HB 181-MINING LICENSE REVENUE; REVENUE SHARING  9:35:55 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." 9:36:18 AM REPRESENTATIVE FOSTER, speaking as the sponsor of HB 181, thanked the committee for visiting Nome. The visit, he remarked, is an opportunity to see rural Alaska, the Nome port and inner harbor, and the strategic location of Nome as it's the gateway to the Arctic. 9:37:49 AM PAUL LABOLLE, Staff, Representative Foster, Alaska State Legislature, speaking on behalf of Representative Foster, sponsor, explained that HB 181 redistributes the minerals mining tax and offshore lease sales on mineral mining. The current version of HB 181 is targeted as it only applies to offshore lease sales located within municipal boundaries. Nome, he highlighted, is somewhat of a special case since the city property corners stretch out approximately 1.2 miles into the sea. The distribution method for the revenue stream from the lease sale and mineral mining tax would be split in half as is currently the case. Therefore, half of the revenue would be deposited into the permanent fund and half into the general fund (GF). Of the half deposited into the GF, half would be split again and separately accounted for such that the funds would still be in the GF but be part of a separate account that could be a revenue stream to share with affected communities upon request of the commissioner. 9:39:25 AM REPRESENTATIVE FOSTER noted that the committee packet includes maps depicting the municipal boundaries in the ocean and the lease sale tracts, some of which are overlapping. He noted that state lease sales have resulted in an increase in traffic [in the area]. 9:40:10 AM CO-CHAIR NAGEAK opened the public hearing for HB 181. 9:40:25 AM DENISE MICHELS, Mayor, City of Nome, thanked the committee for visiting Nome as it provides members a better understanding of the situation. She then related that the City of Nome supports HB 181. Mayor Michels then informed the committee that [this year] the City of Nome has faced an increase in staffing that cost about $60,000 and the growth of the Nome port facilities has cost approximately $302,000 to support the gold dredging fleet. She thanked Commissioner Sullivan for providing a part- time seasonal position for the Department of Natural Resources (DNR) in Nome to help with permitting application issues and other issues the dredges might have in the water. The proposed revenue sharing would allow the City of Nome the additional resources necessary to construct the infrastructure to support the dredging industry. More floats, another barge ramp, and transient housing are necessary. Mayor Michels provided the committee with a PowerPoint presentation that includes the data. She then highlighted that Nome city staff has had to deal with oil spills as there is no Department of Environmental Conservation (DEC) staff in the community. In fact, last year the city had to ship out four totes of contaminated absorbent pad as well as other materials used in the burners. Therefore, additional support from DEC, particularly for enforcement, would be greatly appreciated, she relayed. 9:42:57 AM MAYOR MICHELS, in response to Co-Chair LeDoux, clarified that there is no DEC staff in Nome to address oil spills. For the summer, a lot of petroleum, hydraulics, and fuel are used to power the dredging industry and sometimes there are spills in the inner harbor. Currently, Nome harbor staff addresses these issues, although last year DEC staff came to Nome twice to perform water quality and turbidity samples. 9:44:01 AM JOY BAKER, Harbormaster, City of Nome, informed the committee that there have been numerous reports of offshore spills, which typically are unnoticed because the currents move them down the coast. Therefore, it's difficult to determine the source of such offshore spills. The harbor staff does try to respond to everything that occurs in the harbor and reports are always filed with the National Response Center (NRC), which sends a report immediately to DEC and the U.S. Coast Guard. If the spill is large enough, they come to town otherwise they follow- up, identify the responsible party if possible, and report to that person to work on the problem. Ms. Baker characterized it as an ongoing and growing problem because of the fast growth of the fleet in a short time. She said that a full-time position could be hired to just deal with the aforementioned. In response to Co-Chair Nageak, Ms. Baker confirmed that all the cost is absorbed by the city. 9:45:28 AM REPRESENTATIVE REINBOLD, recalling a discussion she had with a dredger, related her understanding that there is "green" hydraulic fluid that's much safer for the environment. MS. BAKER confirmed that some dredgers are using the "green" hydraulic fluid. Frequently, fuel is spilled. MAYOR MICHELS then informed the committee that last year 74 permits were approved while this year 204 permits were approved. The growth, she noted, is related to the price of gold. 9:46:28 AM REPRESENTATIVE DRUMMOND inquired as to whether the reports filed with NRC are filed by the harbor staff. MS. BAKER answered that typically that's the case. However, periodically the larger operators will call the U.S. Coast Guard. If the harbor staff discovers that a report has not been filed, it will do so. 9:47:12 AM REPRESENTATIVE HERRON inquired as to Commissioner Hartig's response to the need for department staff in Nome. MS. BAKER answered that for enforcement one has to have the training and the background required for oil spill containment and reporting. Commissioner Hartig is aware of the issue and with his limited staff he has provided DEC staff visits to Nome a couple of times in the summer. REPRESENTATIVE HERRON suggested the committee write a letter to the DEC Finance subcommittee chair encouraging a reallocation of the resources within the state such that this emerging industry becomes a priority for the state. 9:49:07 AM REPRESENTATIVE HERRON asked whether the City of Nome is impacted by other state [mining] leases in the area. MAYOR MICHELS acknowledged that there is mining activity on land in Nome, but it's regulated differently than ocean leases for mining. In further response to Representative Herron, Mayor Michels said the [city] wants to support the [mining] industry. 9:50:43 AM BILL JEFFRESS, SRK Consulting (U.S.) Inc., Alaska Miners Association, disclosed to the committee that he is chairman of the Alaska Minerals Commission and also represents a number of the offshore and onshore mining companies in Alaska that are doing exploration mining or development work in the Seward Peninsula area. Mr. Jeffress related support for the concept of revenue sharing. The Alaska Minerals Commission report, he highlighted, cited an improved tax climate for mineral investment and resource revenue sharing as the number one item. Although the association supports the mayor's efforts, the effort needs to be much broader, he opined. Nome as well as other communities is impacted by increases in exploration and mining activities. Several of those impacted communities are municipalities that aren't within boroughs and thus there is no mechanism for additional taxation. The plane rentals, lease payments, royalties, and mining license tax could be distributed much like the fisheries tax. The fisheries tax implemented by the Department of Revenue (DOR) provides for an annual sharing of the fish tax collected outside the municipal boundaries to municipalities that can demonstrate they suffer significant effects from fishing industry activities. Mr. Jeffress said the association would be willing to work with the committee to draft additional language that would broaden the legislation so that other communities impacted by mining could share in the revenue that's generated from the mining industry either through the mining license tax or plane rentals and other royalties. 9:54:00 AM REPRESENTATIVE HERRON suggested the committee request Legislative Legal Services draft such an amendment for unincorporated areas of the state. CO-CHAIR NAGEAK agreed to do so. 9:54:36 AM CO-CHAIR LEDOUX related her understanding that HB 181 only relates to royalties for mining on tide and submerged lands. Therefore, she inquired as to how the legislation addresses mining not in tide and submerged lands. MR. JEFFRESS answered that HB 181 doesn't include any provisions for upland mining leases, mill site leases, or any of the mechanisms the state has including annual plane rental fees that would go to municipalities of unincorporated areas. Under the current narrow language of HB 181, Nome is the only city that would qualify. 9:55:39 AM CO-CHAIR LEDOUX asked whether there is any provision in statute that would provide a community impacted by mining activities part of the revenue the state receives. MR. JEFFRESS replied no, other than what the legislature appropriates through general revenue sharing. REPRESENTATIVE DRUMMOND reminded the committee that the legislature acts on behalf of the unincorporated parts of the state as their city council/municipal assembly. Therefore, she opined it's the legislature's responsibility to step in when communities aren't located within incorporated boroughs or municipalities. 9:56:40 AM MR. JEFFRESS added that the Alaska Miners Commission and the mining community feel that [HB 181] is a fair and equitable way to address some of the impacts. He pointed out that there are always issues with local municipalities that don't have additional revenue to implement something along the lines of a severance tax. The Alaska Miners Commission and the mining industry, he related, are concerned that additional taxes kill investment in Alaska. He opined that passing legislation to enable the potential revenue streams is all that's necessary. 9:57:58 AM MR. LABOLLE informed the committee that the sponsor is working with Senator Olson's office to try to mirror the fish tax. However, there are some issues that Legislative Legal Service is struggling to make work. With the fish tax there is an automatic distribution of funds, whereas under HB 181 the funds are deposited into the state coffers and are subject to appropriation by the legislature. Ideally, the desire is to have true revenue sharing such that the funds are distributed when initially received. He reminded the committee that the creation of dedicated funds is prohibited. Regarding other municipal options, Mr. LaBolle said that normally one can look at a severance tax or property tax when the activity is within municipal borders. However, there is no way to collect property tax on [operations] in state waters, although the property corners in this case are at sea. 9:59:56 AM CO-CHAIR LEDOUX related that she owned a piece of property in Kodiak that was once land, but became submerged land after the 1964 earthquake. The Kodiak Island Borough still collects property tax on the submerged land. REPRESENTATIVE DRUMMOND commented that it sounds like an annexation would be necessary, but that would be difficult to do after the fact. CO-CHAIR NAGEAK interjected that the Local Boundary Commission (LBC) should address that. MAYOR MICHELS, in response, stated that it's state land. REPRESENTATIVE DRUMMOND reiterated that the legislature is responsible for the unincorporated communities. CO-CHAIR LEDOUX surmised then that the problem is there is state land within municipal boundaries; there wouldn't be a problem taxing municipal land within municipal boundaries. 10:02:08 AM REPRESENTATIVE HERRON, regarding having something similar to the fisheries tax, suggested implementing an impact tax. 10:02:53 AM NANCY MCGUIRE told the committee that as a citizen of Nome she is concerned with the impacts of the [increased mining] to the City of Nome. For instance, there are impacts to the police department and the use of the Kids Don't Float Life Preservers used by dredgers. Therefore, it would be nice for the City of Nome to receive a share of the lease sales, which doesn't total much. Other impacts, she highlighted, include that the food bank is empty at the end of the mining season. Ms. McGuire then remarked that it would've been nice to have more public notice of this meeting so that more of the public could've been present. 10:05:10 AM CHUCK WHEELER pointed out that the 2011 lease sale provided $96 million to the state and provided leaseholders interest in the minerals in the submerged lands. The legislation, HB 181, before the committee is difficult to deal with because the property [submerged lands] can't be taxed and it's designed to address impacts to the port. However, the trend of port activity is that the trawlers will replace the smaller dredgers. Furthermore, more dredgers are moving upland seeking properties to mine for gold. Mr. Wheeler highlighted that most of the money from the dredges doesn't stay in Nome as it goes South with them. He then said it's unfortunate that the dredgers and mining industry aren't present to testify. 10:08:37 AM REPRESENTATIVE HERRON asked whether the number of permits should be limited. MR. WHEELER noted that DNR is likely changing regulations because it hasn't addressed the large-scale offshore dredgers but rather have primarily addressed the recreational dredgers. However, the 2011 leases don't reflect anything related to the recreational dredgers, which are the ones impacting the harbor. He noted that DNR has the statistics which relate that although there were 100 applications, 40-50 are actively dredging. 10:10:25 AM REPRESENTATIVE DRUMMOND expressed concern with regard to the lack of public notice of this meeting. She then inquired as to how Mr. Wheeler knew of the meeting. MR. WHEELER answered that as a retired resident, he follows [legislative] activity. He, too, expressed concern with the lack of notice. REPRESENTATIVE DRUMMOND agreed that when a legislative committee travels to the City of Nome the public, not just insiders, should know it is present. 10:11:11 AM MAYOR MICHELS informed the committee that the meeting was advertised on the radio. She further informed the committee that the City of Nome asked DNR, with which it has a good working relationship, to limit its acceptance of permits, which resulted in a deadline of May 31st. Still, there is no limit to the number of dredgers one permit can have on the lease. 10:12:15 AM REPRESENTATIVE HERRON requested that the co-chairs request from the mayor and the commissioner that staff be present at the fall meeting and that the committee has a hearing on this issue in January 2014. CO-CHAIR NAGEAK directed staff to do so. 10:13:11 AM CO-CHAIR NAGEAK, upon determining no one else wished to testify, closed public testimony.