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." 8:35:04 AM REPRESENTATIVE NEAL FOSTER, introduced himself. He introduced his PowerPoint presentation: "HB 181 Mining License Revenue Tax" (copy on file). He began with slide 2: "Bill Language." "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 within a municipality, and the availability of that money for appropriation to certain boroughs and municipalities outside of a borough." Representative Foster continued with slide 3: "Language Clarification." · Two types of revenue: o Mining lease payments and royalties = Competitive bids for tracts of off-shore mining areas o Mining license = Tax on profits · "State tide and submerged land" = Off-shore 8:37:23 AM Representative Foster discussed slide 4: "Bill in Laymen's Terms." · By request of: o Commissioner of Commerce Community and Economic Development, or o Commissioner of Department of Natural Resources · Legislature may appropriate funds: o From mining leases and taxes o To municipalities o If the mining occurs off-shore and in municipal boundaries 8:38:20 AM Representative Foster continued with slide 5: "Reason for Legislation." · State revenue associated with mineral lease sales: o Off-shore and within Nome's municipal boundaries o have brought in over $700,000 in recent years to the State · Caused increased traffic in Nome's port and harbor · Need more infrastructure and personnel 8:39:01 AM Representative Foster continued with slide 6: "Current Funding." The funding mechanism included revenue from mining lease, rents and mining taxes. Representative Foster pointed to slide 7: "Proposed Funding." One half of the revenue was placed in the Permanent Fund, while the other half went to the general fund. The legislation proposed that up to half of the general fund portion would be allocated to municipalities. 8:39:32 AM Representative Foster discussed slide 8: "Mineral lease rental, royalties, and royalty sale proceeds in the Nome area for 2011-2013." The slide's data was compiled by the Department of Natural Resources. He stated that the revenue was calculated based on leases within Nome's boundaries. He noted that rents, royalties and lease sales in 2011 equaled $704,676. Nome's share based on the actual allocation for the same year would be $176,169. 8:40:48 AM Representative Foster discussed slide 9: "So what do we mean when we say off-shore but within a municipality's boundaries?" He discussed the map's details. 8:41:26 AM Representative Foster skipped to slide 11: "2011 Nome Offshore Lease Sale Tract Location Map." The map depicted the different tracts of lease sale areas. He stated that the City of Nome's boundaries extended off-shore. He explained that the lease sales impacted Nome's port and harbor. The bill requested a small area be subject to the legislation. 8:42:09 AM Representative Foster discussed slide 12: "Nome Beach Public Mining Areas." He explained that the yellow line illustrated Nome's boundary. He stated that Nome's boundary extended approximately 1-2 miles from the shore. 8:42:52 AM Representative Foster moved the map on slide 13. He explained the docks identified on the map and mentioned that Nome would require a "middle dock" to address the increased congestion. 8:43:17 AM Representative Foster pointed to slide 14: "Area Within the Municipality." · What makes Nome unique is its municipal boundaries go off-shore · Nome cannot impose a property tax on open water · Legislation would only capture revenue from the leases that fall within the municipal boundary · This area is small compared to the total mining leases that affect Nome's port and harbor. 8:43:54 AM Representative Foster discussed slide 15: "Port Vessel Traffic." He stated that lease sales began in 2005. He noted the graph's depiction of increased traffic due to lease sales. 8:44:19 AM Representative Foster discussed slide 16: "Effects Increased Traffic." · Increased traffic of smaller vessels are driving the need for expansion of the inner harbor · As leases are developed larger vessels (too big for the inner harbor) are competing for already cramped space in the outer port's two docks · The number of dredges, vehicles and equipment being shipped in for the mining industry is exacerbating the delays and congestion at the port 8:44:58 AM Representative Foster concluded with slide 17: "Final Message." · HB 181 offers one small portion of relief for infrastructure and funding needs · Yesterday the Department notified us that there are no more lease sales planned within Nome's boundaries · This means that going forward there would only be about $4 thousand per year in revenue available to the City. The funding request for the planned middle dock alone is $3 million · Solutions: o Retroactivity o Area Expansion o Capital Request 8:46:50 AM Representative Holmes commented that two areas in the state were interested in offshore mining leases. She asked about the type of mining occurring in Nome. PAUL LABOLLE, STAFF, REPRESENTATIVE FOSTER, responded that suction and traditional dredging comprised Nome's offshore mining practices. Representative Holmes asked about the impact on Nome of the increased number of dockings. She wondered about the proposed harbor changes. 8:48:12 AM Mr. Labolle responded that 52 percent of the vessels docking in Nome were associated with the leases, with the remainder associated with recreational mining areas located outside of the lease boundary. 8:49:19 AM Representative Wilson asked about the mechanism used to determine the harbor's users. Mr. Labolle replied that Ms. Baker was the best person to answer the question. JOY BAKER, PORT OF NOME (via teleconference), asked the representative to repeat her question. Representative Wilson repeated her question. She wondered about the utilization and upgrades for the harbor. She asked about a vessel tax that would address those issues. Ms. Baker replied that the city had an indication of users of the harbors in the port. She stated that the smaller dredgers utilized the recreational areas outlined by the Department of Natural Resources. She mentioned a medium- sized fleet that used the harbor when working the off-shore leases. She noted the increase in larger vessels that were too deep for the harbor and were crowding the already congested docks at the port. She stated that the volume of the inner harbor was the initial concern, but the congestion now affected both facilities. 8:51:33 AM Representative Wilson asked if the vessels could be charged a fee that would be used to add to or maintain the harbor. Ms. Baker replied that port fees were charged and increased in 2012 and 2013 and the municipality was considering another tariff increase. She stated that the fees could not be so large that smaller vessels could not afford them. 8:52:57 AM Vice-Chair Neuman asked about sales tax in Nome. Representative Foster stated that Nome had a sales tax. Vice-Chair Neuman asked the percentage. Representative Newman replied 5 percent. Representative Neuman stated that he watched the television show "Bering Sea Gold," which was based out of Nome. He discussed the mineral royalty sales. He noted that the sales in 2011 were different from other years. He asked how long the leases were. Representative Foster replied that the leases were 10 to 20 years. 8:54:41 AM SCOTT PEXTON, DEPARTMENT OF NATURAL RESOURCES (via teleconference), replied that the off-shore mining leases could be issued for 10-year to 20-year terms. Vice-Chair Neuman stated that gold was a boom and bust mining industry. He asked about the effect on the department related to the leases. He asked how much of the lease revenue covered the department's expenses. 8:55:54 AM Mr. Pexton replied that he did not have the exact figures requsted. Precise time would be difficult to account for, but he did not anticipate a great expense would be discovered. He stated that the majority of the work occurred during the actual lease sale. 8:57:08 AM Vice-Chair Neuman noted that the statutorily required mandate included coverage of the management of the leases. He imagined that additional revenue could cover the municipality costs related to building and maintaining infrastructure for the port of Nome. 8:57:38 AM Representative Foster offered to work with the department on some exact figures. 8:57:50 AM Representative Munoz asked about mining activity off the coast of Yakutat. She wondered why the community was not included in the organization for coverage of their harbor costs. Mr. Labolle replied that lease sales in Yakutat did not occur within the municipal boundary. Representative Munoz asked to know more about the off-shore mining practices and boundaries in Yakutat. Mr. Labolle was unsure about specifics. He deferred the question to the department. 8:59:04 AM Mr. Pexton replied that most of the offshore activity in Cape Yakataga was associated with tide and submerged land mining claims. He stated that the activity was minimal for off-shore mining leases; very little activity compared to Nome. Representative Guttenberg wondered how the definition of municipalities was applied in the proposed legislation. Mr. Labolle replied that all incorporated municipalities were included. Second class cities were included. Representative Guttenberg asked about a smaller isolated area and lease sales. He wondered about incorporation of the municipality for the lease payments. Mr. Labolle replied that the bill was not written as retroactive. Lease sales, without boundaries established, could participate. He noted that many community boundaries were based on tides as opposed to Nome's property corners that were based on real space. 9:01:31 AM Representative Gara opined that the problems faced in Nome were understated by the sponsor. He stated that the food bank was often raided by miners in the area for a short period of time each year. He asked about the maximum amount of money sought by Nome as revenue sharing from the mining tax. Representative Foster replied that the maximum amount sought would be $740 thousand over a three-year period. If the "up to 50 percent" was applied, $185 thousand would be the maximum amount over the same time period. He appreciated the question although the revenue sharing contribution was a small step in the direction of a solution. 9:03:37 AM Mr. Labolle highlighted the point that the $185 thousand was estimated from the combination of the sale of the initial lease and subsequent rents and royalties, which were small reoccurring payments. 9:04:35 AM Representative Gara discussed the state's antiquated mining tax policies for large scale mining operations. 9:05:15 AM Co-Chair Austerman OPENED public testimony. Co-Chair Austerman CLOSED public testimony. HB 181 was HEARD and HELD in committee for further consideration. 9:05:58 AM AT EASE 9:08:21 AM RECONVENED