SENATE RESOURCES COMMITTEE January 22, 1997 3:35 P.M. MEMBERS PRESENT Senator Rick Halford, Chairman Senator Lyda Green, Vice Chairman Senator Loren Leman Senator Bert Sharp Senator Robin Taylor Senator Georgianna Lincoln Senator John Torgerson MEMBERS ABSENT All members present COMMITTEE CALENDAR Department of Natural Resources Overview WITNESS REGISTER Commissioner John Shively Department of Natural Resources 400 Willoughby Ave. Juneau, AK 99801-1724 Mr. Nico Bus, Chief Financial Services Division of Support Services Department of Natural Resources 99801-1724 ACTION NARRATIVE TAPE 97-1, SIDE A Number 001 CHAIRMAN HALFORD called the Senate Resources Committee meeting to order at 3:35 p.m. and announced that Commissioner Shively would give an overview of the Department of Natural Resources. COMMISSIONER SHIVELY said they didn't have much of a legislative agenda this year and there are no administrative bills on behalf of the Governor for DNR. However, individual legislators are introducing some legislation and the most complicated is the Title 38 revisions. He said there may be some technical mining issues like the amendments to the coal bed and shallow gas bill that was passed last year. There will also be another piece of legislation relating to the Shiak State Park. Number 90 He said other priorities of the Department are the large-mine permitting program, because there are a number of new mines that might open; securing the title to municipal lands which is complicated in some areas; improvement of services in our state parks; and assuring the safe transportation of oil. In their agriculture unit they have seen some moderate growth and some increase in farm bank activity. It is an industry that stands on a very unstable base because the state owns the creamery and slaughter facilities. He has encouraged people in the industry to come up with some creative solution to resolve that ownership problem. COMMISSIONER SHIVELY noted that the revenue from timber for last year was down to $1.2 million although the number of contracts had increased from 52 to 70. He said that a lot of the timber that was sold was beetle kill and the market just disappeared. Geological and geophysical airborne surveys have been one of the huge success of government, he said. He said there would be another request in this year's capital budget for that. A three-year coal-bed methane study project was funded last year and the first phase of that had been achieved, he reported. The Joint Pipeline Office is involved in other pipelines and the ones that are active now are the Badami, North Star, and Alpine. Number 148 Not many dramatic things are happening in the land arena. One of the important things is that they have completed the transfer of land to the Mental Health Land Trust which was done with less money than was originally thought. They have transferred in the last couple of years about 30,000 acres of municipal land entitlements. There have been no land sales this past year and the State has gotten title on about 750,000 acres from the federal government. In mining the major projects are Fort Knox, Nixon Court, Illinois Creek, Red Dog Expansion, True North, Stone Boy, and Kennsington. He commented that the AJ Mine had always had a number of hurdles to overcome and the resource was just not there as the company hoped it would be. COMMISSIONER SHIVELY said he has seen a whole new attitude in the oil industry about what is possible in Alaska. Some of it has to do with technology and some of it has to do with the industry's ability to drive down their costs and with recognition that there is a huge investment in the State and that investment can be used for smaller fields. The message has been sent by the administration and the legislature that we are willing to look at different and better ways of doing business with the industry. HB 207 has not been a major factor and they have not had one request from the Slope even though there were a variety of opportunities for people to be talking to them about that. There is one request from Cook Inlet which they are currently reviewing from UNOCAL which they are still reviewing. He said BP has met their commitments at North Star. They have let their local contracts. They are prepared to build the sea lift modules in Anchorage. The new five-year oil and gas leasing schedule will be out this week and the value-added timber bill has not had much success, but there has been some interest from Fairbanks, Copper Center, and a little bit in Southeast. The exploration credit for mining legislation has had a positive impact. There were 12,000 new mining claims staked - about 4 times our average. Number 244 SENATOR LEMAN asked the status of exploration licensing. COMMISSIONER SHIVELY replied that the regulations are out. They asked for nominations on companies in April, but they had not, as required by law, identified the areas people could request in. After doing that, they have one large one and several smaller ones they are looking at. Within the next year at least one of those agreements should be signed. SENATOR TORGERSON asked if he could comment on UNOCAL's problems. COMMISSIONER SHIVELY answered that they are discussing a reduction of royalty and looking at the economics with UNOCAL. A lot of time has been spent on it. He is not certain that the company needs the reduction in all the places they have asked for. Number 291 SENATOR TORGERSON asked who might be the State Forester. COMMISSIONER SHIVELY explained that there were 38 applicants and the Board of Forestry must keep them confidential while under review. They will recommend at least two people whose names will become public. He thought it would take 1 - 2 months to get through the process. SENATOR LEMAN asked the status of Mr. Boutin and what was the reason for his departure. COMMISSIONER SHIVELY replied that his last day was today and he didn't think it was appropriate to discuss a personnel situation in public. He said the most contentious resource he manages is timber because there is almost no middle ground. There are people who want to harvest to the max and people who don't want to harvest at all. Good decisions have been made by Mr. Boutin, but the issues had taken their toll and he made the decision that it was time for a change. Number 322 SENATOR GREEN said Mat-su has a number of small timber salvage users who are trying to develop a business, but they need a consistent supply of useable timber. She asked if solving that problem, which is regional, was one of the criteria they used in reviewing for a new State Forester. COMMISSIONER SHIVELY said in most regions they would like to see timber processed to the maximum extent possible and some of the little operators are the ones that do that. They have not had a good method of assuring a long-term supply, but he thought HB 212 (last year) did offer some opportunities. He thought that timber sales should be made more in that regard than in the traditional sales. It makes more sense to look at who can use the resource and give them some kind of terms so they can make investments in their business, if they will use that timber to create additional jobs. SENATOR GREEN asked why he didn't think land disposal was within his purview. COMMISSIONER SHIVELY said his higher priority is to get land to the municipalities and have them look at individual distributions of it. This is because he has a lot of responsibilities in terms of land disposal and he doesn't have the budget to do them all. He thinks that local governments are in a far better position to decide where they want homesites, recreational and other areas developed than the State is. The State has had a very spotty record in land disposals creating a number of problems for local governments by developing land disposals and then telling the local government to deal with the problems. He thought it was a better way to do it. COMMISSIONER SHIVELY emphasized that he did not say he didn't want any more State land disposals. However, they take a huge effort because every parcel has to be appraised before they are put out to disposal in order to guarantee that the State gets its fair market value. He said there are about 50,000 parcels that ultimately could go into one land disposal or another. Number 389 SENATOR GREEN asked if that would be in addition to the total acreage originally allotted to each borough. COMMISSIONER SHIVELY replied that this is part of what their entitlement is at this point. There is proposed legislation that would change that. CHAIRMAN HALFORD commented that in the past the State has disposed of land to municipalities like they are disposing it to people, and they aren't. It means there won't be any disposals where there are no municipalities. Also, municipalities have a built-in conflict of interest if you look at the composition of local assemblies, etc. which have all the people who have vested interest in the existing land and whose interests are not helped by more land becoming available. COMMISSIONER SHIVELY replied that he didn't disagree with that. However, he said the State does not have a lot of holdings in what is left of the unorganized boroughs. He said most of the demand is from organized boroughs. He thought that the municipalities have to bear the brunt of it if the State makes the disposals. In the past, he said, the State had put in telephone and electric lines and roads. Of course, we don't have that kind of money right now and sometimes people think they are going to get something that they don't get. SENATOR HALFORD said everyone who takes the land should recognize that it's their responsibility to provide everything that everybody else has to provide. Number 400 SENATOR TORGERSON said he introduced legislation that says you can't have it unless you sell it or put it in development. He said this could be a good economic development bill which would help local governments to increase land holdings within their boundaries and add land to their tax roll. It's all land that the State is doing nothing with. Number 439 SENATOR LINCOLN asked where we are with local hire in the North Star. COMMISSIONER SHIVELY answered that the contracts for the major modules have been let to local companies. BP has assigned a person to do nothing but local-hire and he believes that they have looked at it seriously. He said there is some discussion about what an Alaskan is. SENATOR LINCOLN asked who in the administration is monitoring this. COMMISSIONER SHIVELY replied that Commissioner Cashen is keeping track of it. SENATOR LINCOLN requested a written report from Commissioner Cashen on the matter prior to talking with BP and ARCO. Number 489 SENATOR GREEN asked what future plans there were for Hatcher Pass. COMMISSIONER SHIVELY said that Mr. Rogers who holds the lease on that land has not paid his taxes; the borough has gone to court to get a judgement against him; he has been notified that the judgement violates the terms of his lease; he has 30-days from January 9 to correct; otherwise the lease is voided. If it is voided, he is not sure what the next step would be, but it would be done in conjunction with the local government. However, if there is another lease, it will have specific performance deadlines. Number 512 SENATOR SHARP asked what FY 98 expenditures there were for south Denali. COMMISSIONER SHIVELY replied that they have on-going staff work with the Plan and they would continue that. The major work, if any, would be DOT road work. SENATOR SHARP asked if the proposed site where the development was supposed to take place was on State land or federal land. COMMISSIONER SHIVELY replied that it was in the State Park. SENATOR HALFORD commented that another issue that concerned him is prohibition of traditional access to lands to Alaskans and then it being sold to the highest bidder - outside interests on a commercial basis. Number 550 SENATOR LEMAN asked the status of the RS 2477 issue and if we were doing all we could to protect the State's rights. COMMISSIONER SHIVELY said we had not made any more legal assertions on RS 2477's. DNR has done a fair amount of looking at RS 2477 designations which they are now reviewing. They have been more active in the navigability area and have reestablished a unit headed by Jim Culverson. They have centralized the issue and have a web page and set policy. They have formed an inter-agency task force with ADF&G to look at legal issues and established litigation priorities. They are primarily involved in the two major cases, PLO 82 assertion and the Candy Blacken Nation. SENATOR HALFORD asked if there had been any 17 B reservations asserted by the State in the last year. COMMISSIONER SHIVELY replied that he didn't think so, but he thinks it's less of a problem than anticipated. He said he would check further on it. TAPE 97-1, SIDE B Number 590 SENATOR HALFORD asked about the status of the Six Rivers Plan. COMMISSIONER SHIVELY said it was his understanding about the subtleties of this issue that the Recreation Rivers Plan is a result of legislation that the administration carried out and it was the consensus of, at least, some of the people who worked on it. Currently the Plan is being put into regulations. It is a reflection of State policy and law. SENATOR HALFORD asked if there would be an opportunity for a further review for changes at the regulatory level or does it have to be reviewed by statute. SENATOR LINCOLN asked if they had been coping with monitoring the 12,000 new claims with budget cuts. COMMISSIONER SHIVELY replied that claims don't need environmental monitoring. A lot of the claims are by large mining companies who are looking for large mining projects. If they identify a large project, that is the time they will permit the work. He said the increase was four times as much as they are used to and explained that smaller miners are finding it difficult because it is too expensive to meet the State and federal environmental requirements. Bigger companies are coming back to look at mines and it is difficult to have the resources to work through the permitting, although they have sometimes asked the companies to pay for the permitting. SENATOR HALFORD commented that Ted Holmes and Margaret Misheld at Nixon Fork had worked for 30-years to get it going and they are finally getting there. Number 538 SENATOR LEMAN asked about the time-line on lease-sale 85 A and the 90-day moratorium. COMMISSIONER SHIVELY responded that 90-days was not a drop dead date and in terms of permitting for exploration drilling it doesn't present any problem. It takes six to seven months minimum to permit an exploration site and no one has asked for a drilling permit on the new leases. Mr. Jean Burden is out talking to people to get a feeling for what the major issues are; Marilyn Heiman, Governor's Office, and he were in Kenai last week talking to the Kenai River Board about what kind of process might go on. He thought most or all of the concerns could be resolved. He thought a further set-back would make sense. The Homer Tract has an old lease and a segment of people in Homer are much less accepting of oil and gas development, but he was relatively confident about it. The State has a good record and the industry and its technology has changed a lot. They are paying more attention to people's concerns. SENATOR TAYLOR said he was concerned with people who don't have any stake in a project, writing letters and stopping developments that have nothing to do with them. COMMISSIONER SHIVELY agreed that he thought some of the public process was useless because it is an opportunity for people to stand up and yell at one another and then let government decide. He thought they could do away with some of that and get to a point where people could sit down and discuss issues. He thought they could do a better job of getting people to understand what works and what doesn't. He wanted to substitute at least one step in the public hearing process where people would be forced to discuss the issues rather than just yelling at one another. Number 435 SENATOR TAYLOR asked if they were going to wait to fill the position in Ketchikan until the new Forester is hired. COMMISSIONER SHIVELY answered that they have tried to fill the Ketchikan position, but the register for that particular level has not provided them with a qualified person who wants to go to Ketchikan. The temporary person will continue to help until they find someone. He did not want to drop the range. SENATOR TAYLOR also commented that there are log salvage permits that used to be made by a woman in Ketchikan and the position was lost and they were assured there would be no slow-down in the issuance of those permits, but it now takes months instead of weeks. COMMISSIONER SHIVELY said he would look into that and he was also wanted to lengthen the salvage log permits. Number 409 MR. NICO BUS , Chief, Financial Support, reviewed the hand-out before the committee. The fire suppression appropriation for Miller's Reach was carried over from 96 into 97. Other than that, they have modified the budget to accommodate the contractual requirements for salary increases, health premiums, and minor adjustments for better business practices like combining subscriptions and getting efficiencies out of travel reservations. They tried to eliminate the Citizens Advisory Commission along with the reduction in the Division of Lands. There are some increases in some areas. Funding for the State Fair has been deleted. MR. BUS said there is an increase to the budget for new development projects for the pipeline office, the Alpine project, and $100,000 for the Division of Parks with a required match from them. MR. BUS added that The Division of Lands started out with significant budget short falls and their staff asked if they could participate in the State incentive retirement program. Twelve have elected to retire. Number 330 CHAIRMAN HALFORD asked for the status of Millers Reach funding. MR. BUS explained that there was $10 million in State funding and $10 million in federal funding and they had already spent $15.5 million on the fire. That is allocated based on land ownership. The BLM owns 14.8% of the land, so they pay $2.2 million. The State owned 85.2%, so our share would have been about $14 million. Because it was a federally declared disaster, federal funding came in for 70% or $7 million; and the State came in with $3 million. After the fire was under control, there was another $3 million of expenditures which was paid 75% by FEMA and 25% by the State. So the total in State funds was really $3.8. The rest was federal funding. CHAIRMAN HALFORD asked the status of the appropriation. MR. BUS said about $2.5 million was carried into 97. He thought they might need a small supplemental for the May and June activity in 1997. SENATOR TAYLOR asked what they reduced in the Division of Lands. MR. BUS replied there was a reduction of $205,000 in general funds for land assertions which are those areas where there is a dispute about land ownership - mostly between the State and federal governments. SENATOR TAYLOR asked if they didn't need as much money to assert our State position in the past? MR. BUS replied that they could always use more. COMMISSIONER SHIVELY commented that there isn't as much activity as there used to be because native conveyances are down. Most of the issues in the future are going to be of a litigious nature. In some of the early native conveyances a different standard was used for navigability and these need to be sorted out with the native corporations. SENATOR TAYLOR asked if the Department did begin a program of land distribution, did they have the current capacity to handle it. COMMISSIONER SHIVELY said the issue is appraisals because the State is required by law to get fair market value for State assets and to determine that, it has to be appraised. Number 215 CHAIRMAN HALFORD stated the things he thought they didn't need to do were to complete the master plan for Afognak Island State Park, revise the Kenai River Management Plan, inspect approximately 20 dams, and publish the Kenai Area plan. He said with all area plans it seems to be more important to plan to keep the land than it does to ever do anything with the land. COMMISSIONER SHIVELY responded that some people would disagree about the Kenai Plan which has been a higher priority because of the difficult management issues which involve the Kenai River and he added that it is almost complete. SENATOR GREEN asked what he had planned for agriculture. COMMISSIONER SHIVELY replied that they hadn't gotten much further than before. SENATOR GREEN said that it was important to find a solution for privatization or something like it. COMMISSIONER SHIVELY said he had encouraged the industry to come to him with a solution. He didn't think the government could come up with a plan to privatize. He hoped they could work with industry so there would not be a threat to the people who are now running the creamery and slaughter house. Number 130 SENATOR GREEN asked the status on consolidation of the forestry project in Palmer. COMMISSIONER SHIVELY replied that it was a city project, but he thought it was proceeding. SENATOR TAYLOR asked if they were going to do anything more meaningful on bug-kill timber than last year. COMMISSIONER SHIVELY answered that they are continuing to offer timber for sale, but the market is weak. He said it is a difficult issue. There is nothing he has seen that leads him to believe you can cut the beetle out of existence. There are some concerns about fisheries and other uses and how much volume the system can take. With prices down the volume has dropped significantly. It's a different issue if the State wants to pay to have it cut. Former Commissioner Sandor's Canadian consultants found that it would cost $50 - $100 million per year to do that. And that kind of money is not available. SENATOR TAYLOR commented that he didn't think there was any push from the Department of Forestry to get out any level of volume. COMMISSIONER SHIVELY replied that their first priority is fires, the second is the Forest Practices Act, and the third priority is timber sales. TAPE 97-2, SIDE A Number 001 CHAIRMAN HALFORD noted that they had lost the quorum and would continue the discussion informally and adjourned the meeting at 5:10 p.m.