Legislature(2003 - 2004)

04/30/2003 09:00 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     CS FOR HOUSE BILL NO. 112(FIN)                                                                                             
     "An  Act relating  to the  authority of  the Alaska  Industrial                                                            
     Development  and  Export  Authority  to issue  bonds  and to  a                                                            
     municipal tax exemption  for certain assets and projects of the                                                            
     Alaska  Industrial   Development  and  Export  Authority;   and                                                            
     providing for an effective date."                                                                                          
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Senator Bunde  moved to adopt CS HB 112, Version 23-GH1018\I  as the                                                            
working document.                                                                                                               
Senator Olson objected  to the committee substitute, Version "I," as                                                            
it would have  "a major impact on  the viability of the mine  in his                                                            
AT EASE 9:39 AM / 9:40 AM                                                                                                       
Senator Olson asked for  an explanation of the committee substitute.                                                            
Senator  Taylor  also objected  to  the adoption  of  the  committee                                                            
substitute in order to  hear an explanation regarding the changes to                                                            
the bill imposed in the committee substitute.                                                                                   
Co-Chair Wilken  explained that the  committee substitute  addresses                                                            
the road, ore  handling facilities,  and dock assets at the  Red Dog                                                            
Mine operated  by  Tech Cominco  Alaska Incorporated  (Cominco).  He                                                            
stated that  the State Assessor has  determined that these  entities                                                            
should be taxed  at full value determination  because Cominco  has a                                                            
possessory  interest  in them.  He continued  that,  "the  committee                                                            
substitute  recognizes the  possessory interest  but allows  the tax                                                            
exemption to  continue on the roadway  part." He stated that,  "this                                                            
is more a public policy issue more than anything."                                                                              
Co-chair  Wilken  stated that  the  committee  substitute  specifies                                                            
that,  in   a  possessory  interest   situation,  when  the   Alaska                                                            
Industrial Development  & Export Authority (AIDEA) and a user have a                                                            
non-exclusive  use agreement  regarding a road  that the road  would                                                            
not be subject to taxation.  He stated that, "it would apply to this                                                            
road  and all other  roads  to come."  He noted  that the  committee                                                            
substitute  does not  exempt the  dock, the  warehouse, or  material                                                            
handling facilities.  He stated that, "this is a public  policy call                                                            
to recognize the roads in our State as non-taxable."                                                                            
Senator B. Stevens  asked whether the omission of  the University of                                                            
Alaska in Section  2 (a) of the bill  that specifies which  property                                                            
in the State  is exempt from taxation,  is the result of  a drafting                                                            
error. He conveyed  that the existing Statute language  includes the                                                            
property of the  University of Alaska, however, he  pointed out that                                                            
the   proposed  committee   substitute   language   eliminates   the                                                            
Discussion  ensued among Committee  members attempting to  establish                                                            
the reason for the omittance of the University of Alaska.                                                                       
STEVE VAN SANT,  State Assessor, Division of Community  and Business                                                            
Development,  Department  of  Community  and  Economic Development,                                                             
testified via  teleconference from  an offnet site in Anchorage  and                                                            
confirmed that the committee  substitute does omit the University of                                                            
Alaska; however, he specified  that this is the result of a drafting                                                            
error and  that the  University should  be included  in "the  exempt                                                            
from general taxation language."                                                                                                
Senator  B.  Stevens  pointed  out  an  additional   drafting  error                                                            
regarding the  exemption status of the University  occurs on page 2,                                                            
line 19 of the committee substitute, Version "I."                                                                               
Mr.  Van  Sant reiterated  that  the  omissions  pertaining  to  the                                                            
taxation exemption of the University appear to be unintentional.                                                                
Mr.  Van Sant  responded  to  a question  from  Co-chair  Wilken  by                                                            
stating that,  other than the University of Alaska  discrepancy, Co-                                                            
chair Wilken's explanation  of the committee substitute, Version "I"                                                            
is correct.  He  reiterated that  the intent  of Version  "I" is  to                                                            
"reinstitute the  exemption for the roadway, or any  future roadway,                                                            
that would  be utilized  without  a non-excusive  use agreement"  by                                                            
another user who receives AIDEA funding.                                                                                        
AT EASE 9:47 AM / 9:50 AM                                                                                                       
TAMARA  COOK, Director,  Legislative  Legal and  Research  Services,                                                            
Legislative  Affairs  Agency,  testified   via teleconference   from                                                            
Juneau and informed that  the incorporation of technical legislation                                                            
changes  adopted since  FY 2000  has inadvertently  resulted in  the                                                            
omission of the  University of Alaska property exemption  in Version                                                            
"I" of the bill. She assured  that it would be acceptable to correct                                                            
this oversight through the technical correction process.                                                                        
SFC 03 # 68, Side B 09:54 AM                                                                                                    
Senator  Hoffman  qualified   that,  by  law,  the  changes  to  the                                                            
legislation would  be limited to "only the highlighted  language" in                                                            
the bill. Therefore,  he informed,  "existing law would prevail"  in                                                            
regards to any technical error corrections.                                                                                     
Ms. Cook concurred  with Senator Hoffman's assessment.  She informed                                                            
that this section  amends a law that  was enacted in the  year 2000,                                                            
and that law, she informed,  "did not reflect changes to the statute                                                            
that occurred  during the last two years." She stated  that it would                                                            
be acceptable  for the  Committee)  to amend Session  Laws (SLA)  to                                                            
reflect  recent   changes  and  other  technical  corrections.   She                                                            
reiterated that,  as Senator Hoffman has attested,  "this bill would                                                            
have the  effect  of making  only the changes  to the  SLA that  are                                                            
bracketed  out  and  underlined.  It  would  not  change  the  other                                                            
provisions.  We  have  other  laws that  have  changed  those  other                                                            
Co-Chair  Green agreed  with the  legal assessment  provided by  Ms.                                                            
Cook;  however, she  voiced  that litigation  might  argue that  the                                                            
omission of  this language was intentional.  She stated that,  while                                                            
this discussion clarifies  that this omission was unintentional, she                                                            
requested, "a review be  conducted to verify that what is before the                                                            
Committee is reflected in statute."                                                                                             
Ms. Cook suggested that  were the Committee to adopt Version "I," it                                                            
could additionally  "grant the authority  to further amend  that SLA                                                            
to include  any changes that  have been made  to statutes since  the                                                            
time of its enactment."                                                                                                         
Senator Taylor  asked whether Version  "I" would affect the  current                                                            
taxation  status  of  the  dock and  the  other  properties,  as  he                                                            
understood that it would only impact the road.                                                                                  
Mr. Van Sant responded  that, in addition to providing the exemption                                                            
for  the Red  Dog Mine  road, this  legislation  would additionally                                                             
eliminate the  termination date regarding the exemption  of the port                                                            
and ore  storage facility.  He clarified  that Cominco's  possessory                                                            
interest in the ore storage  buildings and the port facilities would                                                            
be taxable were this bill adopted.                                                                                              
Senator  Taylor   asked  for  clarification   as  to  whether   this                                                            
information  is included in  Version "I" or  CS HB 112, Version  23-                                                            
Mr. Van Sant clarified  that the version being discussed  is Version                                                            
Senator Taylor asked for specifics regarding Version "H."                                                                       
Mr. Van Sant informed  that he does not have access  to Version "H."                                                            
Co-Chair Wilken  clarified that Version "H" is the  version that was                                                            
reported  from the House  of Representatives  Finance Committee.  He                                                            
explained that  Version "H" includes  the road, whereas Version  "I"                                                            
excludes the road from taxation.                                                                                                
Ms. Cook interjected  that Version "H" repeals Sections  3 and 19 of                                                            
Chapter 117 SLA 2000.                                                                                                           
Co-Chair  Wilken furthered  that Version "H"  would remove  the full                                                            
value  determination  sunset  provision  for  the exemption  of  the                                                            
assets  and thereby  "include the  road, the port,  and the  dockage                                                            
facilities in place for full valued determination."                                                                             
Ms. Cook confirmed that it "would eliminate the sunset."                                                                        
Co-Chair  Wilken  clarified that  Version  "I" mirrors  Version  "H"                                                            
except that it  would not include the 52-mile road  in the valuation                                                            
Ms.  Cook  concurred,  and stated  that  Version  "I,"  rather  than                                                            
repealing the sunset "provision, would limit its application."                                                                  
Co-Chair  Wilken summarized  that Version "I"  would exempt  the 52-                                                            
mile road from taxation.                                                                                                        
Senator Hoffman asked Cominco's response to the legislation.                                                                    
ROBERT FLINT,  Attorney, Hartig Rhodes Hoge & Lekisch,  representing                                                            
Tech Cominco Alaska  Incorporated, stated that the  House version of                                                            
the bill, Version  "H," "maintains  the status quo by continuing  to                                                            
exempt the whole system,"  which includes the road and the port from                                                            
the assessment  for fair value determination  or property  taxation.                                                            
He stated that  the Senate committee substitute "basically  includes                                                            
in-taxation everything but the road."                                                                                           
Mr. Flint continued  that in terms  of dollar amounts, the  versions                                                            
"are opposite"  as the House committee  substitute taxes  the entire                                                            
system.  He shared  that,  in 1999,  the  assessor valued  the  road                                                            
during the  construction phase  when it was  at its peak value,  and                                                            
"it is the  highest component of the  system;" however, he  asserted                                                            
that  the  road  "is   the  one  component  that  is   most  rapidly                                                            
depreciated."   He  shared  that  when  the  assessment   was  first                                                            
determined,  "the road constituted  approximately 16 percent  of the                                                            
total  assessment  of  the  DeLong Mountain  Transportation   System                                                            
(DLMT). He continued  that because the depreciation  on the road "is                                                            
more rapid than  the depreciation on the other assets,"  he "assumed                                                            
that by 2003,  that the proportion  is even lower." He stated  that,                                                            
"the affect  of the  committee substitute  would be  to add  over 80                                                            
percent of the system to  the assessment roles for the DLMT which is                                                            
owned by AIDEA; excluding  only, he attested, "the small portion now                                                            
attributable to the assessed valuation of the road."                                                                            
Co-Chair  Wilken noted that  the overview provided  by Mr.  Van Sant                                                            
titled  " Red  Dog Mine  Full  Value Issue  History"[copy  on  file]                                                            
identifies  the various  component  values.  He continued  that  the                                                            
total 1999  value was  $154 million  and that  of that total,  $24.5                                                            
million was attributed to the value of the road.                                                                                
Co-Chair Green  asked whether the language on page  two, lines seven                                                            
and  eleven of  Version  "I"  "more clearly  defines  the  exemption                                                            
parameters for the State Assessor."                                                                                             
Mr. Van Sant agreed  that the language would define,  "for assessors                                                            
across  the  State,  that any  non-exclusive  use  roadway  that  is                                                            
financed  with AIDEA funds  would not be  included in the  valuation                                                            
Co-Chair  Wilken exampled that,  were the 28-mile  Pogo road  or the                                                            
road to Donlin Creek, financed  by AIDEA, they "would be transparent                                                            
to taxation."                                                                                                                   
Mr. Van Sant agreed  and stated that Version "I" provides  assessors                                                            
with  marching  orders"  not  to include  AIDEA-funded  roads  in  a                                                            
Senator  Bunde  questioned  how this  exemption  would  apply to  an                                                            
exclusive-use  road situation. He  noted that "other people  can and                                                            
do use the road to the Red Dog Mine."                                                                                           
Mr. Van  Sant clarified  that an exclusive-use  AIDEA financed  road                                                            
would be taxable;  however, he furthered that were  that road issued                                                            
a non-exclusive use agreement, it would be non-taxable.                                                                         
Co-Chair   Wilken  asked   whether  the   terms  non-exclusive   and                                                            
possessory interest are synonymous.                                                                                             
Mr. Van Sant  clarified that the term  non-exclusive applies  to the                                                            
use of a property,  and that as such, according to  the Alaska Court                                                            
System, would be taxable  and subject to the possessory interest for                                                            
taxation; however, he continued  that this language specifies that a                                                            
non-exclusive  use road financed by AIDEA "would not  be taxable and                                                            
would not be subject to the full value."                                                                                        
Co-chair Wilken surmised,  therefore, that this exemption is limited                                                            
to AIDEA projects.                                                                                                              
Senator  B. Stevens  stated that the  language of  Version "I"  "re-                                                            
interprets  the agreement between  Cominco and AIDEA concerning  the                                                            
DeLong Mountain  Regional Transportation  System" as it states  that                                                            
the port facilities and  the road are the property of AIDEA once the                                                            
bonds are retired. He asked whether this is correct.                                                                            
RON MILLER,  Executive  Director,  Alaska Industrial  Development  &                                                            
Export Authority, Department  of Community and Economic Development,                                                            
testified via teleconference  from an offnet site and expressed that                                                            
the whole system is the property of AIDEA.                                                                                      
Senator B. Stevens  restated the understanding that,  when the bonds                                                            
are retired, the whole system becomes the property of AIDEA.                                                                    
Mr. Flint clarified  that the facilities currently  belong to AIDEA,                                                            
and that  "there is  no residual  ownership of  any kind, like  Tech                                                            
Cominco, in that whole system."                                                                                                 
Senator  B. Stevens  objected, "to  splitting up"  the State's  road                                                            
transportation  system. He continued  that, "one piece, while  still                                                            
owned  by a State  agency,  can be included  in  the tax  assessment                                                            
while another piece, while  still owned by the same state agency" is                                                            
exempt from taxation and assessment."                                                                                           
Mr. Van  Sant explained that  in the agreement  between Cominco  and                                                            
AIDEA, Cominco  has priority  right to use  certain properties,  and                                                            
that Section 1(b)(3)  of the bill, specifies that,  at any time that                                                            
Cominco  is  not  fully  using  its  priority   rights  to  use  the                                                            
facilities  at the  dock area,  AIDEA may, with  Cominco's  consent,                                                            
license  others  to  use  that property.  Were  this  to  occur,  he                                                            
continued, AIDEA would  charge a license fee for the usage, and then                                                            
funnel  that money  to Cominco.  However,  he elaborated  that  this                                                            
language  provision does  not apply  to road  facilities. He  stated                                                            
that  upon  review,  the  road  was  determined   to  be  "the  more                                                            
appropriate  component" not to be  taxed. He stressed that  "its not                                                            
ownership we're  assessing, it's a  right-to-use that property."  He                                                            
continued that  Cominco does possess  the priority right  to use the                                                            
properties identified in the agreement.                                                                                         
Co-Chair Wilken stated  that were Cominco to allow, for example, the                                                            
Acme Gold Company to use  the facility, then Acme Gold Company would                                                            
pay AIDEA,  and then AIDEA would pay  Cominco. Therefore,  he opined                                                            
that, "in  essence," Cominco  benefits from  ACME Gold "being  there                                                            
and using the excess capacity of the facility."                                                                                 
Mr. Van Sant concurred  that this is the procedure  specified in the                                                            
Senator Taylor  asserted that when  the Governor, the Department  of                                                            
Natural Resources,  and AIDEA reviewed  the situation, it  was noted                                                            
that taxation laws have  changed as the result of new rulings or new                                                            
interpretations  of a tax law. He  stated that this, in conjunction                                                             
with  the  July  1, 2003  sunset  provision,  required  addressing.                                                             
Therefore,  he  continued,  the Governor  submitted  legislation  to                                                            
continue the status quo.                                                                                                        
Senator Taylor  furthered that this situation involves  an operating                                                            
zinc mine in  which the State "has  invested heavily," and  is being                                                            
repaid  for that  investment.  He also  noted  that as  part of  the                                                            
process,  there  was a  need  to develop  a  road, which  the  State                                                            
Assessor has now  determined could provide a taxing  opportunity. He                                                            
questioned  the  need to  change  the  status  quo agreement  as  he                                                            
attested that  it has been adequate and should be  continued without                                                            
Senator  Taylor  voiced  that  the State's  fiscal  dilemma  and  in                                                            
particular,  the need  for adequate  education  funding, might  have                                                            
triggered  the change.  He  voiced the  understanding  that  Cominco                                                            
currently  pays   approximately  one  million  dollars   a  year  in                                                            
education funding to the Northwest Arctic Borough (NWAB).                                                                       
Mr. Flint  stated that  Cominco would  pay $5,850,000  to NWAB  this                                                            
Senator  Taylor   exclaimed  that   the  tax  resulting   from  this                                                            
legislation  would not  be paid to  the State,  but would rather  be                                                            
paid to the  NWAB, which is already  collecting a tax from  Cominco.                                                            
He  asked for  further  information  regarding  the  current  taxing                                                            
authority of the NWAB.                                                                                                          
Mr. Flint expressed  that there is  no tax imposed by the  NWAB, but                                                            
rather that this money  is paid as a condition of a "Payment in lieu                                                            
of taxes" (PILOT) agreement between the two entities.                                                                           
Senator  Taylor interjected  that the  NWAB could  enact a tax,  but                                                            
opted instead to establish a PILOT agreement with Cominco.                                                                      
Senator Taylor  asked why the State would subject  the mine to a tax                                                            
that exempts a  portion of a road and which might  not result in any                                                            
additional  funds being paid to the  Borough. He asked whether  NWAB                                                            
supports this legislation.                                                                                                      
Co-Chair Wilken reviewed  that the original House bill was sponsored                                                            
as a Governor's  bill "to simply extend AIDEA's bonding  authority."                                                            
He  furthered  that the  bill  was  expanded  in the  House  Finance                                                            
Committee to include the  taxation issue involving the Red Dog Mine.                                                            
He  stated  that  this  subject,  rather   than  the  AIDEA  bonding                                                            
authority, is currently  being discussed. He clarified that the $5.8                                                            
million  being  paid  to the  NWAB  supports  borough  services.  He                                                            
continued  that were  Cominco's possessory  interests  taxed in  the                                                            
manner  supported  by  the  State  Assessor,   it  would  result  in                                                            
approximately $259,000  being paid to support education in the NWAB.                                                            
He stated that this payment  would reduce the amount the State would                                                            
pay to the Borough to support  education funding. He stated that the                                                            
issue at  hand "is  the 4 mils  requirement based  on full and  true                                                            
value, and  this obviously increases  by some $100 million,  because                                                            
of the possessory interest, the taxable property in the NWAB."                                                                  
Senator  Olson pointed  out that the  road to the  Pogo Mine  was an                                                            
existing road  as opposed to the development of both  a new road and                                                            
a port to enable  Red Dog Mine resources to be transited  to market.                                                            
He  stated  that  this  point  should  be  a  consideration  in  the                                                            
Senator Bunde  voiced that  this and other  recent discussions  have                                                            
provided the  Committee with opportunities  to discuss whether  "one                                                            
group of people  should be treated differently than  another and how                                                            
long the State could continue  to afford subsidies" created when the                                                            
State had considerable  cash flow  revenue. He asserted,  "these are                                                            
valid issues that need to be discussed."                                                                                        
Co-Chair  Wilken commented,  "this bill  is very  clear…do we,  as a                                                            
Legislature,  support what  we ask our State  Assessor to do.  If we                                                            
don't, we  should just tell  him to make his  rules as he  wishes to                                                            
make them" and  then either the Legislature can change  them or that                                                            
citizens,  through  the use  of the  Court System,  could  challenge                                                            
Co-chair Wilken continued  that the committee substitute addresses a                                                            
public policy  call whereby the Legislature could  assess roads as a                                                            
means  of encouraging  development in  the State  by excluding  them                                                            
from  asset valuation.  He  stated that  the  Legislature's  current                                                            
position  is that roads  could encourage  development in the  State;                                                            
and  that   the  question  is,  in   this  situation,  whether   the                                                            
Legislature should  overturn the decision of the State  Assessor who                                                            
has performed  his duties as requested. He stated  that this is what                                                            
the committee  substitute, Version  "I" does. He stressed  that some                                                            
compromise legislation should be developed.                                                                                     
Senator  Olson  commented  that Co-chair  Wilken  presents  a  valid                                                            
point,  as  he agreed  that  the  Assessor  is  performing  his  job                                                            
responsibilities.   However,    he  contended   that   it   is   the                                                            
Legislature's  duty to develop long-range plans, specifically  those                                                            
relating to  resource development  that would benefit the  State. He                                                            
asserted  that,  in  addition  to the  extensive  time  required  to                                                            
receive  a  ruling,  legal system  challenges  have  the  affect  of                                                            
putting a stop  or a "yellow light"  to developers who might  invest                                                            
in  the State  "because  the rules  might  change."  He stated  that                                                            
investors are uncomfortable with this situation.                                                                                
Co-Chair Wilken  agreed and stated  that this is the reason  to move                                                            
this bill  forward. He stated  that this issue  must be resolved  in                                                            
order to remove the uncertainty  caused by sunset provisions such as                                                            
the one  included in this  committee substitute.  He stated  that to                                                            
eliminate  the uncertainly  that investors  might  face, either  the                                                            
Legislature  or the Court System could  resolve the issue;  however,                                                            
he voiced  that  resolving it  at the  Committee  level could  deter                                                            
legal delays  and the need to revisit  the issue again when  another                                                            
sunset date approaches.                                                                                                         
Senator  Olson  voiced support  of  this  endeavor. He  stated  that                                                            
"three years ago, I wasn't at your side…but I am now."                                                                          
Mr. Flint  voiced that  Cominco would prefer  that the Legislature,                                                             
rather  than  the  State  Assessor   or the  Alaska   Court  System,                                                            
establish  the  State's   economic  policy.  He  stated   that  this                                                            
legislation  should  be treated  as an  economic  situation and,  he                                                            
asserted, "that  there is no rational  basis for splintering  up the                                                            
DMTS as far  as taxes are concerned."  He stated that the  system in                                                            
its entirety  is intended  to provide  access to  a remote area  for                                                            
resource development.  He stressed  that each component such  as the                                                            
road, the storage area,  the port, and the loader are crucial to the                                                            
operation.  He stated that the agreement  between AIDEA and  Cominco                                                            
specifies  that "the  project  is a unitary  system"  and that  each                                                            
component,  including the road,  is an integral  part of the  system                                                            
and  are  all subject  to  priority  rights.  He  stated  that  Tech                                                            
Cominco,  as the first  user, "pays  for it all."  He stressed  that                                                            
general  funds  are  not  utilized,  and  that  Tech  Cominco  would                                                            
willingly  grant   another  entity  access  to  the  facilities   as                                                            
specified in the agreement, in order to share operational costs.                                                                
Mr. Flint confirmed that  any company would desire assurances rather                                                            
than uncertainty,  and he asserted that, "this committee  substitute                                                            
would serve to create uncertainty  to Tech Cominco by creating taxes                                                            
on basically  the whole  project."  He voiced, "if  it isn't  broken                                                            
don't fix  it," as he attested  that no one  had a problem  with the                                                            
process until 1999 when  the State Assessor "found a theory by which                                                            
he thought the assessment could be expanded."                                                                                   
Mr. Flint  stated  that through  analysis, it  was determined  that,                                                            
were a mil rate in place,  the local share for this project is above                                                            
those of comparable boroughs.  Additionally, he noted that the State                                                            
is reimbursed  for the loan with the  rate of return plus  the extra                                                            
tonnage fees,  which he  attested, generate  extra money that  AIDEA                                                            
might be  able to flow into  the general fund.  He stated that  this                                                            
committee  substitute would  be counterproductive  from an  economic                                                            
development  point  of  view  as  the  status  quo  has  been  quite                                                            
productive.  He  stated that  Tech  Cominco  would prefer  that  the                                                            
status quo be continued.                                                                                                        
Senator  Bunde asked for  confirmation that  this proposal  excludes                                                            
the  road  from  taxation,  but  includes  the  single  use  storage                                                            
facilities as well as the multiple use port facility.                                                                           
Mr. Van Sant responded that is correct.                                                                                         
Senator Bunde  opined that the multiple use argument  could apply to                                                            
the road and  the port, but would  exclude other facilities  such as                                                            
the storage facility.                                                                                                           
Mr. Flint interjected that  the storage facility could store any ore                                                            
or other items.                                                                                                                 
Co-Chair  Wilken asked Mr.  Flint for suggestions  on how the  State                                                            
might  address  future   AIDEA-funded  large  resource  development                                                             
projects; specifically  how the taxation exemption  policy regarding                                                            
assets such  as roads and facilities  could be developed  to provide                                                            
financial and  educational benefits  to the citizens in the  region.                                                            
Mr.  Flint   responded   that  in   order  to   encourage   economic                                                            
development,   policy   makers   should   look  at   the   situation                                                            
"generically";  that is to consider  the entire situation  including                                                            
such things as  roads and other public infrastructure  in the remote                                                            
area as well as the tradeoffs  between the development of a tax base                                                            
and a resource  development. He stated  that, while these  tradeoffs                                                            
could affect  revenue, such things  as excess tonnage fees  could be                                                            
implemented to  offset it. He stated that policy makers  rather than                                                            
a business  should  make policy  determinations  regarding  economic                                                            
development on a statewide basis.                                                                                               
Co-Chair  Wilken asked whether  the Greens  Creek Mine in  Southeast                                                            
Alaska has a possessory interest classification.                                                                                
Mr. Van Sant stated that it does.                                                                                               
Co-Chair  Wilken  asked whether  the  State  might be  "required  to                                                            
forsake  the taxable  value"  of the  Fort Knox  Gold  Mine and  the                                                            
Greens  Creek  Mine   which  have  possessory  interests   in  their                                                            
project's  roads  and  facilities.  He  stated  that  allowing  this                                                            
legislation  to  proceed   as proposed   would  not  be  limited  to                                                            
jeopardizing  governments'  future  ability  to  access  funds  from                                                            
resource  developments   but could  also  cause  existing   resource                                                            
developments to be reevaluated.                                                                                                 
Mr. Flint  replied that one  of the important  things for  promoting                                                            
economic  development in  remote areas  is the  consideration  of an                                                            
existing  public  infrastructure.  He  noted  that  the lack  of  an                                                            
infrastructure  is a detriment to developing remote  areas, as, were                                                            
a company to choose,  it would choose a developed  area. He stressed                                                            
that the  State should "try  to even the playing  field" as  much as                                                            
possible in order  to encourage development in areas  where there is                                                            
a lack  of public infrastructure.  He stated  that while this  might                                                            
result in tradeoffs, "the overall policy might outweigh that."                                                                  
Senator  Taylor  declared  that the  NWAB  and  Red Dog  Mine  PILOT                                                            
agreement  is in lieu of  a taxation system  based on mil rates  and                                                            
assessed  valuation.  He asked  the amount  of money  that the  NWAB                                                            
would have collected  were the proposed committee  substitute, which                                                            
is  based  on  a Court  decision   upholding  the  State  Assessor's                                                            
valuation determination  in place  at the onset of the Red  Dog Mine                                                            
project. Additionally,  he asked the mil rate that would be required                                                            
to garner revenue equal to the current PILOT agreement amount.                                                                  
Co-Chair Wilken  clarified that rather than a Court  System decision                                                            
furthering  this  endeavor, it  was  incorrectly understood  by  the                                                            
State  Assessor,  that  a  valuation  system  rather  than  a  PILOT                                                            
agreement  existed in  the NWAB.  Subsequently,  the State  Assessor                                                            
furthered the valuation issue.                                                                                                  
Mr. Van Sant  affirmed that the Legislature,  rather than  the State                                                            
Assessor, establishes State  policy, and that "taxation is the rule,                                                            
and this exemption  is the exception to that rule."  He shared that,                                                            
in  1998,  he had  assumed,  when  he  visited the  NWAB,  that  the                                                            
taxation system  was based "on the full value rule."  He stated that                                                            
subsequent  to that visit,  it was clarified  that a PILOT  program,                                                            
rather  than an asset  assessment  program existed.  He stated  that                                                            
rather  than setting  policy, the  Assessor's "job  is to make  sure                                                            
that all property  in the State is  assessed equitably, and  in this                                                            
case, right now, we are not doing that."                                                                                        
Mr. Van Sant continued  that direction from the Legislature is being                                                            
sought  to determine  how resource  development  projects should  be                                                            
approached  and whether  "we  continue  with inequities  across  the                                                            
State."  He  stated   that  were  this  the  direction   given,  the                                                            
Assessor's   Office  would  comply.   However,  he  expressed   that                                                            
currently a  variety of assessments  are conducted such as  Kodiak's                                                            
SeaLand  assessment based  on a  preferential use  agreement on  the                                                            
public   dock   and  Anchorage's   consideration   of   granting   a                                                            
preferential  use agreement to SeaLand.  He reiterated that,  rather                                                            
than changing  policy,  the State  Assessor is  attempting "to  make                                                            
sure that everything that is taxable is on the assessment role."                                                                
Mr.  Van  Sant  was  unable  to answer  Senator   Taylor's  question                                                            
regarding  the revenue or  mil rate for the  NWAB. He stressed  that                                                            
his job is to attempt to  determine the "full valuation estimate for                                                            
everything  that is taxable up there,  and that is what I  attempted                                                            
to  do  in  1998."  He  stated  that  the  goal  of  this  committee                                                            
substitute,  rather than being  an attempt  to change things,  is to                                                            
determine  whether  the  Legislature   wishes  to  exclude  resource                                                            
development projects from  taxation. He ventured that the NWAB would                                                            
support  resource development  projects  being taxed,  as would  the                                                            
communities  of Fairbanks or  Juneau. He stated  that were  a change                                                            
desired, then the Legislature  must let the State Assessor know what                                                            
that change is.                                                                                                                 
Senator Taylor  calculated  that, in order  for the NWAB to  achieve                                                            
the amount collected under  the PILOT agreement, the project must be                                                            
assessed  at $500  million with  ten-mil rate.  He voiced  amazement                                                            
that the State  Assessor and the NWAB  attorney were unaware  that a                                                            
PILOT agreement  existed "between AIDEA and the State  and the NWAB"                                                            
to have  a payment  made in lieu  of taxes and  thus not have  those                                                            
assets not listed on their tax roles."                                                                                          
Mr. Van Sant  communicated that at  the time he became aware  of the                                                            
PILOT agreement between  Cominco and the NWAB, the monetary terms of                                                            
that agreement  were not investigated  because he asserted  that the                                                            
amount of the  agreement is not something  that should concern  him.                                                            
He shared that  Cominco maintains an extensive list  of mine assets,                                                            
and  he commended  their  accountants  for  keeping current  on  the                                                            
hundreds of  thousands of pages of  items "that come and  go through                                                            
that mine." He noted that  the PILOT agreement was discovered when a                                                            
site visit was conducted.                                                                                                       
Mr. Flint disclosed that  the NWAB does not have an assessor because                                                            
it does not have a tax role.                                                                                                    
Senator  Taylor argued,  nonetheless, that  a contractual  agreement                                                            
does exist between the NWAB and Cominco.                                                                                        
Senator Bunde  responded to Senator Taylor's comment  that a company                                                            
would not agree to a PILOT  payment that would be higher than a tax.                                                            
Senator  Bunde  suggested  that  a company  would  support  a  PILOT                                                            
agreement  for two reasons:  1) certainty  and 2)  to pay an  amount                                                            
that is "a lesser number  than taxes, as no business would volunteer                                                            
to pay a higher assessment than absolutely required."                                                                           
Mr. Flint explained  that the PILOT  agreement amount was  driven by                                                            
the NWAB  school-funding  needs. He  informed that  the mine  is the                                                            
only  private  business  paying  to the  local  government,  as  the                                                            
Borough has no  taxation system. He stated that the  NWAB is largely                                                            
a school district  and it is "claimed" that 77 percent  of the PILOT                                                            
agreement revenues fund  school expenses. He continued that analysis                                                            
estimated that were the  77 equated to a mil rate, the rate would be                                                            
higher  than Tech  Cominco  would  pay in  the Juneau  or  Anchorage                                                            
boroughs.  He stated that  another important  consideration  is that                                                            
Cominco  is committed  to  hiring local  NANA  Regional Corporation                                                             
Co-Chair Wilken voiced  that by his calculations, the Fort Knox Gold                                                            
Mine in the  Fairbanks North Star  Borough is taxed at 18  mils with                                                            
an assessed  value of $383 million.  He stated that this  calculates                                                            
to $6.82 million.                                                                                                               
Mr. Flint clarified that  his calculation is based on the 77-percent                                                            
of  the  PILOT agreement  payment  that  supports  the  NWAB  school                                                            
program as  compared to,  for instance, the  8.4 percent school  mil                                                            
rate in the Fairbanks area.                                                                                                     
SFC 03 # 69, Side A 10:42 AM                                                                                                    
Co-chair Wilken concurred.                                                                                                      
Senator  Taylor asserted  that the  PILOT program  is an  "extensive                                                            
agreement"  that includes  other provisions  including training  and                                                            
local hire requirements.                                                                                                        
Mr.  Flint agreed  and  stated that  the  commitment  to hire  local                                                            
residents  is a critical  component  and should  be "the number  one                                                            
goal" of economic development.                                                                                                  
Senator Taylor understood  the PILOT agreement to be between Cominco                                                            
and the NWAB.                                                                                                                   
Mr. Flint responded that  the Borough, Cominco and AIDEA are parties                                                            
to  the  agreement  as well  as  the  NANA  Native  Corporation.  He                                                            
informed that Cominco leases  land from the NANA Native Corporation.                                                            
He noted that the NWAB's  obligation is to provide training to local                                                            
Senator Taylor  opined that any community would make  concessions in                                                            
order to encourage economic  development in its area. He stated that                                                            
the City  and Borough of  Juneau's annexation  of the Green's  Creek                                                            
Mine on Admiralty  Island is such an example. He furthered  that the                                                            
Red Dog Mine provides  job opportunities to the people  in the NWAB.                                                            
However,  he voiced concern  about the "message  being sent"  by the                                                            
continuance  of the status  quo situation;  however, he stated  that                                                            
the  Legislature  is setting  a  new economic  policy,  which  would                                                            
negate an ongoing economic  agreement, and he asked for a legitimate                                                            
economic  reason  to  do  this.  He  voiced  support  for  a  region                                                            
negotiating  economic  development   plans  with  a  developer  with                                                            
provisions such  as hiring a specific number of local  residents and                                                            
paying a certain amount of taxes.                                                                                               
Senator  Taylor reminded  the Committee  that  previous Legislators                                                             
awarded  a  five-year  tax  deferral   to  the  timber  industry  in                                                            
Ketchikan  as a  means of  attracting  development.  He stated  that                                                            
numerous communities and  states provide incentives to developers in                                                            
order to promote economic  activity. He declared that this committee                                                            
substitute is  a "dramatic" policy shift that he could  not support.                                                            
Mr. Van  Sant responded  that,  while Anchorage  and Fairbanks  have                                                            
local economic  incentives such as an exemption from  local taxes to                                                            
encourage development,  the full value  of the business is  depicted                                                            
in the State's property tax assessments of the communities.                                                                     
Co-Chair  Green commented  that this is very  complicated issue  and                                                            
that the discussions  are appreciated. However, she  stated that she                                                            
has  "come to  the realization  that",  in  the future,  when  AIDEA                                                            
project proposals come  before the Committee for approval, she would                                                            
understand  that  these  projects  would be  granted  "a  different,                                                            
unreachable  status  apparently."  She  stated  that,  "this  has  a                                                            
chilling  influence" on her  decisions, and  she stated that  rather                                                            
than seeking  AIDEA funding, these  companies should pursue  private                                                            
Co-Chair  Wilken stated that  this is a simple  but "very  important                                                            
bill for the  future of Alaska," and  "that is why the Committee  is                                                            
spending so much time on it."                                                                                                   
Senator Olson  stated that the Red Dog Mine has been  operating at a                                                            
profit;  however other  projects, such  as the  Healy Coal  Project,                                                            
have not. He asked  whether the Healy Coal Project  is recognized as                                                            
a possessory interest project.                                                                                                  
Mr. Van Sant  responded that because  the Healy Coat Project  has no                                                            
private sector interest, there is no possessory interest.                                                                       
A roll call was taken on the motion to adopt Version "I".                                                                       
IN FAVOR: Co-chair Green and Co-chair Wilken                                                                                    
OPPOSED: Senator  B. Stevens, Senator  Taylor, Senator Hoffman,  and                                                            
Senator Olson                                                                                                                   
ABSENT: Senator Bunde                                                                                                           
The motion FAILED (2-4-1)                                                                                                       
The Version "I" Committee Substitute FAILED to be ADOPTED.                                                                      
Co-Chair Wilken  informed that the bill would be HELD  in Committee.                                                            

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