Legislature(2011 - 2012)HOUSE FINANCE 519
01/26/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Budget Overview: Department of Military and Veterans Affairs | |
| Budget Overview: Department of Natural Resources | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
January 26, 2012
1:37 p.m.
1:37:09 PM
CALL TO ORDER
Co-Chair Thomas called the House Finance Committee meeting
to order at 1:37 p.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Reggie Joule
Representative Mark Neuman
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Major General Thomas H. Katkus, Commissioner, Department of
Military and Veterans Affairs (DMVA); McHugh Pierre, Deputy
Commissioner, Department of Military and Veterans Affairs;
Daniel Sullivan, Commissioner, Department of Natural
Resources (DNR); Ed Fogels, Deputy Commissioner, Department
of Natural Resources; Joe Balash, Deputy Commissioner,
Department of Natural Resources; Representative Mike
Chenault; Representative Dan Saddler.
SUMMARY
BUDGET OVERVIEWS:
Department of Military and Veterans Affairs
Department of Natural Resources
^BUDGET OVERVIEW: DEPARTMENT OF MILITARY AND VETERANS
AFFAIRS
1:38:07 PM
MAJOR GENERAL THOMAS H. KATKUS, COMMISSIONER, DEPARTMENT OF
MILITARY AND VETERANS AFFAIRS (DMVA), noted that the
department's total budget impact was small (0.5 percent of
the state's budget), but its impact on the state's citizens
was significant. He highlighted his intent to discuss the
department's mission and core responsibilities.
Additionally, he would play a video showing the
department's activities in the past year; he believed the
video revealed that money invested in the department had
positively impacted citizens of the state. He elaborated
that the video had been made by a young second lieutenant
and demonstrated the sense of pride and ownership the young
men and women were taking in the department.
Commissioner Katkus looked at slide 2 of a PowerPoint
presentation titled "Department of Military and Veterans
Affairs FY 2013 Budget Overview." The DMVA mission was to
provide military forces to accomplish military assignments
in the state or around the world and to provide homeland
security and defense, statewide emergency response,
veterans services (including the establishment and working
of cemeteries), youth military style training and education
(an alternative path for some youth experiencing difficulty
with the traditional education system), and aerospace
resources [Alaska Aerospace Corporation]. He stated that
core services of the department (slide 3) included the
defense and protection of Alaska and the United States, the
preparation and response to disasters (he emphasized how
well DMVA was preparing communities for disasters),
intervention for youths with no other options as a result
of poor choices, and outreach to veterans and military
families to ensure they received all of their benefits and
the right integration back into their communities.
1:42:32 PM
Commissioner Katkus showed a video titled National Guard
Alaska.
1:51:40 PM
Commissioner Katkus discussed that the video helped to show
why the department was so proud of the men and women in the
National Guard. He relayed that DMVA did not anticipate
dropping away from any efforts included in the video. He
pointed to the department's list of priorities (slide 4),
which began with emergency food supply. He referred to the
2011 earthquake and tsunami disaster in Japan the previous
year that had resulted in concern related to the threat of
radiation; the event had brought up the issue of
accessibility to iodine supplies as a protective response.
The department had worked on an effort to address water
purification and to make a power generation asset available
in an emergency stockpile the prior year. Currently the
focus was on food supplies; planners were working towards
the goal of having enough food to feed 40,000 for one week.
Another DMVA priority was the expansion of services for
veterans. He elaborated that currently less than two-thirds
of the state's 77,000 veterans were registered for service
and benefits in Alaska. The benefits represented money to
the economy and veterans' households and addressed the
health and welfare of the families. He emphasized that
there were many individuals who deserved the benefits; DMVA
would make every effort possible to reach them.
Commissioner Katkus addressed the last priority listed on
slide 4: Alaska Aerospace Corporation. He described the
corporation as "the new kid on the block" and shared that
it consisted of new technology, potential, and opportunity.
He expounded that the corporation encompassed much more
than the Kodiak launch complex, which had a reputation in
the industry as being modern, responsive, and fiscally
accurate. He furthered that the opportunity to grow the
program in the current environment was significant; DMVA
would work to maintain its relevancy, capacity, and
technology, which changed on a regular basis.
Co-Chair Thomas asked how long the state would maintain the
complex if it was not being used. Commissioner Katkus could
not speculate on the number of years the facility would be
maintained. He explained that there were existing interests
that were working to solidify their positions in order to
make commitments. He recalled that Representative Doogan
had asked him a similar question the prior year and he had
responded that he would be the one to make the call. In the
past year he had continued to see interests and potential
from professionals in the aerospace field. He furthered
that the complex was a gem that would not turn around
overnight.
Co-Chair Thomas remarked that the item cost $8 million per
year. He relayed that in two years the state would be in a
deficit and it would be necessary to begin making cuts in
various areas. He supported the military, but noted that
there was a point when it was necessary to quit when
programs were not successful.
1:56:46 PM
Commissioner Katkus agreed. He moved on to slide 5 related
to the results of the prior year's investment. The lives of
79 individuals had been saved (pilots, hunters, snow
machiners, four wheelers, and other) primarily through the
Air and Army National Guard. Additionally, there had been
25 saves in Afghanistan under direct fire (at least one
situation was under consideration for the Silver Star) in
the past year. One minor injury had occurred; the outcome
was a result of the resiliency, training, and
responsiveness the soldiers experienced in Alaska. There
had been five state declared disasters (three of the five
had been federally declared disasters). He briefly drew
attention to the youth academy. There were 14,360 veteran
claims for disability processed in the prior year; $43.7
million had been returned directly to veterans. He relayed
that veteran registration had increased by 5,000; the
department was working to increase the number in the
upcoming year.
Co-Chair Thomas commented that many veterans had a hard
time admitting to problems. He observed that work needed to
be done with families, which could be difficult because of
the sensitivity of the issue. He discussed a personal story
related to veterans in the Vietnam War.
Commissioner Katkus agreed and explained that the U.S.
military saw the issue as a holistic approach. As a result
many veterans from prior conflicts had been found and were
receiving the same help as those from more recent wars. He
elaborated that the U.S. military was working to make the
acknowledgement of disabilities more socially acceptable so
treatment could be administered.
Co-Chair Thomas observed how difficult it was for a veteran
who was trained to be strong to admit that a problem
existed.
1:59:59 PM
Commissioner Katkus replied that DMVA would focus on the
issue in the current year. He pointed to challenges and
pressing issues on slide 6 including emergency
preparedness. He communicated that it was not possible to
ever be completely prepared for "the big emergency" or "the
big problem," but a plan was better than no plan. He
furthered that many moving pieces were involved with the
U.S. Northern Command and that the emphasis was on a
synergistic approach that began at a local level with the
appropriate training. He pointed to the Alaska Military
Youth Academy and shared that its funding formula was not
in sync with results. He believed the academy could
increase its results under a lower budget. Additionally,
the department would work to outline the goal and timeframe
related to the Alaska Aerospace Corporation.
Co-Chair Stoltze asked whether the current level of service
officers would be sufficient to handle increased workload
as the department worked to expand veterans' awareness of
eligibility for services.
Commissioner Katkus replied that that DMVA had taken the
issue into account. The department anticipated that its
budget request for additional resources would meet the
demand as more information reached veterans deserving
benefits.
Co-Chair Stoltze referred to an issue related to
unpreparedness. He relayed that he belonged to many service
organizations and opined that government did not operate
cheaply or very efficiently. He told a story about the
Chugiak Lions Club that bought a generator for the American
Legion Hall in Peter's Creek; because the purchaser was a
service organization and for other reasons the cost was not
high, which would not have been possible for a government
organization. He discussed the high cost of heating
buildings in rural Alaska that belonged to service clubs or
the community. He noted that Cordova struggled to pay
taxes. He surmised that instead of constructing new
government buildings the state should work with non-profits
and service organizations in communities across the state
in order to dramatically save costs. He wondered about the
department's thoughts on the idea.
Commissioner Katkus responded in the affirmative. He
elaborated that he had asked the planning team to look at
course of action development in order to provide options.
He furthered that preferably capacity existed within the
National Guard armories or other facilities. Capacity also
existed within the state defense workforce; there were
subject matter experts who did the work on a voluntary
basis (using Alaska's soldiers on active duty was much
cheaper than hiring other employees). He furthered that
maintenance on the facilities could be done efficiently. He
stressed the importance of easy and quick access to the
facilities (through aviation or other methods) in order to
quickly bring a resource to the problem without a lot of
extra time and energy on coordination with other entities.
2:05:53 PM
Co-Chair Stoltze would follow up on the issue. He remarked
that not all communities had armories or National Guard
facilities. He discussed emergency response related to
flooding in the state. He gave an example of a constituent
who conducted strategic blasting and "perforating" as a
solution to flooding; the constituent had approached the
department with the idea and had been told that there was
too much liability. He wondered whether the issue had been
vetted.
Commissioner Katkus replied that the question had come up
in the past related to using the Air Force to bomb the ice;
the option was not a viable solution because ice would
lodge in another area, which would create a greater problem
downstream. The solution was to mitigate the problem over
time, usually letting nature work its course. Other
solutions included building communities above high water
marks or response. The department provided education prior
to ice buildup through the River Watch program and flew
community leaders over areas to look at ice. He furthered
that community leaders were subject matter experts who
could predict outcomes. He elaborated that it was rare that
the right measures could not be taken to address the issue.
He reiterated that the use of explosives was not the best
course of action.
Co-Chair Thomas had met with Deputy Commissioner McHugh
Pierre who had shared that the veterans service office was
moving to the same location as a veterans clinic. He opined
that the act of moving the office closer to the clinic
would increase the number of veterans using the resources.
2:08:30 PM
Representative Edgmon asked whether there had been any new
rural armories put in place. Commissioner Katkus answered
that the Bethel armory had opened next to the airport
aviation facility in the past several months; the current
unit living in the facility was preparing for a tour in
Afghanistan. The department was also assessing statewide
locations with two or three buildings to determine whether
it would be better for the excess buildings to be given or
divested to the communities (as long as the wartime or
state mission of the department was not hindered by the
loss of a facility). For example, Toksook Bay had a very
small post office that could not handle the influx of mail
during the holidays; the department had a building in the
area that it could divest to the community for the purpose.
MCHUGH PIERRE, DEPUTY COMMISSIONER, DEPARTMENT OF MILITARY
AND VETERANS AFFAIRS, added that there were two locations
under consideration for armory relocations including Delta
Junction and Dillingham. The department had seen an
increase in individuals interested in joining the National
Guard in the areas. The Fort Greely facility was located
near Delta Junction; however, Fort Greely was not
designated for traditional drill activities. The department
currently had 400-plus buildings in 77 communities and was
working to determine how much it would cost to move some of
the buildings to locations that would better serve members.
Commissioner Katkus expounded that DMVA had collaborated
with the Department of Public Safety and that the armories
in Selawik and Emmonak both contained troopers; it helped
DMVA to be connected to the local law enforcement and
provided insight into looking for qualified recruits for
the National Guard.
Representative Joule addressed veteran services and
observed that occasionally very positive things could come
out of bad experiences. He referred to Vietnam War veterans
in particular and believed that sometimes bad experiences
paved the way for support provided to veterans coming out
of conflicts. He noted that DMVA had broken some ground on
the issue and that good things were happening as a result
in terms of the state's ability to provide support in a
quicker time period. He wondered whether a coordination for
veterans existed between the Indian Health Service (IHS)
and DMVA related to benefits that were offered.
2:13:10 PM
Commissioner Katkus responded that he had been in Bethel
the prior week where TriWest Healthcare Alliance had
previously signed an agreement with IHS to make sure
coverage was reaching veterans in the area. He communicated
that a strong effort existed to ensure that healthcare
services were locally available in order to cut down on
travel and to increase responsiveness. He stated that
TriWest had taken on the responsibility one year earlier
and had done a phenomenal job; the company had been advised
on the importance of getting out and doing it right.
Mr. Pierre furthered that the local providers were IHS
staff. The Veteran Administration (VA) had begun
reimbursing the IHS and Bureau of Indian Affairs (BIA)
health efforts; therefore, the same staff understood both
sides and could recommend the best course of action for the
individual. The service level had been improved and DMVA
was hoping to continue improvements by increasing its
visits to rural areas with VA health experts, DMVA veteran
service officers, and other family counselors.
Representative Joule acknowledged the department for its
emergency preparedness efforts specifically related to a
large storm that had taken place the prior fall.
Representative Guttenberg thanked DMVA for its work on
coordinating the development of the veterans' cemetery in
Fairbanks.
Co-Chair Thomas made a comment about his staff Aaron
Schroeder who had done two tours in Iraq and was looking to
get into the Alaska National Guard unit.
Co-Chair Stoltze referred his earlier question related to
ice blasting. He pointed to letter from a Department of
Transportation and Public Facilities regional manager
recommending that the department look at the option as a
potential solution. He wondered how much the issue had been
assessed and knew blasting had been used at Peter's Creek.
He noted that the option did work in some places. He
understood that there were considerations about what
happened down river. He emphasized that he was not
advocating one way or the other, but wanted to make sure
the option had been vetted.
2:17:36 PM
Commissioner Katkus stressed that local comments were taken
into consideration.
Co-Chair Stoltze had been surprised that the VA did not buy
coffee for the veterans waiting at the facility. He shared
that his local Lion's Club had voted to spend $1,200 for a
four month's supply of coffee. He believed providing coffee
for individuals in a place that historically had long waits
was a relatively easy and inexpensive thing to do.
Commissioner Katkus encouraged committee members to not be
shy in thanking military members for their service. He
thanked the committee for its time.
2:19:39 PM
AT EASE
2:34:37 PM
RECONVENED
^BUDGET OVERVIEW: DEPARTMENT OF NATURAL RESOURCES
2:34:49 PM
DANIEL SULLIVAN, COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES (DNR), introduced department staff. He discussed
that having a strong relationship with the legislature was
a top DNR priority. He highlighted topics he would discuss
during the meeting including strategies and results from
the prior year and key aspects of the FY 13 budget
proposal. He provided a PowerPoint presentation titled "DNR
FY 2013 Budget Overview." He began on slide 4 and explained
that DNR had revamped its mission statement and four core
services in order to provide a better reflection of the
agency and its work overall.
Representative Edgmon relayed that he had been receiving
feedback on the new mission statement from constituents. He
likened a mission statement to a bumper sticker slogan; it
was a statement of symbolic meaning. He had been informed
that Title 37 placed department mission statements under
the purview of the legislature. He asked what the changes
were and how they would impact the department.
Commissioner Sullivan responded that it was important to
have DNR's mission statement aligned with the directive in
the Alaska Constitution. He had been unaware of the statute
in Title 37 until recently; it had been confirmed by the
Department of Law (DOL) that it was under the prerogative
of the legislature to set department missions; however,
commissioners also had the ability to make changes if they
had not taken place in some time. He welcomed legislative
input on the matter. Additionally, he had been surprised to
learn that there was a sense in numerous communities that
DNR viewed the state's land as its own. He did not believe
the idea was the proper impression to give Alaska's
citizens. He relayed that the media had asked whether the
revised mission statement meant that DNR was not focused on
conservation or future generations. He answered absolutely
not. The department believed that responsibly developing
land in the public's interest encompassed conservation and
the importance of development for future generations. He
emphasized that DNR had entire divisions focused on
conservation (e.g. Division of Parks and Recreation). He
acknowledged that the issue had become larger than he had
anticipated and that DNR would welcome input from the
legislature. He reiterated that he had been unaware of the
statute and believed that the legislature had not changed
department mission statements since 2003.
2:41:39 PM
Representative Guttenberg had heard comments on the issue
as well. He explained that missions and measures were on
the table every year, but the committee was currently
working on the items more than it had in the past. He was
concerned about DOL advice that DNR should feel free to
make changes to its mission if the legislature had not made
changes in a while. He opined that the advice seemed to be
pretty erroneous.
Commissioner Sullivan replied that he had probably
misspoken if he had used the words "feel free." He relayed
that he could provide the committee with the directive.
From the department's perspective it was clear that the
issue was a legislative prerogative. He did not want to
make work for someone or to be involved with a controversy
over the mission of the department. He believed there was
something to be said for aligning the mission of the agency
that was most responsible for managing resource development
with the directive of the state's constitution. He noted
that Article 8, Section 1 of the state's constitution was a
unique provision; there were not many states that laid out
the main policy directive of the state in a constitution.
Commissioner Sullivan pointed to the department's core
services and relayed that they had been expanded to include
a better reflection of the department's overall focus
(slide 4). He noted that there was much more to the
department than resource development issues. He briefly
touched on slides 5 and 6 related to land ownership and
estimated resources. He shared that the U.S. Geological
Survey (USGS) had been released in June 2011 with updated
estimates for Cook Inlet (slide 6). He furthered that
according to the USGS the hydrocarbons in Cook Inlet and
the oil on the North Slope were present in very large
numbers. Slide 7 provided USGS and other estimates of
important minerals in the state and showed where Alaska
would rank if it were an independent country. He moved to
slide 8 related to the different divisions within the
department.
2:46:04 PM
Commissioner Sullivan continued to discuss DNR divisions on
slide 8. The Division of Forestry accounted for almost 30
percent of the department's operating budget.
Representative Guttenberg asked whether the committee would
be updated on the governor's efforts to increase activity
in the Rare Earth Elements categories. Commissioner
Sullivan shared his intent to discuss the issue later in
the presentation and noted there had been a summit in
Fairbanks.
Commissioner Sullivan returned to the Division of Forestry.
The significant size of the division budget was due largely
to forest fighting activities.
Co-Chair Stoltze asked for detail on the proposed Susitna
forest. He wondered whether DNR was supporting the proposed
legislation related to the forest.
ED FOGELS, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, answered that the Susitna State Forest proposal
had been laid out in the recently adopted Susitna Area Plan
(a DNR land management plan). The plan recommended that
certain lands within the Susitna area be legislatively
designated as a state forest. He explained that the lands
encompassed the area's commercially valuable timber as
identified by department experts. The designation would
enable the Division of Forestry to better manage the forest
lands for commercial and other forest activities.
Co-Chair Stoltze surmised that DNR was responsible for the
proposal. Mr. Fogels responded in the affirmative; the
recommendation was in the DNR area plan.
Commissioner Sullivan elaborated that the proposal was an
important result from the prior legislative session on the
expansion of state forests for management. The state had
experienced problems (particularly in the Susitna area)
with access to federal lands and significant loss of
forest/timber related jobs.
2:49:27 PM
Representative Gara pointed to important salmon and trout
streams located in the Susitna area. He discussed that the
Forestry Act allowed for a broad range of no-logging
setbacks along streams. He wondered how wide the no-logging
setbacks would be along the important streams to prevent
muddying of the waters.
Mr. Fogels replied that he would follow up with the exact
buffers. Buffers were prescribed by the state's Forest
Practices Act and there was discretion for the division
director to make adjustments depending on the need. He
elaborated that there would be a management plan
requirement if the state forest was approved. The
management plan would potentially identify the more
important areas that may need protection and public input
would be considered.
Representative Gara asked whether the bill had to be passed
before they would know whether the setbacks would be broad
enough. Mr. Fogels responded that at a minimum the setbacks
would comply with the state's Forest Practices Act. He
would follow up with detailed information.
Representative Gara noted that some of the minimum setbacks
were not very broad and ranged between 67 feet and 100
feet. He understood that the commissioner had the
discretion to increase the setback on an important stream,
but he was not comforted by the minimum setback for the
more important streams in the area. He was interested to
know if the department could assure him that the setbacks
for important streams would be greater than the minimum.
2:51:53 PM
Commissioner Sullivan continued on slides 9 through 11 that
showed division detail. He felt that the department had put
together a strong team with experienced and committed
leaders. He relayed that the pipeline office had done a
significant amount of important work over the past year
(slide 12). He pointed to slide 13 related to the Office of
Project Management and Permitting (OPMP) and the Alaska
Mental Health Trust Authority (AMHTA); OPMP was responsible
for coordinating project permitting and was currently
working to address some related issues (he noted that the
division did outstanding work). He relayed that DNR
collaborated with AMHTA on work carried out for
beneficiaries.
Representative Joule asked whether the department had made
headway on its backlog of permit applications. Commissioner
Sullivan responded in the affirmative. He would provide
additional detail later in the presentation.
Co-Chair Stoltze appreciated the collaborative relationship
between DNR and AMHTA and acknowledged that AMHTA staff was
working to fulfill its mission related to development from
leases, rentals, and other. He stressed that if the
legislature tied the agencies hands it would prevent funds
from reaching trust beneficiaries. He listed trusted agency
employees and noted that the trust's responsibility
extended beyond its beneficiaries to include the land it
managed. He believed that any suggestion that the trustees
would not be excellent stewards did not take into account
what a trust was, especially with its legal and moral
responsibilities.
2:55:17 PM
Commissioner Sullivan agreed and pointed to aligned issues
between DNR and AMHTA. He would discuss activities and
state strategies beginning to "bear fruit" in the resource
development sector. He reminded the committee that although
there were lengthy lead times on some of the resources they
represented future revenues. He stated that the Trans
Alaska Pipeline System (TAPS) throughput decline had been
the department's principle focus, which was a critical
issue facing the state (slide 15).
Representative Edgmon pointed to his time on the committee
and had learned that the state would not be able to cut its
way out of a future budget crisis. He believed the
governor's number one priority of increasing throughput
needed to be the legislature's number one priority as well.
He noted that disagreements existed related to the
appropriate vehicle or method. He wondered whether the
public understood the critical nature of the issue. He
recalled Commissioner Sullivan's remark from the prior year
that the issue was not about big oil. He appreciated the
comments because many constituents asked why "fat cat" oil
companies deserved a large tax break when they were making
record profits off of Alaska's oil resources. He observed
that the statement went back a number of years through
numerous past actions that none of the current committee
members were responsible for. He wondered whether Alaskans
understood and would support taking drastic measures. He
queried whether the state had effectively made the case
with the public; according to comments from his district it
had not.
Commissioner Sullivan hoped that the state was making the
case that TAPS throughput is a critical issue.
Additionally, DNR had been working to make the case to
Washington D.C. that the issue was critical for Alaska and
for the national energy security interests of the country;
he felt that progress had been made. He stressed that DNR
worked on a daily basis to make the case related to the
continued serious decline of the state's main source of
government revenue and one of its biggest drivers of
economic activity. He expounded that the issue made more
striking when almost every other hydrocarbon basin in the
world was booming. He stressed that if there was no more
oil the state would have to accept the reality, but that
was not the case. The department believed that a world-
class resource existed in Alaska. He furthered that the
decline did not have to be the state's destiny. He
communicated that the tax reform was a cornerstone of the
issue, but there were many different related factors.
3:00:45 PM
Representative Edgmon felt he had done his part to bring
awareness to his district in the Bristol Bay/Aleutian
regions. He was concerned that the administration had not
gone out to make the case. He referred to hard and fast
opinions about the oil industry. He understood that DNR was
trying, but he wondered what a survey would show in terms
of the number of Alaskans who were opposed to lowering
taxes on the oil industry. He surmised that there was more
work to be done on the issue.
Commissioner Sullivan answered that DNR had traveled to
multiple areas, but it could always do a better job. From
DNR's perspective the tax reform proposal had nothing to do
with trying to increase profits; its goal was to increase
production, which was key. His job was to try to increase
in-state oil production, not to care about how much money
oil companies were making. He had met with companies that
had voiced the tax issue as a deterrent for investing in
Alaska. He stated that the companies all knew Alaska had a
great basin, but there were certain costs the state could
control; Alaska was a high-cost location to conduct oil
exploration and production and many of the costs were
inevitable.
Co-Chair Stoltze remarked that the issue was a difficult
one. He disputed public reports that 150,000 barrels per
day would be a sufficient level of production.
Representative Gara observed that the public did not like
it when two groups have different ideas and nothing gets
done (e.g. the current Congress). He believed it was
obvious to the public that the Senate, House, and the
governor all had different ideas. He asked DNR to remain
open to alternatives to the governor's proposed [oil tax
reform] legislation. He believed that one thing everyone
agreed on was the desire to reverse the decline of
throughput in the pipeline, which was crucial to the state.
He referred to the Norwegian system where unused leases
were either taken back or the country conducted exploration
on the land itself and charged for it. He did not imagine
the state would go that far, but wondered whether it had
the ability to take back and rebid a lease if a company was
not acting on it.
3:05:05 PM
Commissioner Sullivan concurred and believed that the
House, Senate, and governor were working to come to an
agreement on tax reform. He pointed out that the focus of
the strategy was on tax reform, but there were a number of
elements involved that he believed would receive very broad
support. He opined that the strategy contained many factors
that were not at all controversial. He referred to leases
and relayed that the department had taken a number of
actions in the past year that worked to accelerate
development on state land. Applications had been rejected
when DNR did not believe they showed an efficient
production commitment. He furthered that the department had
denied leases to companies wanting to unitize entire areas
of the state who had not conducted sufficient exploration
or shown adequate commercial quantities.
Commissioner Sullivan furthered that the department had
taken some strong actions and was very focused on
accelerating lease development. He pointed to Cook Inlet
and aggressive lease terms that had been negotiated related
to the Cosmopolitan unit; a commitment had been "baked in"
because DNR knew the area contained oil. He shared that for
the December 2011 North Slope lease sale DNR had increased
a rental rate that had not been changed since statehood;
the department had experimented with 5-year and 7-year
terms, but the 10-year term had been maintained given the
difficulty of the work on the North Slope. He added that
the rental rates increased significantly in the last 3
years of the 10-year term if a well had not been drilled.
The department believed that the four actions worked
towards the goal of accelerating production in a variety of
ways.
3:08:21 PM
Commissioner Sullivan turned to slides 16 and 17. The
department expected a strong exploration season on the
North Slope that included approximately 20 wells. There had
been a strong lease sale, which had included aggressive
conversations with companies and investors over the past
year. Some companies that the department had expected to
receive bids from had failed to do so; therefore, DNR was
in the process of following up to determine the reason.
Some companies had communicated that they were not
interested in investing until the state changed its cost
structure; however, some world-class companies (Shell,
ConocoPhillips, Repsol) were taking up more state acreage.
Commissioner Sullivan directed attention to slide 19
related to Cook Inlet. He relayed that a substantial amount
of activity was beginning to occur (that would not have
been predicted over a year ago) as a result of enacted
legislative policies. The recent USGS estimate was 19
trillion cubic feet of natural gas in Cook Inlet.
Additionally, the last lease sale was probably the best the
state had seen in 30 years. From the department's
perspective and through conversations with companies, tax
incentives were one of the key drivers of the strong lease
sale. He had briefed company CEOs on lease terms, which had
added to the successful lease sale. He emphasized that
there were some new players in the area and DNR had been
very involved in the supervisory regulatory role in order
to ensure that activity was done safely.
Representative Guttenberg asked how aggressive the
department had been with Doyon related to their drilling
and exploration efforts in the Nenana Basin and the Yukon
foothills. Commissioner Sullivan deferred the question to
Deputy Commissioner Joe Balash due to a conflict of
interest.
JOE BALASH, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, responded that Doyon had been on a slight "slow
burn" since it had spud the well in the Nenana Basin; a
discovery had not been announced and the company had been
taken by surprise by what it learned from the well. Doyon
had been in contact with the Division of Oil and Gas and
the Division of Geologic and Geophysical Surveys to explain
what they believed was in the ground and what the potential
was. The company was pursuing seismic research in the area
and intended to obtain capital to drill two additional
wells in the next couple of years. Doyon had not made any
specific requests at the time; the department had been an
open door and had made its technical expertise available.
Representative Guttenberg queried whether Doyon had talked
about any infrastructure needs that the legislature could
provide for. He wondered whether a bridge over the Nenana
would help to increase effort and other opportunity in the
area.
3:14:08 PM
Mr. Balash answered that under the rubric of Roads to
Resources DNR had been considering what additional areas
may make sense. The Nenana Basin contained a number of
resources apart from oil and gas that may be attractive and
worthy of merit under the program, but nothing of the kind
had been included in the FY 13 budget request.
Commissioner Sullivan relayed that another positive aspect
of 2011 was the increase in mineral production in the state
(slides 21 and 22). He stated that Alaska was becoming a
focus of the country's exploration investment;
approximately one-third of all U.S. exploration investment
in 2010 took place in Alaska. He expounded that 34
different projects spent over $1 million in Alaska in 2010.
The department believed the figures were promising
particularly because the projects had enormous impacts on
local communities related to increased jobs.
Commissioner Sullivan pointed to an image showing different
types of activity throughout the state (slide 23). The
department had held a Strategic and Critical Minerals
Summit in Fairbanks in September 2011. The summit had
focused on Rare Earth Elements; the sold out event had
included U.S. investors, Japanese government officials and
other. He noted that Reuters and Bloomberg both ran stories
on the event. He shared that the event had generated
excitement about the opportunities in the state. The
governor had laid out the state's five-part strategy on
strategic and critical minerals, which he could brief the
committee about at a different time.
3:17:27 PM
Co-Chair Stoltze perceived that revenues from mining had
surpassed fishery revenues and questioned if the department
expected the number to rise.
Mr. Fogels explained that there are seven major operating
mines in the state, only two of which were on state land
(Pogo and Usibelli). Fort Knox was located on AMHTA land.
Co-Chair Stoltze observed that AMHTA land was an indirect
route to the state. Mr. Fogels agreed. He communicated that
DNR had not made any plans to look at changes to the
revenue structure of mining projects.
Co-Chair Stoltze clarified that he was not referring to
taxes; he had been referring to the goal of increasing mine
and oil production. Mr. Fogels responded that the future
was looking bright and the DNR permitting office was
currently very busy. Donlin Gold was expected to submit its
permit application in the near future; if approved the mine
would be the largest gold mine (potentially double the size
of Fort Knox). Additionally, the gas line to the mine would
probably be the largest construction project in the state
since TAPS. He relayed that the Livengood project near
Fairbanks was large and moving full steam towards acquiring
permitting in a couple of years. He furthered that the
Pebble Mine was a couple of years out from submitting
permitting applications. He pointed to the Niblack project
in Southeast Alaska as a promising Greens Creek-sized
project on Prince of Wales Island that was a year or two
out from submitting an application. He communicated that
there were a number of significant exploration prospects
(e.g. the Pyramid copper project on the Alaska Peninsula).
He furthered that there was a substantial amount of
activity occurring in Alaska and believed that if the
projects could be developed responsibly there would be a
significant increase in revenues from mining.
3:21:02 PM
Representative Gara remarked that excluding some recent
applications, the mining history in Alaska was strong and
responsible. He asked what the current mining royalty was.
He noted that entities were not responsible for corporate
taxes unless they were C corporations. He queried whether
mining companies were all C corporations. Mr. Fogels
replied that mining companies did not avoid the corporation
tax; taxes included a 9 percent corporate income tax and a
7.5 percent mining license tax. He relayed that the royalty
was 3 percent of net after the first 3 years.
Representative Joule recognized audience member former
state representative Chuck Degnan from Unalakleet. He
referred to the 6.7 million ounces of silver produced by
the Red Dog mine in 2010 (slide 21). He wondered whether
any mines were close to producing that amount in Alaska and
how it compared to silver production nationally. Mr. Fogels
would follow up with detailed information. He added that
Greens Creek was the fifth largest silver mine in the
world; it had produced 7.2 million ounces of silver in
2010.
3:23:35 PM
Representative Guttenberg pointed to a Rare Earth Element
project at Bokan Mountain (slide 22); he believed there
were others around the state. He had attended the minerals
summit and lauded its success. Commissioner Sullivan was
very happy with the summit; he emphasized the magnitude of
the agenda and pointed out that DNR only had five weeks to
put the summit together. He added that the turnout was such
that people had been turned away.
Representative Guttenberg had been impressed by the
significant process that occurs after Rare Earth Elements
are mined. He stressed that it was important to put a
procedure in place that would keep the processing of the
elements in Alaska. He believed that it was best to do it
now because the resource was available. He had learned that
China had control of the market, but it was not exporting
any longer and was expected to run out of the resource.
Subsequently, there would be a major gap in the
availability of the resource worldwide.
Commissioner Sullivan agreed. He relayed that in addition
to the significant enthusiasm which resulted from the
summit, there had been on-the-side deal making occurring as
well. Alaska Industrial Development and Export Authority
representatives had engaged in positive dialogues with
company senior executives. He furthered that the discussion
related to processing had begun.
3:26:43 PM
Commissioner Sullivan moved to slide 25 related to the
summit strategy. He listed permitting reform as a strategy
aimed at improving Alaska's future through the increase of
oil production (slide 26). He thanked the legislature for
its bipartisan support related to the issues. He believed
DNR had made more progress than it had anticipated and
acknowledged Brent Goodrum, Director, Division of Mining,
Land and Water. Significant progress had been made towards
filling vacant positions; DNR requested that the positions
be included in the baseline budget (slide 27). The
department was planning to revamp its information
technology system in order to prevent the backlog level
from escalating again in the future; the backlog had been
reduced by 21 percent in the first six months of FY 12 (it
had been approximately 2,600 the past July and was
currently about 2,000). The department had been holding
public hearings throughout the state in order to gather
public input on ways to improve its permitting system. He
emphasized that the goal was to improve efficiencies and
increase turnaround time of permits, but not to cut
corners. He remarked that there was a significant amount of
work occurring in a variety of areas that DNR would
collaborate with the legislature on in the current session.
3:29:11 PM
Co-Chair Thomas asked whether development permits had been
awarded at an accelerated or decelerated rate in the
absence of the Alaska Coastal Management Program.
Commissioner Sullivan replied that the principal example of
the issue was related to the exploration season on the
North Slope. Twenty exploration wells required a lot of
work in terms of rigs, permits, water use, ice roads, etc.
Normally the process would have gone through the coastal
zone process; in its absence the state worked very closely
with the North Slope Borough. He elaborated that the
coordination effort had been used, but the department was
working on ways to improve the process. The season had
resulted in a significant surge in the number of permit
applications. He expounded that all permits related to the
North Slope exploration season had been acted on by DNR or
the borough.
Commissioner Sullivan reiterated that there had been
significant progress in the permit backlog (slide 27). He
briefly highlighted accomplishments in the agriculture
sector. He relayed that DNR was talking with the Office of
Management and Budget about expanding a horticulture
program in order to fill a gap resulting from USDA
closures. He referred to accomplishments in parks and
outdoor recreation and pointed to children's lives that had
been saved as a result of programs (slide 29). He discussed
timber resources and the department's proposal to increase
the size of the state forest (slide 30). He communicated
that there was no big news related to wildland fires
because teams had done a good job fighting them (slide 31).
3:32:32 PM
Representative Guttenberg disclosed that he is a peony
farmer and thanked DNR for bringing attention to the loss
of USDA positions, which would be a big gap for Alaskan
farmers. He pointed out that most states had state
supported infrastructure that was paid for by industry. He
addressed food security, school gardens, and Farm to School
programs; he was uncertain the state was ready for a
cabinet level position that had been discussed by farmers
around the state related to the issue. He noted that one of
the committee co-chairs had been given a Friend of Farmers
award. He opined that local foods were much better than
bringing in foods from out of state.
Representative Neuman discussed the importance of the
federal excess property program to the volunteer fire
department that he had worked on for years with the
department. As a result of work done by the state and
legislature and through American Recovery and Reinvestment
Act funds there was state excess equipment available to the
local volunteer fire departments.
Commissioner Sullivan opined that the firefighting teams
had done an excellent job preventing fires from getting out
of control particularly in the Fairbanks area. He moved to
slide 32 titled "Less Hostile Federal Government in 2011?"
He stated that the department had seen signs that the
federal government was easing up on a very hostile view of
resource development in Alaska. He continued that it was a
"one step forward, two steps back" situation; progress had
been made on a CD-5 decision, but federal issues were
arising related to Point Thomson, which was located on
state land.
3:36:19 PM
Representative Wilson wondered where DNR saw access with
Mosquito Fork and the Revised Statute 2477 (R.S. 2477). She
noted that money had been designated the prior year in the
hopes that it would help resolve the issue or make the
federal government less hostile.
Commissioner Sullivan replied that DNR had been conducting
research. He shared that the attorney general had indicated
that the state would seek legal recourse on a number of the
items. He expounded that the state was moving forward
aggressively on the R.S. 2477 issue.
Co-Chair Stoltze acknowledged the former attorney general
[Commissioner Sullivan] on a job well done related to a
wide array of litigations. He appreciated the continuity
and hoped it would continue going forward.
Mr. Fogels added that DNR had conducted a large amount of
fieldwork over the prior summer related to the R.S. 2477
and Mosquito Fork issues; data was currently being compiled
and would be available in a report in the near future.
There was an assistant attorney general assigned to R.S.
2477 who was helping DNR reevaluate its strategy. The state
had formed a partnership with Utah that had been facing the
same issues. Utah was also experiencing the same issues;
therefore, the states had joined together to learn and
share their strategies. The department would provide a
detailed briefing to the committee in the future.
Representative Wilson noted that there were two separate
issues related to rivers and trails. She pointed to
Mosquito Fork in the Chicken area and thought it was
senseless to be fighting over whether a river was navigable
when it obviously was. There were miners who would be
renewing claims that they had owned for many years; she
wanted to ensure that they were supported. She recognized
that there were people who spent part of the year in some
horrible conditions in the hopes that they would
successfully find minerals.
Representative Neuman had been contacted by a miner
operating a small business in his district who had received
notice about needing further OSHA and safety compliance. He
stated that the amount of paperwork required was excessive.
He wondered whether the requirements were a result of state
or federal changes in regulation in the past year.
3:41:34 PM
Mr. Fogels responded that mining safety was regulated by
the federal Mine Safety and Health Administration (MSHA).
He observed that there had been some serious coal mining
accidents in the Lower 48 in recent years, which had
resulted in increased MSHA regulatory oversight. He
communicated that the state had a very limited role in
mining safety.
Commissioner Sullivan moved to slides 35 and 36. He stated
that none of the significant challenges outlined in the
presentation were a surprise, but the goal was to highlight
challenges and tie them into the proposed budget. He
touched on the TAPS throughput decline as a challenge. The
department believed significant progress had been made
related to the commercializing of North Slope gas,
particularly regarding the governor's shift related to
Liquid Natural Gas (key parameters were listed on slide
36); the governor had laid out what he saw as a road map
during his State of the State speech the prior week. He
discussed that DNR worked on a daily basis to strike a
balance between responsible resource development and
environmental stewardship (slide 39); he believed the
department had a good record of maintaining the balance.
Commissioner Sullivan directed attention to a seven-year
look back related to the DNR budget (slide 42). The
department's average annual growth rate was 5.7 percent;
DNR had represented a decreasing percentage of the state
general fund over the past five or six years. He pointed to
a pie chart illustrating the FY 13 operating budget broken
out by core services on slide 43. Slide 44 included a pie
chart showing the operating budget broken out by
division/office. Slide 45 depicted the difference between
the FY 12 management plan and the governor's FY 13 request;
the overall increase was $11.6 million; $6.5 million of the
total was increased federal receipts to support fire
suppression activity and $2.2 million was industry
supported fees for the Office of Project Management and
Permitting. The unrestricted general fund increase was
approximately $2.3 million. Slides 46 and 47 included
snapshots of high priority areas (in the governor's
proposed FY 13 budget) by subject including TAPS, strategic
minerals, gasline, permitting, agriculture, and parks.
3:46:03 PM
Representative Gara discussed the short drilling season in
some areas on the North Slope that was related to warming
winters. He wondered whether there were actions that could
be taken to extend the season in the areas.
Commissioner Sullivan replied that some high costs
associated with the oil and gas business in Alaska were
inevitable including those associated with its remoteness,
the extreme weather, logistics, and other. He stressed that
the short drilling season was a topic that came up
frequently. The exploration season in Alaska was
approximately 4 months compared to Texas or North Dakota
where activity occurred year-round. He communicated that
the department had looked at ways to extend the season. He
shared that Great Bear Petroleum was looking at shale plays
and the company had chosen initial exploration wells along
the haul road where previous activity had occurred, which
would allow for an extended exploration season. He
highlighted that roads would help with the possibility of
year-round exploration (e.g. the road to Umiat). He noted
that ice roads served an important function with regard to
minimal impact to sensitive North Slope areas, but finding
ways to extend the exploration season was very important as
it would help decrease the significant costs.
Representative Gara remarked that the state could build
roads, but there could be economic incentive for companies
to build roads as well. He asked whether there was a way to
streamline and simplify the permitting process for
companies interested in building roads to prospective oil
sites.
Commissioner Sullivan responded that DNR hoped the answer
was yes. He shared that both state and federal issues were
involved related to Environmental Impact Statements and
404(c) permits associated with the Clean Water Act. Action
would be taken if it could be done in a way that would not
cut corners and that allowed the state to be a good steward
of the environment. The department was looking at
regulations and statutes statewide to find ways to improve
project efficiencies that would not take six to eight
years.
3:49:27 PM
Co-Chair Stoltze discussed the schedule for the next couple
of days.
ADJOURNMENT
3:50:45 PM
The meeting was adjourned at 3:50 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DMVA HFIN Budget Overview-012612pdf.pdf |
HFIN 1/26/2012 1:30:00 PM |
|
| DNR-HFIN Budget FY13 Overview for 1-26-2012.pdf |
HFIN 1/26/2012 1:30:00 PM |
|
| DNR-HFIN Budget FY13 Overview for 1-26-2012.pdf |
HFIN 1/26/2012 1:30:00 PM |