn't need  to ask  so many  questions.  He  said he  wants to                                                               
address the Pebble mine with regard to  page 6, line 20.  He said                                                               
it looks like property used  for transportation of minerals could                                                               
be exempt from the tax.                                                                                                         
MR. VAN SANT  said, "This is the exact same  question we asked in                                                               
the  Senate Community  and Regional  Affairs Standing  Committee.                                                               
The language changed a little  bit, and under this, nothing would                                                               
be  taxable, so  obviously  there's a  typo here."    He said  he                                                               
thinks  it was  meant to  say, "that  is located  in municipality                                                               
organized before January  1, 2005."  He said,  "Obviously we need                                                               
to change this one ... I don't know where it came from."                                                                        
3:22:32 PM                                                                                                                    
REPRESENTATIVE  SEATON  said with  this  language,  the dock  and                                                               
transportation facilities for the Pebble mine wouldn't be taxed.                                                                
MR.  VAN SANT  said the  intent is  that the  facilities open  to                                                               
public use would  be exempt from this tax, which  doesn't need to                                                               
be in the bill because the department wouldn't assess it anyway.                                                                
3:23:37 PM                                                                                                                    
REPRESENTATIVE SEATON  said he would like  a conceptual amendment                                                               
to fix it before it leaves the committee.                                                                                       
The committee took an at-ease from 3:24 to 3:25.                                                                                
3:25:39 PM.                                                                                                                   
REPRESENTATIVE SEATON  offered conceptual  Amendment 1  to delete                                                               
lines 20 - 21 on Page 6.                                                                                                        
REPRESENTATIVE CRAWFORD objected and asked what that would do.                                                                  
REPRESENTATIVE SEATON  explained that the CS  reads that property                                                               
or dock facilities  used for transportation and  located within a                                                               
city or  municipality are  not taxable,  and Amendment  1 deletes                                                               
that language,  so that  those properties  will be  assessed just                                                               
like all private facilities.                                                                                                    
REPRESENTATIVE CRAWFORD  withdrew his  objection; there  being no                                                               
further objection, Amendment 1 carried.                                                                                         
3:27:45 PM                                                                                                                    
REPRESENTATIVE  GATTO  requested  a  clarification  on  severance                                                               
taxes referred to  in Section 3, Page  2.  If there  is a minimal                                                               
tax  currently  imposed,  he  asked,  will  the  municipality  be                                                               
restricted from raising it?                                                                                                     
3:28:30 PM                                                                                                                    
CO-CHAIR   SAMUELS  said   he  reads   that  a   municipality  is                                                               
grandfathered in if it has a tax, and it can raise it.                                                                          
REPRESENTATIVE LEDOUX suggested asking legal services.                                                                          
CO-CHAIR RAMRAS said the House Finance Committee can do that.                                                                   
REPRESENTATIVE SEATON said  he asked for that  question to follow                                                               
the bill, so it will be answered in the next committee.                                                                         
3:29:29 PM                                                                                                                    
REPRESENTATIVE  KAPSNER  moved  to  report HB  280,  labeled  24-                                                               
LS0933\F,  Kurtz,  3/2/05  as  amended,  out  of  committee  with                                                               
individual recommendations and the accompanying fiscal notes.                                                                   
There being no objection, CSHB 280(RES) passed out of committee.                                                                
3:29:57 PM                                                                                                                    

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