SENATE BILL NO. 175 "An Act relating to state mining law, to methods of locating mining claims, to the granting of larger mining claims using a legal subdivision based on rectangular survey descriptions, and to mandatory rental payments for prospecting rights." This was the first hearing for this bill in the Senate Finance Committee. JULIE LUCKY, Staff to the Senate Resources Committee, read a statement into the record. She said the intent of the bill was to streamline and make more efficient, Alaska's procedures to locate and process mining claims. She spoke of a backlog of sites waiting to be listed on the state land status plats. Ms. Lucky told the Committee that the Department of Natural Resources had established an electronic format known as Meridian, Township, Range, Section and Claim (MTRSC) that would allow the department to electronically input information regarding claims on the plats. Ms. Lucky said the bill provides an incentive to use the MTRSC format or convert existing claims to the new format. She stated that the bill also clarifies the rental and labor rates for the claims and establishes a rental rate for prospecting sites where there was currently no rental rate. She added the bill would reduce the time allowed for an individual staking a claim or locating a prospecting site, to record a certificate of location from 90 days to 45 days. She stated the bill allows large claims, which would require less fieldwork and less paperwork. Ms. Lucky continued saying the bill would repeal a limitation on the number of sites one could hold in a township, increase the terms from one to two years and make those terms non-extendable. She concluded that the bill removes a requirement that claim lines be marked. Senator Phillips expressed confusion on the fiscal note and the statement that the industry would pay up to $150,000 for the service. BOB LOEFFLER, Director, Division of Mining, Land and Water, Department of Natural Resources stated that the department supported the bill because it would allow the program to move into 21st century using automation and the Global Positioning System (GPS). Senator Phillips and Mr. Loeffler had dialog regarding the contribution of the industry to this service and that half of the money would be deposited to the permanent fund. Senator Phillips requested that future fiscal notes reflect any revenues that go into the permanent fund. Mr. Loeffler stated that this legislation would make operations more efficient to the state and even if the fiscal note were not adopted, he hoped the bill would still pass into law. He told the Committee that the department was not providing the level of service to the mining industry that it could be proud of. This bill, he said, would reduce the processing time to three months. However, because the industry willing to advocate $150,000 of new revenue to the state, he thought it would be beneficial to capture those funds to help decrease the processing time even further to four to six weeks. He believed that time frame would provide a level of service that would better secure land tenure for the industry. Senator Leman noted the $75,000 in the personal services component of the fiscal note, and asked what that money would buy. Mr. Loeffler replied that an additional staff person would be hired. He also detailed the plan to fund currently vacant and unfunded positions. He explained that these were clerk positions with a low pay range that would be charged with inputting data into the electronic system. STEVE BORELL, Executive Director, Alaska Miners Association, Inc. testified via teleconference from Anchorage in support of the legislation. He referred to a letter to the Committee from the Association. [Copy on file] In addition to the letter, he commented that the bill was a result of several years of work between the mining industry and the department. He detailed the efforts of various committees and described the representation of the involved parties. Mr. Borrell stressed that the bill only changes the process for locating claims and does not increase or decrease the rights established by mining claims. He shared that the catalysis behind the industry's interest in making changes was the on-going budget challenge in terms of manpower and time. He believed the bill would simplify the process and reduce errors and paperwork from the miner's standpoint partially due to using GPS and also because of the larger allowed claim size. He stated, "this is a win-win for everyone." Co-Chair Torgerson asked what was different about a prospecting site. Mr. Loeffler explained a prospecting site does not require discovery, which a mining claim requires. For this reason, he noted this bill takes away the ability to extend prospecting sites beyond two years. He said this was because the department wanted the miner to "put their money into the ground to protect their discovery." Co-Chair Torgerson then asked if the leasehold location and mining discovery were the same. Mr. Loeffler explained that the leasehold location is open to mining only after a lease is obtained. Typically, he said the areas subject to leases had additional stipulations because they were near anadromous fish streams or other special circumstances. Mr. Loeffler responded to Co-Chair Torgerson's next query saying that prospecting sites are often staked by major companies who were tying up ground for their exploration program or simply for speculation. He reiterated that the time limitations were included in the committee substitute to ensure the company would develop the sites and therefore generate royalties for the state. Co-Chair Torgerson returned to the fiscal note and the additional personnel, wanting to know if the bill would still accomplish its goals without the additional staff. Mr. Loeffler gave a background of the program saying that in the early 1990's, the state had 3000 mining claims staked each year, and that by 1995, 10,000 claims were staked. While this has resulted in a mining boom, he pointed out that the cost to process the claims has increased. He shared that claims that used to take 3-4 weeks to process were now taking 4-6 months. He warned that the workload would continue to increase. With the inception of this legislation, he predicted the processing time would be reduced to 12 weeks in this fiscal year without the additional funding and to only six weeks if the fiscal note was adopted. He qualified that without the funds, the 12 weeks would increase to 14 weeks and then to 16 weeks, etc. each year. The fully funding program would keep the processing time to 11-12 weeks, according to Mr. Loeffler. Co-Chair Torgerson how many of the 10,000 claims the department processed were on state land. Mr. Loeffler answered all claims. Co-Chair Torgerson next asked how much of the $1 billion generated came from state land. Mr. Loeffler replied that all but the proceeds from the Red Dog mine and the Greens Creek mine. Co-Chair Torgerson pointed out that the mining revenues to the state was only $1.2 million in 1998 and $1.6 in 1999. Mr. Loeffler corrected and explained that in 1999, state and local governments received $13 million from the mining industry not including income tax. Co-Chair Torgerson asked how much of the revenue was from royalties. Mr. Loeffler replied that the state received approximately $4 million for coal royalty and rents, hard rock mining claim rent and mining license taxes, but that only $16,000 in revenues were royalties from hard-rock minerals, such as gold. He stated the reason was because gold prices tumbled and the major producers were not making money. He explained how the royalties were calculated from the net profits. He stated that while Fort Knox was a boom to the Fairbanks economy, the operation did not make much of a profit. He added that in early part of a mine process, there are many of write-offs, which also lower the net profit. He said the net profit calculation method and the exemptions were set by the legislature as a trade-off for new jobs and higher production. He believed this trade-off "was bearing fruit." Mr. Borell interjected to agree with the Ft. Knox example and to note that the site is located on mental health land. He surmised that the Mining Incentive Act as described by Mr. Loeffler had no impact on current revenues but has a large impact on how the state is perceived for new development. He also pointed out that there were few mines in the state, only four mines have more than 100 employees and that other mines were in bankruptcy because of the adverse effects of gold prices. Co-Chair Torgerson expected that the state would realize increased royalties from the mining incentive credits beginning in the next several years. Co-Chair Torgerson stated that his biggest concern was news reports that talk about the healthy mining industry in Alaska but the state's revenue report shows the resources almost given away. Senator Leman asked for an explanation of the claims processing and what could be done to streamline the process. Mr. Loeffler explained that the department has begun to put the status plats on-line, which informs others of areas available for claims. He gave detail of the automation in the platting process and how this bill would assist the department in achieving more automation. Senator Leman thought the process could be set up in "real time" to automatically show the claim status. Mr. Loeffler replied that was the hope and noted that 20 years ago, the department employed 40 people to upkeep the status plats and that there were only three or four people doing the same amount of work. Senator Adams stated that because the fiscal note reflected a commitment of the mining industry, he hoped the fiscal note would be adopted along with the bill. Co-Chair Parnell offered a motion to move from Committee, SB 175, LS0955/G. There was no objection and the bill MOVED FROM COMMITTEE.