HB 181-MINING LICENSE REVENUE; REVENUE SHARING  8:05:51 AM CO-CHAIR NAGEAK announced that the first order of business would be HOUSE BILL NO. 181, "An Act relating to the accounting for money received by the state from the mining license tax, mining lease payments, and royalties from mining on state tide and submerged land seaward of a municipality, and the availability of that money for appropriation to certain boroughs and municipalities outside of a borough." 8:05:59 AM CO-CHAIR LEDOUX moved to adopt CSHB 181, Version 28-LS0649\U, Bullock, 3/25/13, as the working document. CO-CHAIR NAGEAK objected for purposes of discussion. 8:06:29 AM REPRESENTATIVE FOSTER, speaking as the sponsor of HB 181, explained that in 2011 the Department of Natural Resources (DNR) conducted an offshore mineral lease sale off the coast of Nome. The sale prompted a spike in demand for docking space at the Nome harbor; space that the harbor doesn't have and can't afford to build. From 2011 to 2012, the total dockings increased from 271 to 436. While the state received revenue from this increase in dockings, there was no framework to help the city with the new infrastructure necessary to accommodate the increase in traffic. This legislation would help provide the necessary framework. 8:07:34 AM PAUL LABOLLE, Staff, Representative Foster, Alaska State Legislature, began by explaining that the original intent of HB 181 was to apply only where offshore lease sales were located within municipal boundaries. However, HB 181 didn't accomplish the aforementioned, and thus Version U was necessitated and specifies that [the offshore lease sales] have to be within a municipality rather than seaward of a municipality. He then directed attention to the map section, particularly the map entitled "Nome Beach Public Mining Areas" that specifies the actual property corners. The map illustrates that within the municipality the property corners go to the three-mile limit into state waters and that's the property within the box on the slide entitled "2011 Nome Offshore Lease Sale Tract Location Map," which shows all the offshore leases that were available in 2011. Although only a small portion of those are being captured, the point is to limit it to municipal boundaries in order to limit the scope of the legislation. A memorandum from Legislative Research Services dated March 29, 2013, specifies that HB 181 only applies to Nome. Mr. LaBolle relayed that Esther Tempel, DNR, told him that although DNR is neutral on the legislation at this point, it did like Version U better than the original version because of the narrower scope of Version U. 8:11:05 AM CO-CHAIR LEDOUX asked whether it's likely the administration will have opinions on HB 181 as it moves through the process. MR. LABOLLE answered that the administration may have an opinion [about various aspects], but isn't likely to get overly excited about the legislation as it merely grants authority and doesn't make the administration expend funds. He noted that any funds expended would have to be expended through the legislature. CO-CHAIR LEDOUX surmised then that the legislation merely gives the administration the authority to appropriate funds to make up for the fact that things are happening in a municipality's offshore area. MR. LABOLLE explained that under Section 1, 50 percent of a mining lease sale or the collection of mineral mining lease sales taxes is set aside and placed in the permanent fund. The remaining 50 percent that is generally placed in the general fund (GF) would, under Version U, be split evenly such that 25 percent would be placed in the GF and 25 percent would be placed in a fund from which the legislature could appropriate at the request of the commissioner [of DNR]. In further response to Co-Chair LeDoux, Mr. LaBolle specified that the 25 percent that is placed in the fund from which the legislature could appropriate at the request of the commissioner would function as would any other non-dedicated fund that is expendable by a simple majority vote. CO-CHAIR LEDOUX questioned what HB 181 achieves if this is something the legislature can already do. MR. LABOLLE clarified that the legislation establishes a framework by which DNR would track the lease sales and mining taxes within those municipal boundaries. Therefore, [DNR] would know how much to request and whether to request it from the legislature. In this particular case, the lease sales drove docking demand at the Port of Nome as illustrated by the chart entitled "Port Vessel Traffic by season." The chart illustrates that docking demand grew from 271 total dockings in the harbor in 2011 to 436 total dockings in the harbor in 2012. CO-CHAIR LEDOUX inquired then as to why the municipality didn't just increase docking fees for vessels above a certain length as that would've likely captured the larger commercial vessels and not the local vessels. MR. LABOLLE deferred to city personnel, but noted that most of these vessels are small dredges, 10-20 feet in length. Furthermore, although the municipality could increase the docking fees, it doesn't provide the capital necessary to dredge out the harbor. 8:16:10 AM REPRESENTATIVE HERRON inquired as to the intent of the co-chairs with HB 181. He then noted that the last time he was in Nome was the end of August, which is a really busy time for the gold miners and the community. He opined that [HB 181 and the discussion thus far] hardly explains what is going on in the community. In the middle of July the Pacific Northwest Economic Region (PNWER) is having its annual summit at which there will be 200-300 legislators from Canada as well as legislators from Oregon, Washington, Idaho, and Montana for a total of about 600 people in Anchorage. The day after the summit there is a day trip to Nome to view the activities of the Bering Sea Gold television show. Since it's difficult to capture the impact of the aforementioned on Nome, Representative Herron suggested the committee hold HB 181 and visit Nome to understand the goal of HB 181 and the relationship [the community] has with the growing [gold mining] industry and economy. Such a visit will provide a better understanding of how DNR can't even comprehend the impact to the community. For instance, prior to Nome stopping DNR, DNR was issuing permits to people who would come to Nome to mine for gold with no idea and no preparedness. However, DNR stopped after there were already 88 dredges in Nome, which is a huge impact on the community. 8:19:28 AM REPRESENTATIVE REINBOLD characterized visiting Nome as an excellent idea. She then noted that she really likes that Nome is using its local resources to build its infrastructure. Therefore, HB 181 seems necessary and she related her support for it. She then inquired as to how much [the gold miners] will be taxed and whether that will impact the attraction to gold mining in the area. MR. LABOLLE clarified that HB 181 doesn't impact the tax structure at all as the tax remains the same. The legislation just takes the tax captured from the department and splits it into the permanent fund and the general fund (GF). Of the general fund portion, 50 percent is placed into a separate account that can be appropriated by the legislature. 8:21:01 AM REPRESENTATIVE FOSTER thanked Representative Herron for highlighting the difficulties Nome is currently having and [through] PNWER the Arctic access issues that will impact the Nome port also. Since the Nome port is only going to get busier, the more people can be educated about the problem the better. Representative Foster relayed that Nome supports economic development and embraces mining, which has a rich history in Alaska. 8:22:09 AM CO-CHAIR NAGEAK opined that a visit to Nome is a great idea and inquired as to when would be the best time to visit. 8:22:59 AM REPRESENTATIVE HERRON remarked that he would rather House Community and Regional Affairs Standing Committee visit Nome than the House Finance Committee. He recalled that the day after the PNWER summit is July 19th when PNWER delegates can make the trip. CO-CHAIR NAGEAK said that the committee could work with the sponsor and the City of Nome to plan a visit. 8:24:23 AM DENISE MICHELS, Mayor, City of Nome, related support for HB 181 and a visit from the committee. She told the committee that the best time for a visit would be after June. In order to give the committee an idea of situation in Nome, Mayor Michels related that in 2011 there were only 39 dredges, however, last year after opening lease sales there were 88 dredges, 30 support vessels, and 2 research ships. Last year there were more than 120 vessels in the harbor for suction dredging alone. 8:25:15 AM CO-CHAIR LEDOUX agreed that visiting Nome is a great idea in order for the committee to know the communities for which it makes decisions. 8:25:42 AM CO-CHAIR NAGEAK removed his objection to the adoption of Version U. [No further objection was stated and Version U was treated as before the committee.] 8:26:07 AM REPRESENTATIVE REINBOLD asked if it's acceptable with the sponsor to hold HB 181. REPRESENTATIVE FOSTER deferred to Mayor Michels. MS. MICHELS said that although she would like HB 181 to be retroactive, she understands that isn't possible. Since she hasn't heard when the next state lease sales would be she said that holding HB 181 wouldn't be a problem as long as "we keep on top of it for the next season." 8:27:39 AM CO-CHAIR NAGEAK opened public testimony. 8:28:36 AM MAYOR MICHELS read the following letter of support: With the high prices for precious metal and the state DNR-sponsored lease sales, we've experienced an influx of offshore placer mining. These miners have provided a boost to our local merchants and the economy, at the same time they've impacted our city services. Even though the City of Nome normally funds services with a variety of revenue sources like property or sales tax, [Nome spent] revenues to cover the cost for an additional staff at $60,000. We also purchased land at $85,000 and did design for mooring to aid in the congestion with this increase in dredges at $217,000. So, overall the city has spent, on its own, over $302,000 to expand our port facilities to support the gold dredging fleet. Also, other impacts are we have an increase in staff doing oil spill cleanup because of all the vessels there. So, there's additional resources that we've been using. We are a mining community and we do support this economic opportunity and we support this potential solution for a portion of the revenue shortfall that may be possible with the reallocation of the mining license tax. It applies to all mining operations regardless of land status, size, or location. Presently, there is no uniform mechanism to allocate portions of the revenue back to communities that are impacted, such as Nome, by resource development. Such a revenue sharing model is effective in the state fishing industry and similar programs have been successful in revenue sharing from the oil and gas industry in the Gulf of Mexico. Sharing portions of the state revenue from mining development with local communities in a predictable fashion would reduce the need for local government to impose their own targeted taxes on the industry and allows for local communities to provide services to the entities in the communities. 8:30:51 AM CO-CHAIR NAGEAK related his understanding that there are two seasons of gold mining, and thus there is activity almost year round in front of the port. Therefore, he surmised that the City of Nome is impacted in the winter time. MS. MICHELS replied yes, adding that currently there are approximately 17 miners doing under the ice mining. 8:31:48 AM CO-CHAIR NAGEAK, upon determining no one else wished to testify, closed public testimony. 8:31:58 AM REPRESENTATIVE FOSTER related his appreciation to the committee for hearing HB 181 and the desire to increase the existing infrastructure to accommodate increased economic development in the mining area. 8:32:24 AM CO-CHAIR NAGEAK announced that HB 181 would be held over and that staff would work with the sponsor, Representative Herron, and the City of Nome to determine the dates and logistics of the committee's visit to Nome. 8:33:21 AM REPRESENTATIVE HERRON said it was only a suggestion to visit Nome in July after the PNWER summit. He then stated that until one visits Nome, one won't know the scale of what's occurring with gold mining, which he likened to the gold rush at the turn of the century. REPRESENTATIVE DRUMMOND said that initially she was wondering if the scope of the situation could be witnessed by video rather than expending the funds for the committee to travel to Nome. However, now she understands that perhaps a visit is in order, and thus she will consider it. CO-CHAIR NAGEAK echoed earlier comments that until one views the scope of the situation in person, one doesn't understand how busy it is in Nome. REPRESENTATIVE HERRON reiterated the need to see the situation in person and characterized it as an investment in making decisions for communities and regions that are impacted by economic impacts. Furthermore, he suggested that the expense of the committee traveling to Nome will be small relative to the impact of moving HB 181 forward. 8:38:45 AM CO-CHAIR LEDOUX opined that the intention behind HB 181 is excellent. Nome, she further opined, needs something in terms of assistance to develop the necessary infrastructure. However, she questioned whether this legislation provides the necessary funding stability as it will only be a year-to-year appropriation. REPRESENTATIVE FOSTER confirmed that the primary focus of HB 181 is to meet the initial infrastructure needs of Nome, but acknowledged that there could be the potential [for more]. He requested comment from Mayor Michels. MAYOR MICHELS characterized the mechanism within HB 181 as a more stable source of revenue sharing as she only sees it increasing as the [lease sales] are a positive economic driver for the state. 8:40:57 AM CO-CHAIR NAGEAK restated that HB 181 would be held over.