Legislature(1993 - 1994)
04/18/1994 09:10 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSSB 371(RES): An Act providing for exploration incentive credits for activities involving locatable and leasable minerals and coal deposits on certain land in the state; and providing for an effective date. Steve Borell, Executive Director, Alaska Miner's Association, testified, via teleconference from Anchorage, in support of SB 371. Gerald L. Gallagher, Director, Division of Mining, Department of Natural Resources, spoke to the concerns of the department with the bill. David Rogers, and Kent Dawson, lobbyists, Council of Alaska Producers, spoke in support of the bill. CSSB 371(RES) was HELD in committee for amendments from Senators Kelly and Kerttula. SB 371 was scheduled for April 19, 1994. (HB 498 is the House companion bill.) CS FOR SENATE BILL NO. 371(RES): An Act providing for exploration incentive credits for activities involving locatable and leasable minerals and coal deposits on certain land in the state; and providing for an effective date. Co-chair Pearce announced that SB 371 was before the committee. At this time the meeting was joined by Steve Borell, Executive Director, Alaska Miner's Association, via teleconference from Anchorage. End SFC-93 #73, Side 1 Begin SFC-93 #73, Side 2 STEVE BORELL said he would testify in support of SB 371. He said the stages of a project were broken down into exploration, development, and actual production. It had been estimated that for every project that becomes an operating mine, major mining companies would investigate at least 1,000 exploration targets. If the results of the initial investigation were encouraging the evaluation effort was expanded to include more tests and drilling was increased to smaller spacing. Drilling was necessary to prove minable deposits. Once the drilling had defined the deposit to be economical, bulk samples of several tons would be taken and tested for metallurgical recovery and to define the type of milling and recovery process that would be required. At this point, there was still no mine or any guarantee that there would be one. The exploration stage of the project then ends when a feasible study was complete which could convince the financial markets to provide funding to build the project. At that point, the project moved into the development stage. The bill would no longer apply to this part of the project. He talked to people at the Red Dog Mine, and, in general terms, from 1977-86, approximately $25M was spent on exploration work. In 1987-89, the development period, $350M was spent on actual construction of facilities (not including the road which was an additional $100M+). From November 1989 to present, during the operating mode, there has been an annual payroll of $25M a year, operating supplies and services of about $35M a year, and fuel costs of about $10M for a total annual cost of $70M a year. Mr. Borell went on to explain that this credit was a minimal amount of money but significant because of where it appeared (in the exploration stage) and the encouragement it could give a company. Senator Kerttula agreed that mining was a tough occupation. He said he was worried about school taxes and would like to figure out a way to recover those costs. Since there was no state income tax, it was harder to do that. He did not agree with giving any credit for non-residents. In response to Senator Kerttula's remarks, Mr. Borell said the only people hired that were non-residents were highly technical people that might not be able to be found in the state. In the case of big companies, one technical person might follow projects all over the world. Senator Kerttula still was opposed to giving non-residents credit in development. GERALD L. GALLAGHER, Director, Division of Mining, Department of Natural Resources, said the department had some concerns about SB 371. The primary problem was that the mining industry contributes so little to the general fund and creating a back door out of the general fund did not seem like good policy. He felt this type of credit would become the new "floor" and after six months or a year it would be forgotten that it was an incentive. One example was the mining license tax that changed about a decade ago to give the mining industry a 3-1/2 year exemption at start- up from paying that fee. The intent was to let them recover their initial costs. He pointed out that the royalties of locatable minerals was 3 percent of net again. The Department was concerned that incentives would become the new "floor". Senator Kerttula agreed that Alaska was very developmentally minded and encouraging in these programs. Mr. Gallagher said the state royalty on coal was 5 percent of the adjusted gross or about $1/ton depending on the deposit. That was the low or middle of what most states charge for coal. The royalty on relocatable minerals was 3 percent of the net and that was very low in comparison to other states. In answer to Senator Rieger, Mr. Gallagher said that he thought the bill would not include credit for drilling at the edge of a deposit to prove or delineate additional reserves since that was development and not exploration. DAVID ROGERS, lobbyist, Council of Alaska Producers, a non- profit corporation that consisted of a number of the large hardrock mining companies doing business in the state, said they supported SB 371. He pointed out that the Department of Natural Resources was taking a different view of the bill than they had previously expressed in the House. He also wanted to point out that the emphasis on the general fund was misleading. He thought it was not clear if the impact would be positive or negative. In answer to Senator Rieger's previous question of developmentally drilling, Mr. Rogers thought those issues should be clarified in regulations. Senator Kelly suggested those issues be outlined in the bill. Mr. Rogers did not object to that. Discussion was had by Co-chair Frank, Senator Kelly, and Kerttula regarding tax policy for resource development in the state. KENT DAWSON, also a lobbyist with the Council of Alaska Producers, said the state of Alaska owned a lot of land, there were minerals out there, and the idea was to encourage exploration and be competitive with the rest of the world in the development and production stages of a project. Senator Kelly pointed out that SB 371 would cover private as well as state land. Mr. Dawson said the state's tax structure also effected all land so the state was in charge of adjusting that structure. In answer to Senator Rieger, Mr. Rogers said according to his memory, the annual exploration budget of firms operating in Alaska was approximately $28M last year and was decreasing. Mr. Dawson said that companies made choices and decisions and one factor depended on the regulatory climate and the apparent willingness of the jurisdiction for acceptance. He had heard a positive response to the possibility of an incentive credit available in Alaska for exploration. Senator Kerttula made his point again that he was opposed to hiring non-residents and he did not want to encouragement it in any way. Mr. Rogers said that it was a cost of doing business and that cost should not be penalized. Senator Kerttula reiterated his opposition to giving credit for non- resident hire. Senator Kelly requested that Mr. Rogers draft new language delineating what would qualify for exploration credit. Senator Kerttula said he would like to propose an amendment to modify or reduce the non-resident credit. Co-chair Pearce announced SB 371 would be HELD until new language or amendments could be drafted. SCHEDULED BUT NOT HEARD:
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