SB 219-DISPOSALS OF STATE RESOURCES  4:29:15 PM CO-CHAIR WAGONER announced consideration of SB 219. 4:29:37 PM WYN MENEFEE, Chief of Operations, Division of Mining, Lands and Water, Department of Natural Resources (DNR), Juneau, AK, said he was available to answer questions on SB 219. CO-CHAIR WAGONER moved Amendment 1. 27-GS2717\A.1 Bailey AMENDMENT 1 OFFERED IN THE SENATE BY SENATOR WAGONER TO: SB 219 Page 1, line 1: Delete "lease, sale and other disposal" Insert "leases, sales, and other disposals" Page 1, following line 4: Insert a new bill section to read:  "* Section 1. AS 38.05.050 is amended to read: Sec. 38.05.050. Disposal of land for private  ownership. The commissioner shall determine the land to be disposed of for private use. The commissioner shall determine the time and place of disposal. A  public [AN] auction sale, sale by sealed bid, a lottery sale, or a disposal of land for homesites may be held in a community that is near the land to be sold or disposed of." Page 1, line 5: Delete "Section 1" Insert "Sec. 2" Renumber the following bill sections accordingly. Page 1, line 10: Delete "no" Insert "not [NO]" Page 3, line 22: Delete "only be renewed" Insert "be renewed only" Page 3, line 23: Delete "no" Insert "not" Page 4, line 5, following "38.05.102,": Insert "38.05.565," Page 5, following line 2: Insert new bill sections to read:  "* Sec. 10. AS 38.05.075(e) is amended to read: (e) The commissioner may require prequalification of bidders for a lease to be issued under AS 38.05.070. If the commissioner determines to require prequalification, the procedures established by this section and the notice including prequalification [PRE-QUALIFICATION] requirements required to be given under AS 38.05.945 shall be completed within 75 days of the receipt of the first lease application unless the commissioner grants additional time for the completion of the procedures. Within the 75-day period or the additional time granted by the commissioner, the commissioner shall complete (1) classification under AS 38.05.300; (2) the procedures required by AS 38.05.035(e); (3) any other action required by law for the disposal of the lease to a bidder except survey, appraisal, and the auction or sealed bid.  * Sec. 11. AS 38.05.075(g) is amended to read: (g) Notice of an auction or sealed bid required under this section shall be made by certified mail to all prequalified bidders." Renumber the following bill sections accordingly. Page 5, following line 19: Insert a new bill section to read:  "* Sec. 14. AS 38.05.115 is amended to read: Sec. 38.05.115. Limitations and conditions of  sale. (a) The commissioner shall determine the timber [AND OTHER MATERIALS] to be sold [,] and the limitations, conditions, and terms of sale. The limitations, conditions, and terms shall include the utilization, development, and maintenance of the sustained yield principle, subject to preference among other beneficial uses. The commissioner may negotiate sales of timber [OR MATERIALS] without advertisement and on the limitations, conditions, and terms that are considered to be in the best interests of the state. Within a one-year period, the commissioner may not negotiate a sale without advertisement to the same purchaser of [(1)] more than 500 M.B.M. or equivalent other measure of timber [; (2) EXCEPT AS PROVIDED IN (3) OF THIS SUBSECTION, MORE THAN 25,000 CUBIC YARDS OF MATERIALS; OR (3) MORE THAN 100,000 CUBIC YARDS OF MATERIALS TO A COMMON CARRIER HOLDING A LEASE UNDER AS 38.35]. (b) Negotiated sales not exceeding 50 M.B.M. or the equivalent other measure of timber [OR 2,500 CUBIC YARDS OF MATERIALS] are exempt from the provisions of AS 34.15.150. (c) The limitations of this section are not applicable to timber that [WHICH] becomes state property under the provisions of AS 45.50.210 - 45.50.235." Renumber the following bill sections accordingly. Page 6, line 21: Delete "14A" Insert "13A" Page 6, line 22: Delete "in fee" Page 7, line 13: Delete "either" Page 8, line 15: Delete "per person within a one calendar year" Insert "a person within a one-calendar-year" Page 8, following line 17: Insert a new subsection to read: "(f) Notwithstanding (a) - (e) of this section, for the purpose of creating incentives for the development of peat as a source of heat or power, the director may negotiate the sale of peat to individuals, organized or unorganized communities, tribal governments, or private profit or nonprofit organizations. Under this subsection, the director may provide (1) for personal use by an individual, not more than 200 cubic yards of peat a year at no cost; (2) for commercial use, not more than 30,000 cubic yards of peat during a single 10-year period at no cost; or (3) for commercial use requiring more than 30,000 cubic yards of peat, the amount required by the user during a 10-year period beginning when the user uses more than 30,000 yards of peat at the price of (A) 20 percent of the representative regional sales price determined by the director under AS 38.05.550(d)(1); or (B) 20 percent of the fair market value determined by an appraisal completed under AS 38.05.550(d)(2), if the applicant provides the appraisal at the applicant's expense and the appraisal is approved by the commissioner." Page 9, line 31: Delete "section" Insert "paragraph" Page 10, line 1: Delete "such a" Insert "the" Page 10, line 4: Delete "section" Insert "paragraph" Page 11, line 3: Delete "insure" Insert "ensure [INSURE]" Page 11, line 7: Delete "which" Insert "that [WHICH]" Page 12, line 12: Delete "[(i)]" Page 13, line 16: Delete "[(A)]" Page 13, line 28: Delete "sec. 18" Insert "sec. 22" Delete "further" Page 15, line 23: Delete "and quarry stone" Insert "stone, pumice, and common clay" Page 15, following line 23: Insert a new bill section to read:  "* Sec. 25. AS 41.23.470(b) is amended to read: (b) The commissioner may conduct only a negotiated timber [OR MATERIAL] sale under AS 38.05.115 to provide for personal use, including house logs and firewood, or for a use incidental to the construction of access, or for habitat enhancement." Renumber the following bill sections accordingly. Page 16, line 5: Delete "Article" Insert "art." Page 16, line 7: Delete "catchline" Insert "catch line" Page 16, line 9: Delete "Section 19" Insert "Section 23" Page 16, line 10: Delete "sec. 23" Insert "sec. 28" CO-CHAIR PASKVAN objected for discussion purposes. 4:31:15 PM CAMERON LEONARD, Assistant Attorney General, Civil Division, Environmental Section, Department of Law, Anchorage, AK, said he was available to answer questions on SB 219. CO-CHAIR WAGONER invited Mr. Menefee to explain the amendment. MR. MENEFEE explained that the majority of the following amendments were crafting amendments. The Division of Legislative Legal found a couple of things that needed to be brought into conformance and there were a few other more substantial points. He explained that the bill put all the "Auction and sealed bid" provisions together for consistency, but a few places were missed in sections 1, 10, 11 for AS 38.05.050, .075 and .075(g), so those were modified to say "auction or sealed bid". 4:32:56 PM Section 14 on page put the "timber sale" back in because it was accidentally omitted when they removed "material sale" out of the "timber sale" statutes. 4:33:51 PM On page 1 another change dealt with pluralizing lease sale disposal in the title to "leases, sales, and other disposals". The second item adds "sealed bid" into section 1 in AS.3895.050. Line 14 was a numbering issue and line 20 was a Legislative Legal correction from "not" to "no". The next two changes on page 2 were also from Legislative Legal. 4:34:57 PM Line 9, page 2, of the amendment would go into page 4, line 5, of the bill and provides exceptions when land might be sold for less than the sealed bid amount. A part of AS 38.05.565 deals with a less than fair market value sale and using the representative regional sales price instead of the competitive sales price had to be inserted in the list. 4:36:37 PM On page 2, "or sealed bid" was added to lines 12 and 27 in section 10 of .075(e) because it had been omitted. Legislative Legal also found the "prequalification" spelled without the hyphen and that was corrected to "pre-qualification". 4:37:22 PM Language on page 3, line 4, put "and other materials" back into the timber sale statutes in Section 14. Language on page 3, line 27, starts renumbering per Legislative Legal. Language on page 3-4 of the amendment refers to page 6, line 22, of the bill and talks about "all materials owned in fee by the state" and "in fee" was removed, because the state does not always own the entire fee simple estate. The idea here was as long as the state owns the surface estate, it can dispose of the materials; this clarifies that it doesn't have to be "in fee." The language on page 7, line 13, was a crafting issue; the same with the next amendment. 4:37:59 PM SENATOR FRENCH stated that he felt his "inner Max Gruenberg coming out" on page 4, lines 6-8, of the amendment addressing page 8, line 15, of the bill, and wanted to say "per year," but he would let it go. 4:39:27 PM MR. MENEFEE moved on to page 4, lines 10-29, of the amendment that dealt with peat. An amendment in the House incentivized extracting peat for power and heat production; it also dealt with private individuals getting 30,000 cubic yards of peat for the first 10 years for free and 20 percent of the representative sales or an appraisal price for the second decade - the idea was to try to incentivize some sort of market to use peat in rural villages by taking the startup cost part out of the equation. On the bottom of page 4, top of page 5, "section" was changed to "paragraph" and was a drafting error. The next statements were all drafting issues that Legislative Legal said should be another word. He asked Ms. Jackson to fill in what Legislative Legal's response was to the next section. 4:41:51 PM MARY JACKSON, staff to Senator Wagoner, Alaska State Legislature, explained that a technical renumbering revision "i" was made per Legislative Legal on page 12, lines 25-29 where a new section was inserted on "publication of a legal notice". 4:43:49 PM MR. MENEFEE said the renumberings on page 5, line 26, were because other things were renumbered further up. Changing "quarry stone" to "stone, pumice, and common clay" was done because they recognized that someone could construe the language "materials" didn't really mean "pumice and common clay", but they really want those included and thought it would be clearer this way. MR. MENEFEE said line 4, page 6, was another Legislative Legal issue that referred to "material sales" in the recreation rivers special designation area and those statutes were changed. The new "material sales" statutes cover all this, so it's not needed here. The rest of the amendment was all legislative crafting issues. 4:46:09 PM SENATOR WIELECHOWSKI asked him to explain the policy of not charging anything for commercial use of not more than 30,000 cubic yards of peat during a single 10-year period on page 4, lines 19 and 20, of the amendment. MR. MENEFEE replied that this amendment came forward on the House side and this language matches that. The discussion was at least one company in rural Alaska (trying to create pellets out of peat to burn in a stove, he thought) said the cost of extracting the peat would be too exorbitant to ever start a business and he proposed no cost for the first 10 year period switching to 20 percent of either the original representative sales price or an appraisal for the next 30,000 cubic yards of peat in the next 10-year period. He reminded them that only one appraisal had been done on peat, because there was no other peat extraction to compare it to. So they have to look overseas. The university did an appraisal and it may have resulted in too high of a cost to start a business. CO-CHAIR PASKVAN said then it's not the intent to give free peat to use for lawns, but just for heating. MR. MENEFEE clarified that line 13 [page 4] says "development of peat as a source of heat or power" and it's not just for personal use, but it could be for something like a school, too. SENATOR WIELECHOWSKI went to lines 24 and 25 and asked if getting the first 30,000 cubic yards for free was up to the discretion of the director. What was the authority to say yours is free but yours is $1 cubic yard? MR. MENEFEE replied that these kinds of discretions are based upon the need of the business that wants to get started. For instance, somebody needs only 20,000 cubic yards or wants it for a 12-year period or they only need it for 8 years. SENATOR WIELECHOWSKI went to lines 24-29 and asked if over 30,000 yards you could get a million yards at 20 percent of the fair market value. 4:50:58 PM MR. MENEFEE answered that people do cut peat to use in their stove, but not commercially. In this situation the volumes seem large, but idea is if you are going to incentivize and get a business started where they can regionally market this and start shipping it around, it needs pretty large volumes. He was correct that there wasn't an upper limit, but as soon as you jump over the 30,000 cubic yards of peat in a 10-year period, you get into this 20 percent category on line 22. Once you get past that, you're into full price. By that time the idea was that the market would be established by then and it could be compared against market values at that point. SENATOR WIELECHOWSKI asked if any regulations or laws were in place for cutting peat now on state land - liking mining. MR. MENEFEE replied not specifically for peat, but even if it's free, they would still need to get an authorized amount from the Corps of Engineers for so much peat from such and such a location and reclaiming instructions. The way .550 is set up they would have to designate a site as such and go through a public process asking people if they know peat will be dug out of the area. 4:53:26 PM CO-CHAIR PASKVAN said when you extract gravel, peat often gets extracted with it and he was trying to figure out what he meant by saying there was no market for peat. MR. MENEFEE responded when he talks about market he is speaking specifically to the production of heat and power. He explained that when a materials site is created it has a certain amount of overburden that is usually used for reclamation. At times people have sold that to create other types of organic material for gardens and such and that doesn't fit this definition of being used for heat and power. They do have prices for the overburden if someone starts selling it; it would be a standard material sale process. He explained that if you find gravel, you probably don't have peat, because it is typically created by an anaerobic wet environment. CO-CHAIR WAGONER said this amendment was made in the other body that was looking for ways to create businesses in rural Alaska. SENATOR WIELECHOWSKI said he didn't know enough about peat, but it sounded like it could be good for rural communities. However, 30,000 cubic yards for free seemed like a lot. CO-CHAIR WAGONER explained that his experience with peat was that thousands or tons of it are eroding into Cook Inlet and disappear. There is a lot of it and it's not used for much. SENATOR FRENCH said he shared some of Senator Wielechowski's concerns. MR. MENEFEE shared what Representative Dick said: if it never happens the state hasn't lost anything, but if you don't incentivize it, a market will never get started and he wanted to be overly generous in creating a new industry. SENATOR WIELECHOWSKI said he wouldn't object, but he would find out more about it. CO-CHAIR WAGONER found no objection and announced that Amendment 1 was adopted. SENATOR FRENCH moved Amendment 2. 27-GS2717\A.2 Bailey AMENDMENT 2 OFFERED IN THE SENATE BY SENATOR FRENCH TO: SB 219 Page 3, line 23, following "lease.": Insert "The director shall provide public notice of the lease renewal decision." CO-CHAIR WAGONER objected for discussion purposes. SENATOR FRENCH said he didn't think DNR would oppose the amendment, because it adjusts page 3, line 23, by adding "The director shall provide public notice of the lease renewal decision." DNR said it was their intent to provide public notice, so this just makes it explicit. CO-CHAIR WAGONER removed his objection and finding no further objection said Amendment 2 was adopted. SENATOR FRENCH said he was withdrawing Amendment 27-GS2717\A.3 because it had a drafting error. He noted that it could be addressed in the next committee. SENATOR FRENCH moved Amendment 3. 27-GS2717\A.4 Bailey AMENDMENT 3 OFFERED IN THE SENATE BY SENATOR FRENCH TO: SB 219 Page 1, line 3: Delete "relating to rights to use state water;" Page 15, line 24, through page 16, line 1: Delete all material. Renumber the following bill sections accordingly. Page 16, line 10: Delete "sec. 23" Insert "sec. 22" CO-CHAIR WAGONER objected for discussion purposes. SENATOR FRENCH explained that this makes some significant adjustments to the bill; however it conforms with amendments offered in the other body. 5:01:29 PM CO-CHAIR PASKVAN confirmed that it removed section 21 of version A on page 15 of the bill as it was removed in House Finance. MR. MENEFEE said that was correct. CO-CHAIR WAGONER removed his objection and finding no further objection said that Amendment 3 was adopted. 5:02:10 PM SENATOR WIELECHOWSKI moved Amendment 4. 27-GS2717\A.6 Bailey AMENDMENT 4 OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI TO: SB 219 Page 6, lines 12 - 13: Delete ". The department may exempt, by  regulation, small operations from the production  royalty otherwise required by this section" CO-CHAIR WAGONER objected for discussion purposes. SENATOR WIELECHOWSKI explained that this amendment deletes two lines from page 6, lines 12-13. The current provision reads the department that is contemplated being added may exempt by regulation small operations from the production royalty otherwise required by this section. A legislative Legal opinion, dated April 2, 2012, says in essence that this would violate the terms of the Statehood Act. 5:03:14 PM At ease 5:03 to 5:04 p.m. 5:04:03 PM SENATOR WIELECHOWSKI added that a Legislative Legal Memo, dated April 2, stated that the Alaska Supreme Court decided that the leasing requirements in section (6)(i) of the Alaska Statehood Act considered in the context of the Schools Land Act, the Mineral Leasing Act and other Statehood Minerals Act and Mineral Leasing systems in other states mandates a system under which the State of Alaska must receive rent or royalties for its mining leases. The decision determined that the state could not forego or fail to charge and collect rents and royalties. The court stated that the State Hard Rock Mineral Leasing Laws that did not require rents or royalties did not meeting the leasing requirements of section (6)(i). It goes on to say the proposed amendment to AS 38.05.212(a) apparently provides for a circumstance where small operations would be exempt from royalties. Therefore, it is likely to be found to violate the terms of the Statehood Act and therefore, Amendment 4 simply removes that provision to stay in compliance with the Statehood Act. MR. MENEFEE said they reviewed this with the Department of Law (DOL), and the exemption was for people who in the end don't pay royalty anyway because it is based upon net income not on gross income. That's why they felt it wasn't a violation of the Statehood Act and it got rid of the paperwork shuffle where someone is not going to pay royalty. It's not a loss of revenues to the state; it's the same amount. MR. LEONARD said that was a good explanation of the intent to cover operations that weren't paying royalties already because of their small size, but he couldn't say if that ran afoul of section (6)(i) or not. CO-CHAIR PASKVAN asked if there was a limitation on the number of years someone can report that they are not making any money. MR. MENEFEE replied that no law could prevent someone from failing to produce enough income to pay royalty for years on end. What has happened is that hobby miners can go out and mine, but they are not getting enough to pay royalty, because they can deduct their costs for producing that gold. However there are certain situations, like submerged mining leases, where you have to produce in paying quantities or the terms will be changed. 5:08:36 PM CO-CHAIR PASKVAN asked how many people were reporting they weren't making any money. MR. MENEFEE replied about 100 or so people. CO-CHAIR WAGONER related that he had a mining claim on state forest land, False Creek 1, and his wife remarked that he had never worked so hard for so little and he they were trying to address people like that. SENATOR WIELECHOWSKI said he didn't dispute that, but a Supreme Court case, the Statehood Act and a Legislative Legal opinion appear to be right on point, and he didn't know how they could do this without running afoul of multiple pieces of law. MR. MENEFEE said this doesn't create additional work and they were suggesting something that would limit the amount of work. 5:10:52 PM CO-CHAIR PASKVAN asked if there was a limit for gross expenses one can declare. MR. MENEFEE replied that rent and expenses can be counted, but they have to be justified. He didn't know if large mines had any sort of cap. MR. LEONARD said that the statute doesn't provide a cap, but there is a relatively comprehensive regulatory scheme that delves into calculating royalties, which he didn't have with him. CO-CHAIR PASKVAN said the question was if someone can extract a thousand ounces and say they didn't make a penny for five years in a row and the state doesn't get anything. SENATOR WIELECHOWSKI said his staff just pointed out another section of (6)(i) of the Statehood Act, which says, "any lands or minerals hereafter disposed of contrary to the provisions of this section shall be forfeited to the United States." He said this amendment clearly violates those provisions and the consequences appear to be quite severe. 5:14:38 PM MR. MENEFEE said he understood what he was saying and he wouldn't dispute the legal opinion. SENATOR FRENCH said he had spent many hours this session reading the statehood debates in US Congress, and this was one of the larger questions that took place in both 1954 and 1957 - about how the state would gain control of land that was then in the hands of the US government. 5:16:08 PM CO-CHAIR WAGONER removed his objection and finding no further objections announced that Amendment 4 was adopted. CO-CHAIR PASKVAN asked if the department could estimate the number of ounces that are extracted that the state receives nothing on. MR. MENEFEE answered that they could go the state's royalty records and find an example where a company starts up the first year and doesn't produce that much and doesn't pay royalty. Staff found at about 6 ounces of gold or about $10,000 worth of income was the threshold where people weren't paying royalty. CO-CHAIR PASKVAN said he wanted the gross amount that was being written off per year. 5:18:16 PM SENATOR FRENCH moved to report SB 219, as amended, from committee with individual recommendations and attached fiscal note(s) to next committee of referral. There were no objections and therefore CSSB 219(RES) moved from the Senate Resources Standing Committee.