Legislature(2015 - 2016)BUTROVICH 205
02/24/2016 03:30 PM Senate RESOURCES
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| Overview: Update on the Mining Industry in Alaska | |
| Adjourn |
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ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 24, 2016
3:31 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Mia Costello, Vice Chair
Senator John Coghill
Senator Peter Micciche
Senator Bert Stedman
Senator Bill Stoltze
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
OVERVIEW: UPDATE ON THE MINING INDUSTRY IN ALASKA
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
KAREN MATTHIAS, Manager
Council of Alaska Producers (CAP)
Anchorage, Alaska
POSITION STATEMENT: Presented mining industry update.
DEANTHA CROCKETT, Executive Director
Alaska Miners Association (AMA)
Anchorage, Alaska
POSITION STATEMENT: Presented mining industry update.
ACTION NARRATIVE
3:31:47 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:31 p.m. Present at the call to
order were Senators Stedman, Wielechowski, Costello, Stoltze,
Micciche and Chair Giessel.
^Overview: Update on the Mining Industry in Alaska
Overview: Update on the Mining Industry in Alaska
3:32:07 PM
CHAIR GIESSEL announced the annual Alaska mining industry update
by both the Alaska Mining Association (AMA) and the Counsel of
Alaska Producers (CAP). She said it's fitting that this
committee listens to the update in the context of budget talks
and this legislation in the committee: SB 137, "An Act requiring
the electronic filing of a tax return or report with the
Department of Revenue; establishing a civil penalty for failure
to electronically file a return or report; relating to
exemptions from the mining license tax; relating to the mining
license tax rate; relating to mining license application,
renewal, and fees; and providing for an effective date." was in
the committee.
KAREN MATTHIAS, Manager, Council of Alaska Producers (CAP),
Anchorage, Alaska, said CAP is a statewide trade association
formed in 1992 and serves as a spokesperson for the large metal
producing mines and some of the advanced major development
projects in Alaska.
3:33:04 PM
DEANTHA CROCKETT, Executive Director, Alaska Miners Association
(AMA), Anchorage, Alaska, said AMA's members include the members
Ms. Matthias mentioned plus coal operators, placer miners, sand
and gravel miners, and the vending and contracting sector that
does business with the mining industry.
3:33:51 PM
SENATOR COGHILL joined the committee.
MS. CROCKETT highlighted the importance of safety in the mining
industry. One of the recent safety milestones Fort Knox Mine
achieved is a strict prohibition on cell phones in the shop and
in moving vehicles even though they are one of the few mines
that has cell phone coverage. If a worker is found using it in
one of those places, they could be dismissed.
MS. CROCKETT said they are pleased that in recent speeches
Governor Walker highlighted the fact that if Alaska was a
country, it would be the eighth most mineral-rich nation in the
world. The fact is that Alaska has world class deposits, but
with just six mines it is not producing to its potential.
Alaska's two oldest metal mines started in 1989, after the
national environmental laws, like the National Environmental Act
and the Clean Water Act, were implemented. Alaska's only coal
mine has operated for 70 years and is still going strong today
through three generations of the Usibelli family. She wanted to
focus on mining's potential moving forward.
3:35:22 PM
She said Alaska's six large mines provide significant economic
benefits to the state. In 2014, the industry employed 8,700
people in direct and indirect jobs that pay an average annual
salary of $108,000. The jobs are year-round and many are in
remote and rural areas of the state. In 2014, mining contributed
$83.7 million to state government and $18.5 million to local
governments. One mostly sees major economic drivers from the
mining industry at the local level. Mines are the largest
taxpayers in the Fairbanks North Star Borough, the City and
Borough of Juneau, and the Northwest Arctic Borough, and the
major economic driver in the Denali Borough and Nome.
MS. CROCKETT said in 2014, mining contributed $144 million to
Alaska Native Corporations through the ANCSA 7(i) and 7(j)
revenue sharing provisions. To date, NANA has received over $1
billion in net proceeds from the Red Dog Mine and it shared $705
million of that with the other Alaska Native Claims Settlement
Act (ANCSA) corporations. So, it's fair to say that the benefits
of Red Dog have touched every corner of Alaska.
3:36:34 PM
She said their most recent study showed that mines spent $500
million annually with over 600 Alaskan businesses. All of this
spending comes while mines maintain the highest environmental
and safety standards. She pointed out that their Annual Economic
Benefit Brochure's insert includes economic benefits from placer
mining activity in Alaska and that the economic benefits it
provides is really important "It's Alaska's seventh large mine,"
she said, since the economic survey showed that its aggregate
numbers in terms of jobs and economic benefits equal the size of
another large mine in Alaska.
SENATOR STOLTZE noted that Fort Knox and other mines across the
state have potential development that will also benefit the
Mental Health Trust beneficiaries. The trust has a
responsibility to develop those resources that have a much
higher value than that of a view shed, he opined.
SENATOR COGHILL said Alaska is the most unique and populous
place for placer mining in America and all the regulations
probably impact Alaska more than any other place in the United
States because of that.
MS. CROCKETT agreed and added that Alaska is leaps and bounds
more active in placer mining than any other state.
3:39:53 PM
She thanked Senator Stoltze for bringing up the Mental Health
Trust facet. There are some great existing operations on Mental
Health Trust lands and some current projects have the potential
to further benefit the trust.
MS. CROCKETT said it takes a significant amount of capital and
patience to bring a mine into production. Since 1981, several
billions of dollars have been spent on exploration on dozens of
projects around the state, yet Alaska has only five large metal
mines. Fort Knox has the shortest timeline at 12 years.
Why does it cost so much and take so long? These companies
aren't just building a mine, she said, they are actually
building and permitting major infrastructure projects. The mine
sites are small communities. Little existing mine infrastructure
is one of the big differences between Alaska and other countries
and states that it competes with. In addition, Ms. Crockett
said, companies pay exploration, development, and construction
costs, but none of these costs are deductible from their income.
These modern mining projects require access to and
infrastructure in remote areas. Red Dog and Kensington Mines
supply their own power at their projects. Pogo built a 50-mile
road and a transmission line. Greens Creek and Kensington had to
build ports, and Donlin is looking at constructing a 315-mile
natural gas pipeline.
3:41:15 PM
For cost comparison, Ms. Crockett said, Detour Lake in remote
northern Ontario started construction in 2013 and cost $1.2
billion Canadian to build. And for perspective, it's an
operation just a little bit larger than what Donlin Gold is
proposing at a cost of $6-7 billion.
3:41:51 PM
She explained that mines sometimes have reimbursable service
agreements with the state for the cost of permitting,
monitoring, and oversight. These costs are actually billed to
the industry by the state and therefore are not borne by the
public sector. Some current examples are: Fort Knox expects to
pay $833,000 in reimbursable service agreements this year.
Donlin expects to pay $720,000 in reimbursable service
agreements this year and has spent $6.1 million since 2009.
3:42:20 PM
MS. CROCKETT related that in some cases the state, through the
Alaska Industrial Development and Export Authority (AIDEA), has
the opportunity to partner with industry. AIDEA's mandate is to
make good investments and to stimulate economic growth, and its
investment in the Red Dog Mine's port and road has been one of
its most successful. By 2014, ADIEA had received $355 million in
payments from its initial $265 million investment, and as of
January 31, 2016, AIDEA had received $443.5 million from that
investment; it will continue to receive payments at a 6.5
percent rate of return until 2034. That investment helped make
the Red Dog possible. It brought a $1 billion in net proceeds to
NANA and the other ANCSA corporations; it has provided jobs and
contracting opportunities since 1989.
SENATOR STOLTZE said sometimes one hears AIDEA bragging about
its successes, but his personal opinion is that Red Dog built
AIDEA. He credited former Governor Bill Sheffield with taking a
political risk in supporting that development in rural Alaska.
3:44:23 PM
MS. CROCKETT said production value numbers in her graph come
from the Alaska Mineral Report produced by the Department of
Natural Resources (DNR) and the Department of Commerce,
Community and Economic Development (DCCED) each year.
Production value from 2000 to 2015 had its ups and downs, and
the report's number were an average of metal prices throughout
the year and not the actual price that mines get from developing
the minerals there. Jobs correlate with production value. There
were sharp increases in both at the time that Pogo started
production and when Kensington started production. Without those
two, the graph would look quite a bit different, but if there
were more, it would also look a lot different.
MS. CROCKETT explained that the mining industry in Alaska wants
to employ Alaskans. It's more cost effective and local hires
have a greater incentive to stay in Alaska. She said 100 percent
of Fort Knox employees live in the Fairbanks North Star Borough;
70 percent of Greens Creek employees live in Alaska, and so on.
The Department of Labor and Workforce Development (DOLWD) just
released its 2014 report, which showed an average of 67 percent
resident hire in mining, but the major mines are actually above
that number and the jobs are year-round. In 2014, the number of
non-residents working in metal mining fell 18 percent and the
resident number decreased by 5 percent. The take-away is that
thousands of Alaska miners and their families depend on a
healthy mining industry highlighting the potential for new mines
providing more new jobs in Alaska.
CHAIR GIESSEL asked how the DOLWD arrives at 67 percent resident
hire when it's hard to reach 67 in averaging the numbers Ms.
Crockett used.
MS. CROCKETT explained that the department has a different
calculation method.
MS. MATTHIAS explained that the department looks at the entire
industry including exploration jobs, which are not year-round.
Many of them are seasonal, because of Alaska's climate, and
often there is a lower number of Alaska residents in those
shorter term jobs. Some of the exploration work requires very
technical skills that isn't always available in the local
workforce - although all of the companies try really hard to
find local people who can do certain jobs onsite. So, that
exploration number pulls the average down a little bit.
3:48:07 PM
MS. CROCKETT showed the development timelines for Alaska's five
metal mines [still seeking success] and a snapshot of permitting
cycles. Niblack and Bornite Mines have been around for much
longer than the other mines, but all the mines represent
thousands of potential jobs, and any one of them coming into
production would be a large increase of revenue for Alaska. All
the mines have lone timelines and require a lot of money and
patience. They are all looking for capital and must convince
investors that Alaska is a good place to invest, and that is
hard to do right now. There are fewer investment dollars for
global exploration right now and much tougher competition.
She shared a graph of an electronically traded fund that tracks
the S&P Metals and Mining Index, and it indicates that investor
interest in mining generally reflects commodity price swings. It
shows robust growth in the mid-2000s and a decline as a result
of the 2008 financial crisis. Through 2011 there was a pretty
good recovery because of China, and then there were four years
of declining prices and investor interest until today. She also
showed a graph of spending declines in exploration on a global
level and in Alaska that indicated a 50 percent decline globally
from 2012 to 2014, but Alaska had a 71 percent decline in the
same timeframe. That lack of investor interest has made it
harder to raise exploration financing worldwide, and Alaska has
been hit worse than average.
MS. CROCKETT said exploration spending also declined for smaller
projects referred to as the "Farm Team" of mining exploration.
These projects want to move into pre-permitting or the advanced
exploration phase. In 2012, 24 exploration projects across the
state spent $100,000 to $5 million apiece. They were not
spending enough or in a stage in which they would not be in
their brochure's centerfold (like Donlin or Pebble), but still
important exploration investment that AMA would like to see come
on line someday. In 2013, just 17 exploration projects spent
$100,000 to $10 million each. She explained that the placer
mining industry insert used to be in this smaller exploration
project insert to let people know what kinds of exploration is
going on in Alaska that wasn't in the advanced exploration
phase, but in 2014 it wasn't a pretty picture and it got
replaced.
3:51:27 PM
Another way to look at the impact of exploration spending is to
count the "dots" throughout Alaska. In 2012, there are more
dots; 120 communities had mining industry employees living in
them. Two years later there were 50 communities. Mining still
has an impressive regional impact, but more is needed.
MS. CROCKETT said their question is: "What are we doing as a
state to increase that economic impact and to spread those jobs
throughout other areas of Alaska?" She said Ms. Matthias would
answer that.
CHAIR GIESSEL noted that 70 communities no longer have their
residents employed, and asked Ms. Crockett if she knew if those
residents transitioned to another job or became unemployed.
MS. CROCKETT answered that they didn't track where all of the
former employees went, but they have a couple of anecdotal
examples of folks who lost their jobs and currently don't have
one. She couldn't speak for all of them.
3:53:19 PM
MS. MATTHIAS said the next phase of their presentation is on tax
policy and economics, the fundamental question being: "What
should Alaska's mineral tax policy be?" Presumably, they want to
find a reasonable share for the state at the same time
encouraging a competitive rate for industry that attracts
investment. Why? Because of all the reasons Ms. Crockett just
went through. A robust responsible mining industry provides good
jobs for Alaskans and many local communities, state and
government revenue, procurement and contracting opportunities
for Alaskan companies, and in many cases, revenue sharing for
Alaska Native Corporations.
SENATOR MICCICHE said he saw pieces of her picture, but when she
mentioned the 6 percent return on investment (ROI) of $355
million to AIDEA until 2034 and 610 year-round jobs at Red Dog,
he would love to show Alaskans "a cradle-to-grave value" of
something that is as successful as Red Dog so its full value
could be seen. Other industries spend a little bit more time
illustrating the positive trickle-down effects of industry, and
"We should be pushing hard for that level of investment in our
state."
MS. MATTHIAS answered that yes, Red Dog would be able to provide
updated information. She also noted that the Institute for
Social and Economic Research (ISER) published an article in an
economics journal last August that analyzed the economic and
social impact of the Red Dog Mine in the Northwest Arctic
Borough, and she would forward a copy to share with committee
members.
SENATOR MICCICHE said so many Alaskans are unaware of the value
of mines when one thinks of things like wages to philanthropy
and how it affects the lives of Alaskans. Alaska is so starved
for diversification. "Just about everything we sell in the state
right now is at the bottom of its value scale."
SENATOR STOLTZE said mining could become the Borough Inducement
Act with the possibility of successful productive mines. There
are positives but also perils of having a local government
essentially dependent on the mine as the sole or single largest
taxpayer. He asked how the state can plan ahead to have
diversified revenue sources.
MS. MATTHIAS responded that CAP doesn't have a position on
borough formation, but the most valuable thing is to have a new
mine, and they want to see those that are in development come
into production and be able to work through those issues with
the local communities. Ultimately, she thought a way could be
found to work with any local community in return for the benefit
of having an economic engine.
3:58:15 PM
SENATOR STEDMAN said an area with no cash economy has no basis
on which to fund itself, and with a mine a region can evolve
into a cash economy. Senator Stedman noted that the success of
Red Dog could be replicated on Prince of Wales Island with the
two proposed mines. Instead of focusing on incorporating a
borough politically, focus instead on growing the regional
economy. The incorporation question will resolve itself once
there is an economy to sustain government.
3:59:20 PM
MS. MATTHIAS said Ms. Crockett pointed out that a State of
Alaska (SOA) report said mining contributed $83,700,000 to the
economy in 2014. The report indicates that $38,700,000 came from
the Alaska mining license tax that all mines pay no matter what
their land status is. State corporate income tax brought in
$17,300,000, and it is paid by all mines in Alaska. The next
category of state fuel tax was blank for 2014, but for 2013 it
brought in just under $1 million, and that number is fairly
constant for previous years. AIDEA facility user fees brought in
$12 million, state mineral rents and royalties brought in
$13,500,000, and she reminded members that there is only one
large producing metal mine on state land (along with some
smaller operations). The next category was coal rents and
royalties and that brought in $1.5 million from the only
operating coal mine; state material sales and state mining
miscellaneous fees brought in $83,700,000. The reimbursable
service agreements are not included in any of the categories and
therefore they think they are not included in the total. But Ms.
Crockett mentioned just two mines payed a total of $1.5 million
this year in reimbursable service agreement fees. Other large
mines also have reimbursable service agreements, so that number
is pretty large.
4:02:01 PM
SENATOR WIELECHOWSKI asked if she or the industry would support
any increase in fees or taxes to the mining industry.
MS. MATTHIAS answered that the Counsel of Alaska Producers and
the Alaska Mining Association have fiscal policy positions and
very much believe that the first part of the solution is budget
cuts and finding efficiencies in operations, which is what the
companies have done in the last four years of declining metal
prices. They have cut positions, froze wages, decreased benefits
and increased employee contributions to health care.
She said using the Permanent Fund (PF) earnings is the only
viable solution for a major part of the budget gap. If there is
any remaining gap after doing those two things, any solution
should be broad-based across all Alaskan businesses and resource
industries including the mining industry. But the other
solutions have to be a priority.
SENATOR MICCICHE said it's a natural inclination to look at
industries when one gets into a bind. He still supports the
notion that the greatest savings to the state general fund are
working Alaskans that are less dependent on state services, and
the areas with the greatest expenses are associated with non-
working Alaskans. Legislators are struggling with the general
fund, but hundreds of thousands of working Alaskans are doing
okay. He remarked that there seems to be a focus on Alaska from
Washington, D.C. and asked if other states had experienced an
Environmental Protection Act (EPA) intervention on state lands
as Alaska has.
MS. MATTHIAS answered that the waters of the U.S. issue affects
almost every state and has potential impact beyond federal lands
because of the uncertain definition of "navigable waters."
MS. CROCKETT added that Alaska doesn't have the magnitude of
state land ownership that the Lower 48 states have. Several
states are having federal intervention because of the belief
that the sage grouse habitat is in decline, and that has
resulted in federal land plans that say what the mining industry
and ranchers can't do on several different land types.
However, she assumed Senator Micciche was referring to the EPA
assessment of the Bristol Bay Watershed. The EPA did exercise
the same Clean Water Act, sec. 404, veto it exercised in Bristol
Bay at a coal mine in West Virginia. It was a preemptive veto
before the permitting process, and the coal mine was in
operation when the EPA exercised its veto authority.
4:08:14 PM
SENATOR MICCICHE said he wanted that information from western
states, in particular, because Alaska shares a lot of common
problems with them.
SENATOR COGHILL added that the Citizens Advisory Commission on
Federal Areas has probably documented those, and he would make
sure this committee gets its latest land report.
CHAIR GIESSEL added that the American Lands Council has a lot of
information available about land restrictions nationally from
the federal government, as well as a small group called the
Energy Producing States Coalition that she belongs to.
She agreed with Senator Micciche's remark about working Alaskans
being a benefit to the state, but there are also folks in low-
paying jobs who need assistance. Mining has some great pay
scales, and she asked them to elaborate on that.
MS. CROCKETT answered that mining has some great pay scales;
their average wage in large scale mines is $108,000 and these
are often in rural areas where there isn't a lot of economic
diversification. Some wages are higher and some are lower, but a
wide gamut of different occupations is available including
nurses, medics, and accountants. Mines really are a small
community and a lot of workforce development opportunities are
available in the industry to train its employees. Not everybody
wants to go to college, she said, and the opportunity to be
employed in the mining industry is something they are really
proud of.
4:11:37 PM
MS. MATTHIAS said a previous slide broke down where the money
comes from in the mining industry, and now she would talk about
where it goes to in the state. A 2016 ISER Fiscal Effects
Report, using a five-year average, indicates that a vast
majority of mining revenue goes into the GF and is available to
pay for schools, roads, public safety, etc. The amount spent for
regulating the industry is very small - less than $20 million.
Mining is highly regulated, but much of that cost is borne by
the companies through the reimbursable service agreements.
SENATOR MICCICHE said he realizes there is limited funding for
studies, but if the industry is contributing $90 million, they
are bringing in far more than $30 million additional local
revenue. He thought the numbers were low and that the value of
mining is much higher than what the study is showing.
MS. MATTHIAS noted that the ISER study was based mostly on the
local property tax paid by the mines and did not look at jobs
and the indirect economic impact of mining and procurement in
the local communities, which is the subject of the McDowell
Economic Impact Report that the Alaska Miners Association
produces. And yes, they are able to show economic impacts that
goes well beyond the property tax.
4:14:39 PM
MS. MATTHIAS said there had been a number of questions about the
tax, and they think it's important to not look at any one
payment in isolation, whether it's royalty, or Alaska mining
license tax or corporate income tax, because from the companies'
point of view, it's all part of the cost of doing business in
Alaska.
She pointed out that Alaska is the only state with multi-use
state land. The state received millions of acres from the
federal government for which the mineral potential was
completely unknown, and having a lower royalty encourages
explorers to risk capital in an attempt to find the mineral
resources that could be developed, and thus impact the state's
economy. It's also important to remember that there is no
royalty to the state if the state doesn't own the land the mine
is located on. Right now, only one large metal mine is located
on state land.
CHAIR GIESSEL asked if the feds share 50 percent of the royalty
on federal lands with the state. She remembered some years ago
when the federal government sequestered the royalty payments to
the states.
MS. MATTHIAS wondered if that was royalty from oil and gas
rather than from mining.
MS. CROCKETT said it applied to coal, not to hard rock.
MS. MATTHIAS said they very much value the Usibelli Coal Mine.
It is not a member of CAP, and she is much less informed on coal
than on metal mining.
She said it's also helpful to have a quick explanation about how
net income is calculated. The royalty tax, the Alaska mineral
license tax, and the corporate income tax are all based on net
income, and there is a tendency to think that the gross
production value is what the mining company actually receives
from the mineral that they extract. But the gross revenue is
actually the net smelter revenue, which is not the same as the
average of the world price over the year or on any particular
day. The smelter gets the world price when they have refined the
product to that level of purity. What leaves Alaska is often in
concentrate form; therefore, a much smaller percentage of the
mineral is in the actual concentrate. Think about the different
price that a fisherman gets for selling his catch to the
processor and what the processor gets when he sells the
processed fish to the wholesaler or the next level of consumer.
So, the net smelter revenue is the price that the smelter and
the mine owner negotiate minus the transportation costs of
getting it from the State of Alaska to wherever the smelter (for
base metals) or refinery (for gold and precious metals) is. They
have to make a profit, so they are obviously paying less for the
product than what they are selling it for.
4:19:28 PM
She explained that to determine net income, operation costs
(wages, consumables, on-site transportation, depreciation,
interest expenses, etc.) are subtracted, but exploration costs
are not. This is not a small amount of money; for example, last
year, Pogo spent $15 million on exploration to further define
their ore body, a common activity for operating mines.
SENATOR MICCICHE asked how an Alaska producer can compete, and
is volume the only tool or can other things be acted upon.
4:20:36 PM
MS. MATTHIAS answered that is a good point, because investment
costs are so high and development timelines are so long, and
certain things can't be changed like the global commodity price.
Alaska's advantage is its rich deposits. Even with those higher
infrastructure costs, if the grade is good, a mine is able to
make a profit. However, the commodity price is very volatile.
Mining is a long term investment and, in general, mines make
money during the peaks of the commodity price, and not in the
lows like now. Nixon Fork had to suspend operations, because the
economics didn't work well enough to stay in business while
waiting for the commodity price to improve.
4:22:13 PM
CHAIR GIESSEL said she asked the Department of Natural Resources
(DNR) and the Department of Revenue (DOR) how many Nixon Fork
jobs were lost when it went into warm shutdown.
MS. CROCKETT replied that she found out that 90 jobs were lost
when they suspended operations. Around seven of those were in
rural communities that were next to the mine.
SENATOR STOLTZE commented that all the revenue issues seem to be
driven by DOR without a lot of input from the DNR, the folks
that have a greater understanding of the needs for production. A
lot of policies are being proposed only with consideration for
the numbers going in or out of the state treasury; there does
not appear to be a heavy consideration for the complexities of
those policy proposals.
MS. MATTHIAS agreed saying CAP encourages the DNR to work with
the DOR. She showed a map delineating the major metal mining
states among all 50 states and said it's valuable to compare
Alaska's tax regime with those, the two most obvious ones being
are Arizona and Nevada.
Nevada has a 5 percent net proceeds tax and is very prescriptive
about exactly what can be considered an operational cost in
order to determine net income. It doesn't have any corporate
income tax while Alaska's is 9.4 percent. However, Nevada has a
2 percent gross payroll tax. She found that property and sales
taxes on goods and materials purchased for the mines are a much
larger source of revenue from the mining industry in Nevada.
Arizona has a net profits tax that is arrived at by subtracting
production costs from the gross revenues and multiplying that by
2.5 percent. It has a 6 percent corporate income tax, as well as
property and sales taxes.
4:26:43 PM
MS. MATTHIAS commented that some of the materials the committee
has received compare Alaska's mineral taxes with states that do
not have major metal mines (Wyoming, Colorado, South Dakota, and
Wisconsin), but they think it's more appropriate if they want to
grow the industry and attract investment to look at how Alaska's
tax regime stacks up against the other major metal mining states
in the country. It is also valuable to look at how Alaska stacks
up against the rest of the world.
She said the next slide just looks at corporate income tax,
because it's really important to remember that even though the
state doesn't receive federal corporate income tax, the
companies pay it. So, that 35 percent rate, which is one of the
highest in the developed countries, is a significant amount for
the companies to pay. When one adds Alaska's state corporate
income tax rate of 9.4 percent that adds up to 44.5 percent.
None of the other countries compare.
4:27:56 PM
Canada has an extremely competitive federal corporate income tax
rate of 15 percent, and then they have variable provincial and
territorial rates. But the average is still well under what just
the federal corporate tax rate is in the U.S.
Alaska competes with other states that also pay the federal tax,
and the next slide showed a comparison of Alaska with those.
Arizona and Nevada come in at less than Alaska in terms of their
corporate tax rates. She added the two Canadian neighbors, Yukon
and British Columbia (B.C.) that have higher provincial and
territorial corporate taxes, but adding that to the federal tax
rate for Canada still results in a percentage that is far below
the U.S. federal rate.
MS. MATTHIAS said she didn't have royalty and mining license tax
information for all, but she pointed out that if one takes the
federal and Alaska corporate tax rate, which is 44.5 percent and
adds the 7 percent Alaska mining license tax, that comes to a
total of 51 percent. If the mine is on state land, add another 3
percent on top of that. This doesn't include any local property
or sales taxes.
SENATOR MICCICHE said he would like to see the royalty and
mining license tax rates for the other states.
MS. MATTHIAS answered that would be something to ask of the DOR:
the numbers for how the department breaks down the different
components of government take under the proposed increase in the
mining tax, and how those metrics affect Alaska's
competitiveness in investment climate.
CHAIR GIESSEL said Alaska's governor belongs to the Western
Governors' Association and asking the DOR for that information
might be a good idea. She would send that inquiry forward.
SENATOR COSTELLO said the committee is hearing important
information today, and it highlights the significance of asking
for quality information as these taxes are proposed. She had
spoken to others about getting an economist and the economic
modeling they need to make informed decisions on the proposals
before them.
CHAIR GIESSEL remembered that in a previous Labor and Commerce
Committee meeting she also had suggested the DOR use the
economists they have on staff; DOR has an entire team called the
Economic Research Group.
4:32:20 PM
MS. MATTHIAS wrapped up with a few slides about the 2014 Fraser
Institute Survey of mining executives around the world. Their
results track with investment decisions and is a pretty good
barometer of what companies are seeing in terms of changes in
different jurisdictions. In terms of "pure mineral potential,"
Alaska is excellent and is consistently in the top 5. Last year
it was number 1 and this year it is number 3.
In 2014, Alaska ranked 23rd in policy perception which took into
account environmental regulations, taxation, the legal regime,
the political stability, and trade barriers. This indicates that
you can have the best mineral deposits in the world, but if you
have terrible policies, nobody is going to invest, and vice
versa. The institute did a 60:40 ratio of pure mineral potential
to potential policy perception under the very best policies in
order to come up with the top 10 jurisdictions for investment
attractiveness. Alaska was 10th on the list in 2014 and it was
5th in 2013. She pointed out that those other 9 jurisdictions
are all in developed countries that have strong environmental
laws, and said there is no reason why Alaska can't compete with
them. Her question is: "What are we doing to make sure that we
attract investment for exploration and mine development to
Alaska, so that we can have the jobs and the opportunity here in
our state?"
Another interesting thing about the study is that it also asked
executives what they thought about the current mineral potential
and if it encourages or discourages mining. Alaska came in 28th,
which was a major slide from the previous year when it was 11th
and in 2012 when it was 6th.
CHAIR GIESSEL asked what factors moved Alaska down.
MS. MATTHIAS replied there is no question that many of those
factors are regulatory, mostly on the federal side, but some
state regulatory issues, as well, and those are things that can
be changed. The other factor is the quality of the deposits and
fortunately Alaska has good ones. The things that can actually
be changed are policies, and can make sure that Alaska has the
best possible policies to encourage investment despite its high
costs.
4:36:40 PM
SENATOR MICCICHE said the only thing that has changed since 2012
when Alaska was 6th is grass roots activism against mining among
Alaskans in certain locations.
MS. MATTHIAS answered that her belief was that the EPA's
preemptive veto on the 404(c) of the Clean Water Act, which
started in January 2014, had a very chilling effect for the
companies, because it has never been done before in the 40-year
history of the Clean Water Act. Investors look at fiscal
certainty and relative stability in the taxation regime, and it
has been stable for the mining industry, but changes have been
made in other industries that could well impact the way
investors look at Alaska as a whole.
SENATOR MICCICHE said he thinks Alaska has public perception
issues in all its major industries, and they have some work to
do on educating Alaskans about why industry is important and how
it affects their every-day lives, and mining is not separate
from that.
MS. CROCKETT said a number of mechanisms can be used by
individuals and organizations to stop resource development in
Alaska; the proposed changes and what eventually happened with
SB 21 and the referendum that followed, for one. She has also
seen ballot measures targeted at certain projects in certain
industries for the last several years, and more of those will be
seen. It's relatively easy to bring litigation to stop or delay
a project and she thought that would weigh on investors'
perception of Alaska.
CHAIR GIESSEL said she personally wrote several letters and an
opinion piece about the Pebble Project shut down in 2014 and the
committee heard a water reservations bill that DNR knew was
needed to encourage development by ensuring the water resource
remained as a possession of the state and not held in individual
hands, but it didn't pass. She could see policy things that
changed perception.
4:40:36 PM
SENATOR STOLTZE asked for industry comments on the
administration's water bill.
MS. CROCKETT said AMA has a position on the nomination for a
water of outstanding national resource (WONR), but the executive
director hadn't submitted the letter simply because the AMA was
doing this presentation. AMA met with the Department of
Environmental Conservation (DEC) a couple of weeks ago to mark
this bill up and supports the concept of authorizing the
legislature to do the designation process, but has some other
issues of concern. One is that they want to ensure that a body
of water is not managed as designated until it is an officially
designated WONR, because a WONR designation means that a water
body can't be degraded in any way.
Another concern is that DEC would actually forward its
nominations at the start of each legislative session, but AMA
doesn't want to see the same river on the list every year. They
want sideboards put on the timeframe in which someone can
nominate that water body, and they want to see the nomination
process be for a specific part of a water body and not a
tributary, so that upstream activity isn't affected by that tier
3 designation. The AMA would send a comment letter with specific
recommendations on the bill before they would offer their
support.
CHAIR GIESSEL said this committee had significant concerns about
the fact that the designation was permanent. Another concern she
has is that the legislature is being required - and she asked
Senator Murkowski to investigate - if it is truly required and
if it is constitutional, because an unconstitutional requirement
can be nullified by a state.
SENATOR STOLTZE said a 2008 voter-rejected initiative had all
sorts of ancillary effects prohibiting fish processing plants
and community water and sewer, and asked if she saw any similar
problems targeting mining.
MS. CROCKETT said any resource development industry should
certainly be concerned and have feedback and the DEC had met
with a number of trade associations and representatives from
different industries, including oil and gas.
CHAIR GIESSEL remarked that a town planned next to a water body
could be rejected, also.
4:47:10 PM
MS. MATTHIAS said the same SOA mineral industry report comparing
2013 numbers to 2014 numbers showed a reduction in mineral
value, less income and, as a result, less revenue to the state.
Exploration spending had taken a significant decline, and that
impacts jobs, of course. Fundamentally, everyone knows minerals
and metals are required in modern lives in just about
everything, but given low commodity prices right now, it is
difficult to raise investment dollars and there's increasing
global competition for those fewer dollars.
Alaska has some serious cost challenges, but it can control the
perception of the investment climate in terms of policies. Ms.
Matthias stated, "We want to send a message that Alaska is open
for business, because ultimately ... just one new mine would
bring in so much more revenue to the state than some of the
measures that are proposed in the bill that's been put forward."
Our hope is to ensure that Alaska has a mineral tax policy that
takes the big picture view of growing the pie, so there will be
greater state revenues and all of the other good positive
effects by bringing more development and investment into the
state.
CHAIR GIESSEL thanked Ms. Matthias and Ms. Crockett for the
robust presentation.
4:49:48 PM
CHAIR GIESSEL adjourned the Senate Resources Standing Committee
meeting at 4:49 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES AMA-CAP 2016-02-24 final.pdf |
SRES 2/24/2016 3:30:00 PM |
Mining |