HOUSE RESOURCES STANDING COMMITTEE March 17, 1995 8:37 a.m. MEMBERS PRESENT Representative Joe Green, Co-Chairman Representative Bill Williams, Co-Chairman Representative John Davies Representative Pete Kott MEMBERS ABSENT Representative Scott Ogan, Vice Chairman Representative Alan Austerman Representative Ramona Barnes Representative Eileen MacLean Representative Irene Nicholia COMMITTEE CALENDAR HB 59: "An Act relating to raffles and auctions of certain permits to take big game; and providing for an effective date." HEARD AND HELD HB 197: "An Act providing for exploration incentive credits for activities involving locatable and leasable minerals and coal deposits on certain land in the state; and providing for an effective date." HEARD AND HELD WITNESS REGISTER REPRESENTATIVE CON BUNDE Alaska State Legislature State Capitol, Room 108 Juneau, AK 99801 Phone: 465-4843 POSITION STATEMENT: Prime Sponsor of HB 59 RANDY WILD, Representative Alaska Fish and Wildlife Safeguard P.O. Box 56345 North Pole, AK 99705 Phone: 488-0541 POSITION STATEMENT: Supported HB 59 JOHN HARTWICK, Representative Alaska Fish and Wildlife Safeguard 3432 Sharon Road North Pole, AK 99705 Phone: 488-6593 POSITION STATEMENT: Supported HB 59 EDDIE GRASSER, Legislative Director Alaska Outdoor Council P.O. Box 2193 Palmer, AK 99645 Phone: 745-3772 POSITION STATEMENT: Supported HB 59 GERON BRUCE, Representative Alaska Department of Fish and Game P.O. Box 25526 Juneau, AK 99811-5526 Phone: 465-4100 POSITION STATEMENT: Supported HB 59 with amendments LISA BLACKER, Representative Alaska Environmental Lobby P.O. Box 22151 Juneau, AK 99802 Phone: 463-3366 POSITION STATEMENT: Opposed HB 59 REPRESENTATIVE RICHARD FOSTER Alaska State Legislature State Capitol, Room 410 Juneau, AK 99801 Phone: 465-3789 POSITION STATEMENT: Prime Sponsor of HB 197 JOHN WALSH, Aide Representative Richard Foster State Capitol, Room 410 Juneau, AK 99801 Phone: 465-3789 POSITION STATEMENT: Answered questions on HB 197 REPRESENTATIVE AL VEZEY Alaska State Legislature State Capitol, Room 216 Juneau, AK 99801 Phone: 465-3719 POSITION STATEMENT: Co-Sponsor of HB 197 DAVID ROGERS, Representative Council of Alaska Producers P.O. Box 33932 Juneau, AK 99803 Phone: 586-1107 POSITION STATEMENT: Answered questions on HB 197 PREVIOUS ACTION  BILL: HB 59 SHORT TITLE: RAFFLE OR AUCTION OF BIG GAME PERMITS SPONSOR(S): REPRESENTATIVE(S) BUNDE,Toohey JRN-DATE JRN-PG ACTION 01/06/95 36 (H) PREFILE RELEASED 01/16/95 36 (H) READ THE FIRST TIME - REFERRAL(S) 01/16/95 36 (H) STATE AFFAIRS, RESOURCES, FINANCE 01/20/95 105 (H) COSPONSOR(S): TOOHEY 03/07/95 (H) STA AT 08:00 AM CAPITOL 102 03/07/95 (H) MINUTE(STA) 03/08/95 634 (H) STA RPT 5DP 2NR 03/08/95 634 (H) DP: JAMES,PORTER,GREEN,WILLIS,OGAN 03/08/95 634 (H) NR: IVAN, ROBINSON 03/08/95 634 (H) FISCAL NOTE (F&G) 03/17/95 (H) RES AT 08:00 AM CAPITOL 124  BILL: HB 197 SHORT TITLE: MINERAL EXPLORATION INCENTIVE CREDITS SPONSOR(S): REPRESENTATIVE(S) FOSTER,Vezey JRN-DATE JRN-PG ACTION 02/27/95 487 (H) READ THE FIRST TIME - REFERRAL(S) 02/27/95 487 (H) RESOURCES, FINANCE 03/08/95 (H) RES AT 08:00 AM CAPITOL 124 03/08/95 (H) MINUTE(RES) 03/17/95 (H) RES AT 08:00 AM CAPITOL 124 ACTION NARRATIVE TAPE 95-35, SIDE A Number 000 The House Resources Committee was called to order by Co-Chairman Green at 8:37 a.m. Members present at the call to order were Representatives Kott, Davies and Green. Members absent were Representatives Williams, Ogan, Austerman, Barnes, MacLean and Nicholia. HRES - 03/17/95 HB 59 - RAFFLE OR AUCTION OF BIG GAME PERMITS REPRESENTATIVE CON BUNDE, PRIME SPONSOR, stated HB 59 is a revenue generating piece of legislation. HB 59 would allow Alaska to join a number of other states in issuing Governor's tags. He said there are philanthropic hunters and people who feel a strong responsibility to contribute to wildlife conservation, habitat restoration, and sound fish and game management. In other states, several hundred thousand dollars have been raised by auctioning off sheep permits, elk permits, etc. REPRESENTATIVE BUNDE explained the Alaska Department of Fish and Game (ADF&G) has calculated that $25,000 will be raised the first year, using this process, going up to $100,000 in future years. He said a representative from the Outdoor Council has said his organization alone, through these tags, has generated $100,000 for the North American Foundation for Sheep. He felt that by using this process, funds could be generated for ADF&G. He explained HB 59 allows the Governor's tags to consist of two harvest permits each for dall sheep, bison, musk ox, brown or grizzly bear, moose, caribou and wolf. He noted these tags will not affect the number of permits made available to Alaskan residents. REPRESENTATIVE BUNDE said people in the guiding industry have expressed this program would offer a great opportunity to guide these kinds of hunters, probably gratis, just for the referral business they could potentially receive. CO-CHAIRMAN GREEN noted for the record that Representative Williams had joined the committee. REPRESENTATIVE BUNDE reviewed two amendments he wished to offer. The first amendment is on page 1, lines 12-14: Delete "(1) an amount not to exceed 50 percent of the net proceeds, which the qualified organization shall use to promote fish and game law enforcement, and (2)". He said further research has shown this verbiage would cause problems with the procurement code. He explained these kinds of state sponsored events are generally limited to 10 percent of the net proceeds and if the amount becomes more than that, the procurement code goes into effect. REPRESENTATIVE BUNDE stated amendment number two is on page 2, line 9: Delete "ethical", and on page 3, line 5: Delete "ethical". He noted there has been discussion around the fact that the word ethical is a fuzzy word, open to many interpretations and would best not be in statute because it speaks to hunting which is regulated by the applicable laws and those laws demand ethical behavior. Number 187 RANDY WILD, REPRESENTATIVE, ALASKA FISH AND WILDLIFE SAFEGUARD (AF&WS), testified via teleconference and stated when this legislation was started previously, AF&WS worked with Senator Frank. He said AF&WS could not say that legislation was for wildlife safeguard but added that AF&WS is the only organization qualified and is established to promote fish and wildlife or fish and game law enforcement. He noted that original statute is in HB 59 on page 1, line 4, AS 16.05.343. He explained that Representative Bunde has basically attached paragraphs (b) and (c) to the original legislation. MR. WILD told committee members in the past AF&WS has provided bison raffles in excess of $60,000. He expressed opposition to the deletion contained in amendment number one because the procurement code does say for the use of an individual organization. He said the 50 percent, as written, states "which the qualified organization shall use to promote fish and game law enforcement". He stated it is the intent of Safeguard to use that for payment of reward proceedings. He urged the committee to leave the language in for that purpose. MR. WILD said Colonel John Glass, Director, Division of Fish & Wildlife Protection, believes the best way to enhance the state's enforcement ability is to have organizations, such as Safeguard, to have the ability to get out to the public, bring an awareness forward, and use self-policing type avenues, which is being incorporated currently by providing a 1-800 number. He stressed to continue Safeguard's program, the organization must have some type of funding. He explained that Safeguard is not funded by any kind of statute and the state courts are no longer allowing the organization to receive various fines. In the past, the court system allowed a person to pay a donation to Safeguard in lieu of a fine, which is not now available. MR. WILD pointed out if HB 59 could be amended to include one each of the big game species listed in paragraph (b), in paragraph (a) and retain the 50 percent for the payment of rewards, the program could be funded. He said members of Safeguard volunteer because they feel it is a good and necessary program. The money given to the state is a side note for Safeguard, but a very good benefit. He stated on January 5, 1994, Safeguard deposited $27,182 with the ADF&G in proceeds from the bison raffle. He stressed Safeguard supports the state in many ways including promoting the proper use of game and providing funds as well. He urged committee members to not delete the 50 percent of what is used to pay rewards and to bring the big game species listed in paragraph (b) to paragraph (a) so the program can be funded. Number 268 REPRESENTATIVE BUNDE said he totally supports Safeguard and feels they do a great job. He stated he would prefer to leave the 50 percent in the bill because it is money well spent. He noted if the state had to pay for the hours the volunteers put in, it would involve thousands and thousands of dollars. He explained the department felt the 50 percent would not fly in the courts and would lose ultimately. He knows Safeguard needs more money because they cannot generate enough money just on a single bison raffle. REPRESENTATIVE BUNDE called members attention to page 2, lines 7 and 8 where it says "a qualified organization" means a nonprofit corporation established to promote fish and game law enforcement. He said in his mind that qualifies Safeguard to apply for the permits which are listed, as well as apply for their original bison permit. He stated while the bill does not give Safeguard the 50 percent and all the tags, it does allow them to apply for the tags plus have the bison raffle. He hoped that was a reasonable compromise. Number 298 JOHN HARTWICK, REPRESENTATIVE, ALASKA FISH AND WILDLIFE SAFEGUARD, testified via teleconference. He stated last fall while hunting he stopped at several of the fish and game offices in the states of Montana and Wyoming and talked to them about their Safeguard programs. Both states have state funded programs for wildlife Safeguard. In Wyoming, the funding is through direct funding from the Department of Fish and Game and in Montana, the program is funded by taking one dollar off the top of every hunting license sold. He noted that fund-raising has been a continual problem. He stressed if HB 59 can be passed, preferably with the 50 percent retained, it will allow Safeguard to continue in Alaska and provide great benefits to all citizens. Number 324 EDDIE GRASSER, LEGISLATIVE DIRECTOR, ALASKA OUTDOOR COUNCIL (AOC), testified via teleconference and said AOC supported this legislation last year and supports it this year. He agreed with the comments of Mr. Wild and Mr. Hartwick regarding the 50 percent retention. He wondered if it was ADF&G or the Department of Public Safety that had problems with the 50 percent. He stated last year when he talked to the ADF&G, there was no problem with the 50 percent. MR. GRASSER said another concern is on page 2, lines 7-10 where it reads "established to promote fish and game law enforcement or an organization established to promote management of hunted game species". He stated AOC's concern is the first qualifier is not linked up with the second. He pointed out AOC would like Safeguard to continue their program. AOC's concern is that other organizations, that may be nonhunting or even anti-hunting, could claim to promote fish and game wildlife enforcement. Number 358 GERON BRUCE, REPRESENTATIVE, ADF&G, explained the question about the 50 percent came up in the prior committee HB 59 was heard in. The question was asked if the 50 percent would constitute a diversion of fish and game funds. The department reviewed the question and contacted the federal aid administrator, who informed the department that a level at 50 percent could be construed as a diversion, and recommended the 50 percent be adjusted to 10 percent. MR. BRUCE said in looking at the fees organizations get for providing the service, it has to be viewed like a vendor selling a fishing or hunting license--they are allowed to keep a certain percentage of the cost of the license for their own use. He stated the reason for the concerns is the fish and game fund is one of few, if not the only, dedicated fund in state government. The reason the fish and game fund is a dedicated fund is because there is a provision in the state Constitution which says funds can be dedicated if federal laws require it in order to receive federal funds. He noted that is exactly the case in this situation. MR. BRUCE explained federal aid and restoration, for both sport fish and wildlife, requires that all license fees be used for the administration of the agency and the conduct of the programs, on behalf of fish and wildlife resources for recreational folks, and that the programs be directed at those. He said a small percentage going to an organization could be viewed as a fee for conducting a service and that could be part of the agency's administrative function which it has contracted to a private party. However, when it goes beyond that to the point the 50 percent does, that arena is left and you begin to go into a point where you are starting to provide funds out of the fish and game fund for other organizations. He noted, regrettably, that is what led the department to the recommendation of 10 percent instead of 50 percent. MR. BRUCE stressed the department supports and highly values the work Wildlife Safeguard does and wants to see it continued. He said in Section (b) of the bill, the department supports adding language that would make it clear that an organization like Safeguard, which is involved in promoting law enforcement activities related to hunting and fishing, would be a qualified organization and able to auction off the two harvest permits per year. Number 420 REPRESENTATIVE BUNDE stated the agencies who will be allowed to raffle the permits will be chosen by the department. He thought there could be some level of confidence that the commissioner and the department would not issue a permit to someone who is working counter to the goals of sound fish and game management and the use of game populations for hunting. CO-CHAIRMAN GREEN noted for the record that Representatives VEZEY and FOSTER were present. REPRESENTATIVE JOHN DAVIES asked if there is anything in fish and game regulations preventing the department from using an equivalent amount raised through a raffle contractually to an organization like Safeguard to provide a service. MR. BRUCE responded he did not know. He said he would look into it and get back to him. REPRESENTATIVE DAVIES felt what Safeguard does is consistent with the overall mission of the department and the department could earmark an amount equivalent to the amount raised in this way for that purpose and then make it available through a competitive contract. REPRESENTATIVE BUNDE stated he would like to see Safeguard funded out of state monies. He said it was felt that taking funding out of the appropriation process was wise because with the challenges faced today, that money would be jeopardized and would not involve a consistent cash flow from year to year. He pointed out Safeguard has a little more control by raising their own money. REPRESENTATIVE DAVIES said he understood that concern but on the other hand, he would not regard his suggestion so much in the line of general funds as in the line of program receipts. He felt the department could determine a way to make it happen legally, in such a way that it would not be that different than what is proposed in HB 59. CO-CHAIRMAN GREEN recalled there was another concern in Fairbanks on page 2, line 8 about the word "or". He assumed that "or" was in there so as not to be so restrictive as to require both conditions be met. REPRESENTATIVE BUNDE stated he reads it as either or not restrictive. He said he would take the question back to the bill drafter. Number 485 LISA BLACKER, REPRESENTATIVE, ALASKA ENVIRONMENTAL LOBBY (AEL), said AEL does not strongly oppose the intent of HB 59. However, AEL feels that if the purpose of HB 59 is to raise money for the fish and game fund, then all nonprofits should have an opportunity to participate in the extension of this program. She said page 2, lines 9-11, opens it up, beyond the Safeguard organization, to other nonprofits to use this as a fund raiser for their own organization. She stressed if that is the case, AEL feels it is important to not be exclusive and all nonprofits should have an opportunity to raise money for the fish and game fund and should be able to have an opportunity to raise money for themselves. REPRESENTATIVE PETE KOTT noted that on page 2, line 13, it indicates brown or grizzly bear. He wondered if that meant either or, or both. REPRESENTATIVE BUNDE replied the term is brown or grizzly because in many cases they are the same or close to the same. He stated two separate species are not being referred to. REPRESENTATIVE KOTT asked if there is a difference between the two. REPRESENTATIVE BUNDE responded the generally accepted definition indicates a grizzly bear is defined by where it lives. If it is within 75 miles of salt water, it is a brown bear and if it is further away, it is a grizzly bear. He said the bear's diet contributes to the size differences. REPRESENTATIVE AL VEZEY stated any bear north of the 63rd parallel is considered a grizzly. REPRESENTATIVE BUNDE added the definition he uses is that which the different hunting organizations use when they record trophies. REPRESENTATIVE KOTT asked the sponsor if he had thought about including a sealed bid along with the auction or raffle. REPRESENTATIVE BUNDE said the definition of auction could be construed to be a silent auction as well as a cry out auction. He stated in the past when these auctions occur, there is a large convention of hunters who take pride in spending money to support their sport. He noted in many cases, the cry out auction provides some psychological rewards for those who spend the money. He suspected in many cases a raffle would raise the most money. He pointed out it is in the organization's best interest to choose the vehicle which will raise the largest amount of money because they are in for a percentage of the amount raised. REPRESENTATIVE KOTT agreed with that. He said if it is desired, outsiders' sealed bids might generate more money. HRES - 03/17/95 HB 197 - MINERAL EXPLORATION INCENTIVE CREDITS Number 576 REPRESENTATIVE RICHARD FOSTER, PRIME SPONSOR, said HB 197 offers an incentive to the mining industry to not only continue their exploration but also possibly expand it. He stated under HB 197, exploration dollars invested in development of a producing mine would be eligible for credit against taxes due as a result of production revenues. If the prospect never advances to the production phase, no credits are released. He explained without tax incentives, current trends will most certainly continue. He added HB 197 is priority one for the Alaska Minerals Commission. He noted HB 197 is the same bill he introduced two years ago, which made its way through the House and Senate and got lost in the last five minutes of adjournment. Number 600 JOHN WALSH, AIDE, REPRESENTATIVE RICHARD FOSTER, stated a variety of issues raised at the last hearing on HB 197 have been reviewed, but the sponsor feels confident in the original bill. He encouraged the committee's endorsement on passing the bill out to the next committee of referral. REPRESENTATIVE VEZEY, CO-SPONSOR, said the purpose of HB 197 is to recognize that mining is a very risky and capital intensive endeavor. He stated the purpose of HB 197 is to recognize there is a need to change the state policy to one where the state does not try to collect revenue off of those who are willing to take risks, explore, and attempt to develop. With HB 197, the state will move its desire to collect revenues over into the production phase and will take risks with entrepreneurs, trying to encourage them to risk their capital and expertise to develop Alaska's resources. Number 619 CO-CHAIRMAN GREEN noted there is a fiscal note from the Department of Natural Resources (DNR) attached to HB 197 for a modest amount out of the general fund. He said the concept of HB 197 is that unless the mine actually becomes a productive entity to the state, there will not be any granting of anything the state would not otherwise have. He expressed concern that a fiscal note is attached to HB 197 which many might view as a deterrent because it is general fund spending in an atmosphere of a desire to cut costs. He wondered if there should be more mention made that what HB 197 provides would significantly more than offset costs if the mine proves up. REPRESENTATIVE VEZEY stated he had not seen the DNR fiscal note previously. He said it is highly speculative. There may be a little disruption in the cash flow for a year or two while the system is being changed. He stressed the idea in HB 197 is to increase revenues to the state, not to decrease revenues or raise the costs of running state government. MR. WALSH stated there are two fiscal notes attached to HB 197--one from DNR and one from the Department of Revenue (DOR). He noted the fiscal note from DNR has a $62,000 personal services cost which is projected out for the next five years. He pointed out that beginning in fiscal year 1999, DNR estimates a beginning of a loss of revenue would occur but he stressed that is speculative, it assumes there is a producing mine in place and the state is getting less revenue than it would have if that mine had not been there. He added hopefully, the incentive is what caused the mining company to come to the state in the first place. MR. WALSH said the actual costs of the DNR staff is an interpretation on their part as to how to mechanically implement the program. He stated there are two schools of thought. A company could go exploring and not tell the state, discover the ore body, work with the private land holder, get the mine going and then come to the state to talk about the credit, showing records from the exploration history. In the meantime, there would be no need for DNR staff. He explained the other option is what the DNR suggests. Annually, those who are exploring should be checking in with DNR and DNR would be tracking them in the event they ever do come in and ask for a production credit. In that case, the department suggests they would have a staff and a fiscal impact. MR. WALSH recalled that Steve Borell, Executive Director, Alaska Mining Association, stated in a hearing last week that the process would be much simpler and the burden should come to the one requesting the credit, and to the satisfaction of the commissioner, those credits would be applied at the time they actually come in. He said it may be that a person never comes back with a producing mine and did not spend a lot of time in the bureaucracy, talking about potential credits and potential production. That person might rather spend time pursuing the ore body, develop it and then if it goes into production, reduce their tax impacts by going back and recouping the credits. TAPE 95-35, SIDE B Number 000 CO-CHAIRMAN GREEN thought there was a requirement that on land granted for mining, there has to be an annual showing of a minimum of expenditure to maintain the lease. MR. WALSH responded if the land is state or federal lands, assessment work has to be completed, or in the state situation, by paying an annual rental. He added if the land is private sector land, there is no obligation to do an annual assessment. Number 025 REPRESENTATIVE VEZEY noted that Alaska's corporate income tax had not entered into the discussion. He said since the majority of mining exploration and development is very capital intensive, it is usually done by corporations. He stressed should a corporation ever become profitable, the state collects a 9.5 percent income tax. CO-CHAIRMAN GREEN clarified what is contained in HB 197 will be available to a mom and pop operation also. MR. WALSH replied yes. He added a mom and pop operation would have to define when exploration stopped and when the production began. He noted that most mom and pop operations are producing at the same time they are exploring. He said practically speaking, HB 197 pertains to large...where the ore body has to be defined, which involves very high costs, or there is significant scientific exploration ongoing prior to anyone talking about building a road to the port, etc. He felt in the industry, there is a clear separation between exploration and actual production. MR. WALSH stressed the credit can go against corporate income taxes as does the oil and gas incentive bill passed recently by the legislature. He noted there are numerous support letters in committee member folders from industry and Native corporations who have massive land holdings but have limited geologic expertise on staff and do not have the ability to launch into major exploration. The sponsor feels HB 197 will be a significant incentive for partnership arrangements with multi-national companies who can then bring in the expertise and develop properties which are otherwise dormant, helping the state to get off its dependence on oil. Number 096 REPRESENTATIVE DAVIES felt it will be incumbent upon the department, should HB 197 pass, to promulgate some very clear regulations as to what a mom and pop operation has to do in order to eventually qualify for these credits. He said it is important to make it very clear so the state does not get embroiled in a bunch of lawsuits later on. He agreed that the burden needs to be on the person making the claim to keep adequate records, but the state needs to tell that person up-front what adequate means. He noted to that extent, it is reasonable the department would have some expense in the first year to develop those regulations and get them through the process. REPRESENTATIVE VEZEY said he has observed over and over again in state government, the duplication of efforts of other agencies, particularly the federal government. He stated mining has been subject to income taxes since 1913 and noted there are pages and pages of Internal Revenue Service regulations governing mining--how to handle exploration expenses, how to handle development expenses, how to handle production expenses. He stressed for the state to reinvent that wheel would be ludicrous and would be grounds to take some state bureaucrat and remove him from office. Number 144 REPRESENTATIVE DAVIES maintained that even if all those regulations exist in some federal register, it still is going to require that someone take a significant amount of time to select those regulations the state wants to apply, modify them in the way desired to apply to the state of Alaska and then to go through the public process of implementing those regulations. He felt a little money spent up-front to do that process right will save the state a lot of money downstream in having arguments about what the state meant and did not mean. CO-CHAIRMAN GREEN asked if company A spends X number of dollars that would qualify for a credit and does not formulate an existing mine and company B comes along, either in the same mine or a different mine and buys up those credits, is there anything in that vein in view. MR. WALSH replied the credit can be transferred with the property. He pointed out that on page 3, line 15, number (2) mentions for the purposes described in AS 27.30.010(b), the credits may be assigned to the applicant's successor. CO-CHAIRMAN GREEN noted in some cases where tax credits are sold, there is no intent for that either now or in the future. MR. WALSH clarified he was asking about separating the credit from the property. CO-CHAIRMAN GREEN said yes. MR. WALSH stated he did not believe that is the intent of HB 197. REPRESENTATIVE VEZEY said although he could be wrong about the interpretation, if a person invested capital in exploration and perhaps in development, and then sold that work, they would have income. They could choose to use their credit against that income or they could choose to sell the investment credit which went with it and turn their rights over. He noted when there is a transfer of property right, there is income to one person and an investment by the other. Number 199 CO-CHAIRMAN GREEN said company A invests $1 million in an area and sells that area to company B for $500,000 and then takes that credit against what they spent on a tax purpose basis. He asked does that amount of costs track with the property, so company B does not get another $1 million, but gets the balance between $1 million and what was taken by company A. DAVID ROGERS, REPRESENTATIVE, COUNCIL OF ALASKA PRODUCERS, responded that point is not clear. He said the transfer has to be related to the site so the successor in interest who purchased the credit can only use the credit if the credit is used against production from that site. He noted the specific language is "may be assigned by the qualified applicant to the applicant's successor in interest for the site at which the exploration activities occur..." MR. ROGERS stated in terms of how much of the credit a person gets, he believed the only credit which applies, and it is not clear in HB 197, is the credit which was accrued, not any additional premium paid for purchasing the credits. For example, if person A spends $100,000 and sells that credit to person B, person B gets a credit for $100,000. If person A sells the credit for $150,000, person B still only gets a credit for $100,000. REPRESENTATIVE DAVIES clarified if $100,000 is spent, the person only gets $50,000 credit. MR. ROGERS responded no, the person gets the full credit but can only take one-half of the credit per year. He said the credit is limited to 50 percent of a person's combined tax royalty obligations per year, but that person gets 100 percent of the expenditure. CO-CHAIRMAN GREEN said, "the question is though if in that case you gave, you then get money from me and that is reportable income that you take a credit against this money which was spent or does that all track to the new purchaser?" MR. ROGERS responded he does not get the credit anymore, the new guy gets the credit. He noted a separate question is how his receipt of the income for that credit relates to his income tax obligations. He stated the credit transfers to the next guy who then takes it against taxes and royalties relating to production from the site. MR. ROGERS clarified a person is not going to be able to use the credit until he has income from the site. For example, person A does exploration, sells person B the credit, person B goes into production and takes that credit off his tax obligation. MR. ROGERS said in regard to the individual who sells the credit, that is income to that person and has to be reported as such. CO-CHAIRMAN GREEN clarified that person cannot use the credit. MR. ROGERS responded no. MR. WALSH stated the transfer of the title of the property would be the extinguishing of access to a credit. He said the buyer would buy that property with an element of credit in it. He stressed there has to be production and income in order to receive the credit. He pointed out that much of the money spent may not turn into a credit but the money will be spent in the economy and will provide jobs. MR. ROGERS added that in talking with people in other states, it is felt HB 197 just might work. Number 268 CO-CHAIRMAN GREEN wondered if company A spends a lot of money acquiring permits, will those costs be deductible. MR. ROGERS responded it is not clear and that still is an issue. He felt that to the extent the money was spent towards getting permits necessary for exploration activities, it would qualify for a credit. ADJOURNMENT There being no further business to come before the House Resources Committee, Co-Chairman Green adjourned the meeting at 9:35 a.m.