Legislature(2005 - 2006)HOUSE FINANCE 519
02/07/2006 02:00 PM House FINANCE
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HOUSE FINANCE COMMITTEE
February 7, 2006
2:05 P.M.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 2:05:37 PM.
MEMBERS PRESENT
Representative Kevin Meyer, Co-Chair
Representative Richard Foster
Representative Mike Hawker
Representative Jim Holm
Representative Reggie Joule
Representative Mike Kelly
Representative Carl Moses
MEMBERS ABSENT
Representative Mike Chenault, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Beth Kerttula
Representative Bruce Weyhrauch
ALSO PRESENT
Irene Anderson, Chair, Bering Straits Native Corporation,
Nome; Rich Heig, Member, General Manager, Kennecott Greens
Creek Mining Company, Juneau; Karl Hanneman, Member, VP Teck
Pogo Inc., Fairbanks; Charlotte MacCay, Member, Constultant,
Bristol Environmental & Engineering Services Corporation,
Anchorage; Greg Beischer, Member, Consultant, Bristol
Environmental & Engineering Services Corporation, Anchorage;
Neil MacKinnon, Vice Chairman, Hyak Mining Company, Juneau;
Del Ackels, Member, Goldust Mines, Fairbanks; Bartly Coiley,
Member, Usibelli Coal Mine, Inc., Fairbanks & Healy; Don
Cook, Member, Cook International, Fairbanks; Rich Hughes,
Staff, Development Specialist, Office of Mineral
Development, Office of Economic Development, Department of
Commerce, Community & Economic Development, Fairbanks
^
GENERAL SUBJECT(S):
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 24th Legislative Session, contact 465-
6814. After the 24th Legislative Session they will be
available through the Legislative Library at 465-3808.
OVERVIEW:
ALASKA MINING COMMISSION
TIME SPEAKER DISCUSSION
2:05:46 PM Co-Chair Meyer Convened the House Finance Committee
meeting to discuss the Alaska Mining
Commission's findings and hear their
presentation and overview. [Copy on
File.]
ALASKA MINING COMMISSION
2:06:33 PM IRENE Introduced the presenters and
ANDERSON, distributed a copy of the "Report of
CHAIR, BERING the 2006 Alaska Minerals Commission".
STRAITS NATIVE [Copy on File].
CORPORATION,
NOME
2:07:07 PM KARL HANNEMAN, Noted that the Commission was pleased
MEMBER, VP to have the opportunity to discuss
TECK POGO issues of the mining industry. He
INC., provided background of the Mining
FAIRBANKS Commission, which was created by the
Legislature in 1986. The Commission
is authorized through 2014. He stated
that the duty of the Commission was to
provide information to the State and
the Legislature on how to improve the
mining industry.
2:08:36 PM Mr. Hanneman Summarized the work of the industry.
He noted that it is composed of three
different categories.
· Exploration
· Development
· Production
The State industry value has steadily
increased and has a total overall value
of $1.6 billion dollars.
2:09:20 PM Mr. Hanneman Pointed out that the mines that have
come along are located in diverse
geographic areas throughout the State.
He highlighted the new mines and
projects in Southwest Alaska. The
mineral industry projects provide a
rare economic opportunity in diverse
areas of Alaska.
2:10:18 PM Mr. Hanneman He noted that some of the
recommendations deal with the taxation
issues. There are a few key issues
that need to be focused upon that
relates primarily to finance concerns.
He summarized the existing taxation
regime.
2:10:46 PM Mr. Hanneman
· Mining license tax - first enacted
by the Territorial Legislature in
1913.
· Mining rents and royalties -
mineral development major factor
at statehood.
2:13:17 PM Mr. Hanneman Pointed out the chart indicating the
total growth of value of Alaska Mineral
Production and subject to taxation.
Growth increments come, bringing on new
mines in Alaska. The last increase was
in 2004 & 2005, resulting from a
worldwide market price increase.
2:14:22 PM Mr. Hanneman From the increased profitability, the
Industry is seeing growing payments
from the industry to the
municipalities. He spoke to the
State's rents and royalties. He noted
that there has been a substantial
increase in the license tax since 2003
and 2004.
2:15:57 PM Mr. Hanneman Highlighted the Mineral Commission's
key issues:
· Tax Considerations
· Geological & Geophysical Mapping
· AMEREF
The commission recommends that the
Governor and the municipalities work to
create a fair and stable tax regime.
2:18:32 PM Mr. Hanneman Pointed out that Alaska has one of the
poorest map coverage in the world with
respect to geophysical & geological
concerns, which discourages investors.
The Mineral Commission requests that
level of funding be added and increased
to $1 million dollars this year.
2:20:34 PM Mr. Hanneman Identified AMEREF and noted that it is
an Industry/Government partnership to
support resource education. It is an
excellent tool for public schools
education regarding the natural
resource industries. He recommended
that $100 thousand dollars be
appropriated to support that program.
2:21:26 PM Mr. Hanneman Highlighted the other findings &
recommendations. He pointed out the
recommendations:
· NPDES Program Primacy
· Litigation Reform
· Permit Efficiency
· General Permits for Small Remote
Work Camps
· Mixing Zones
· Roads to Resources
· Power Supplies
2:22:22 PM Mr. Hanneman Summarized that if the State continues
to provide stable fiscal and regulatory
policy, the Industry has a lot of
growth potential. He projected that it
could double in the next decade.
2:23:13 PM Representative Asked for more information on the
Kelly mixing zones.
2:23:39 PM Mr. Hanneman Pointed out that there was a
recommendation in the report regarding
mixing zones. He added that the
Commission has advocated for the
opportunity to mitigate to determine
whether they are or are not
appropriate.
2:24:08 PM CHARLOTTE Added, with the change in restrictions,
MACCAY, there is an increased need for other
MEMBER, water quality regulations to be fixed
CONSTULTANT, so that natural background criteria are
BRISTOL considered.
ENVIRONMENTAL
& ENGINEERING
SERVICES
CORPORATION,
ANCHORAGE
2:24:59 PM Representative Asked if it is anticipated that there
Kelly will trouble regarding that concern.
2:25:13 PM Mr. Hanneman Responded that with potential mining
projects moving toward the next decade,
there needs to be additional regulatory
flexibility. He urged science-based
evaluation regarding real impacts.
2:26:30 PM Representative Commented on the argument being
Hawker proposed by the business end of the
community in the State, who voice
strong objection to any further funding
of the budget & advocate cutting this
year's budget. He referenced the
increased mining request.
2:27:22 PM Mr. Hanneman Responded that in the context of
historical spending, the request is not
a significant increment. He emphasized
the good policy for fiscal tracking.
2:28:13 PM Representative Reiterated concern on the proposed
Hawker requests and noted inconsistencies.
2:28:45 PM GREG BEISCHER, Replied that in terms of mapping, when
MEMBER, the State makes an investment there, it
CONSULTANT, is an immediate economic benefit,
BRISTO drawing interest in companies that are
ENVIRONMENTAL willing to spend money developing. It
& ENGINEERING is a small investment, which comes back
SERVICES to the State many times over.
CORPORATION,
ANCHORAGE
2:29:38 PM Representative Commented on a recent case ruling (RS
Foster 2477) and asked the impact.
2:30:01 PM Mr. Hanneman Did not know and offered to provide
that information after researching it.
2:30:54 PM Representative Requested further information on mixing
Kelly zones to help with specific
legislation. He offered to meet with
the industry.
2:31:59 PM Co-Chair Meyer Inquired how Alaska taxation compares
to other states and countries.
2:32:20 PM Mr. Hanneman Mentioned that there have been studies
produced over the years and that Alaska
rests somewhere in the "middle".
History indicates many years of
litigation.
2:32:58 PM Co-Chair Meyer Pointed out that legislators are
looking at the oil company tax credits
for those companies that invest back
into the State. He asked if that type
credit would work for the mining
industry.
2:33:20 PM Mr. Hanneman Stated that several years ago, the
Legislature passed the exploration
credit bill, which has been viewed,
extremely favorable by the industry.
That legislation helped instigate
exploration and development in Alaska
and sent the "right message"- Alaska is
"open for business".
2:34:09 PM RICH HEIG, Informed members that there are only
MEMBER, four large operating mines in the State
GENERAL of Alaska. He pointed out that the
MANAGER, mining industry pays a corporate income
KENNECOTT tax of nearly 30%. Currently, the
GREENS CREEK mining industry is "seeing good times"
MINING and in the last two years has a rate of
COMPANY, return of 5%. It takes many years to
JUNEAU bring a project "on" to actually
produce the metal. The Mineral
Commission believes that the current
tax is fair on the mining industry.
2:35:53 PM Co-Chair Meyer Noted that it is also a very
"litigated" industry and asked if they
were currently at a "stop order".
Mr. Heig noted that was the Kensington
Mine.
Co-Chair Meyer asked about projected
employment growth.
2:36:29 PM Mr. Hanneman Stated that the projection was close to
5,000, which could happen if the other
major projects come to fruition.
He addressed industry growth potential,
highlighting the slide.
2:37:08 PM RICH HUGHES, Clarified that the drop indicates the
STAFF, curtailing of construction activity.
DEVELOPMENT He noted that the number reflects both
SPECIALIST, the construction and production.
OFFICE OF
MINERAL
DEVELOPMENT,
OFFICE OF
ECONOMIC
DEVELOPMENT,
DEPARTMENT OF
COMMERCE,
COMMUNITY &
ECONOMIC
DEVELOPMENT,
FAIRBANKS
2:38:20 PM Co-Chair Meyer Assumed that the local hire rate was
good.
2:38:27 PM Mr. Hanneman Said it is not 99%.
Representative Thought in his area it was around 60%.
Joule Mr. Hanneman thought that number was a
shareholder number. Representative
Joule agreed.
2:39:08 PM Mr. Hanneman Advised that there is a report from
2003, summarizing mining employment,
indicating approximately 83% Alaskan
hire. It is a challenge to work-under
ground; there is not a lot of training
in Alaska.
2:40:01 PM Co-Chair Meyer Asked about training efforts.
Mr. Hanneman referenced the Delta
Mining Training Center, working in
cooperation with the Department of
Labor & Workforce Development. He
reiterated that recruiting people into
that program is a challenge.
2:40:50 PM Representative Pointed out that initially, training
Joule took place in Seward and the success
rate was only 30% because the trainees
had to go so far from home. When it
was moved to the Kotzebue Tech Center,
the success rate increased to 80%. He
mentioned the impact of success when
social environment is taken into
consideration.
2:41:50 PM Representative Asked if the School of Mines at the
Joule University in Fairbanks was providing
the necessary level of education.
2:42:18 PM Mr. Hanneman Pointed out a recommendation to help
solidify and strengthen the School of
Mines by establishing a special
professor Chair to help guide both the
oil and mining industry. He requested
that the Legislature provide support to
fill that position. There are four
mining and/or environmental engineers
working with the Commission from the
University of Alaska. At this time,
the Commission would like two more;
they are not available.
2:43:46 PM Representative Noted that usually the interest and
Hawker beneficiary groups endow University
Chairs. He asked if the mining
industry would consider that.
2:44:19 PM Mr. Hanneman Advised that there has been discussion
regarding that. During the school
reorganization, short and long term
funding was discussed.
2:44:33 PM Representative Mentioned borough taxation of the
Holm boroughs and the newly formed borough.
He asked how the negotiations were
going with them.
2:44:56 PM Mr. Hanneman Replied that the Industry has signed a
payment in lieu of tax agreement with
the City of Delta Junction in November
2005. It provides a schedule of
payments and taxation schedule
structure. The public process
proceeding with a vote is ongoing. The
Commission has pledged support of
borough formation.
2:45:50 PM Representative If not, what happens.
Holm Mr. Hanneman stated if they do not, the
Commission would evaluate what the best
State policy should be.
2:46:16 PM Representative Asked when it is anticipated that there
Kelly will be an answer. Mr. Hanneman
replied that the target is first
quarter, 2006.
2:46:42 PM Representative Inquired about the effort to work with
Joule local communities when it is known that
an area near them may "come on line"
and how they are "warmed" to that idea.
He reminded members of conflicts with
potential subsistence uses in those
areas.
2:47:41 PM Mr. Hanneman Acknowledged that was a valid concern.
As mines develop and the exploration
occurs, there is tremendous education
that needs to take place. Some
projects require many years in the
community to foster that communication.
Each project is different and has its
own challenges. There are always
tangible benefits by offering jobs,
etc. Those are "real & hard issues",
but hopefully, by leading by example,
the other mines help share the message
and understanding of the benefits.
2:49:47 PM Co-Chair Meyer ADJOURNMENT
The meeting was adjourned at 2:50 P.M.
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