Legislature(2019 - 2020)ADAMS ROOM 519
05/03/2019 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB96 | |
| HB102 | |
| HB131 | |
| Presentation: Appropriation Limit by Office of Management and Budget | |
| Recessed to the Call of the Chair: the Meeting Reconvened on Saturday, May 4, 2019 at 12:00 P.m. | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 102 | TELECONFERENCED | |
| += | HB 49 | TELECONFERENCED | |
| += | HB 145 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 96 | TELECONFERENCED | |
| += | HB 131 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
May 3, 2019
1:30 p.m.
1:30:27 PM
CALL TO ORDER
Co-Chair Wilson called the House Finance Committee meeting
to order at 1:30 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Tammie Wilson, Co-Chair
Representative Jennifer Johnston, Vice-Chair
Representative Dan Ortiz, Vice-Chair
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
MEMBERS ABSENT
Representative Ben Carpenter
ALSO PRESENT
Representative Zack Fields, Bill Sponsor; Representative
Adam Wool, Bill Sponsor; Ashley Strauch, Staff,
Representative Adam Wool; Ed King, Chief Economist, Office
of Management and Budget.
PRESENT VIA TELECONFERENCE
Clinton Lasley, Director, Division of Alaska Pioneers Home,
Department of Health and Social Services; Brandon Spanos,
Deputy Director, Tax Division, Department of Revenue; Rose
Feliciano, Internet Association, Seattle; Brian Rothery,
Vice President, Enterprise Holding, Sacramento, CA;
Michelle Peacock, Vice President, Turo, San Francisco,
California.
SUMMARY
HB 49 CRIMES; SENTENCING;MENT. ILLNESS;EVIDENCE
HB 49 was SCHEDULED but not HEARD.
[Note: HB 49 was heard on Saturday, May 4, 2019.
See separate minutes for detail]
HB 96 PIONEERS' HOME AND VETERANS' HOME RATES
CSHB 96(FIN) was REPORTED out of committee with
four "do pass" recommendations and with six "no
recommendation" recommendations and with two new
fiscal impact notes by the Department of Health
and Social Services.
HB 102 RENTAL VEHICLE BY PRIVATE OWNER
HB 102 was HEARD and HELD in committee for
further consideration.
HB 131 APPROPRIATION LIMIT
HB 131 was HEARD and HELD in committee for
further consideration.
PRESENTATION: APPROPRIATION LIMIT BY OFFICE OF MANAGEMENT
AND BUDGET
Co-Chair Wilson reviewed the agenda for the afternoon.
HOUSE BILL NO. 96
"An Act relating to Alaska Pioneers' Home and Alaska
Veterans' Home rates and services."
1:31:01 PM
Co-Chair Wilson indicated there were two amendments for the
bill.
Representative Knopp had a conceptual amendment when
appropriate.
Representative Josephson MOVED to ADOPT Amendment 1 (31-
LS0646\U.2) (copy on file):
Page 3, line 22:
Delete "$3,100"
Insert "2,976"
Page 3, line 24:
Delete "6,090"
Insert "5,396"
Page 3, line 27:
Delete "$8,833"
Insert "7,814"
Page 30, line 30"
Delete "$10,000"
Insert "8,500"
Co-Chair Wilson OBJECTED for discussion.
Representative Josephson spoke to the amendment. He
reported there had been some objection to the rates and he
was offering an amendment that would slightly reduce the
rate adjustment. He had learned that the rate adjustment
that was currently in the bill exceeded the rate of
inflation since 2004 when the rates were last adjusted. He
supported HB 96 but thought the rates should be adjusted.
He thought Representative Fields would not object to the
amendment. He also thought the amendment was consistent
with Mr. Teal's testimony from the previous day, in which
the fiscal impacts of the Department of Health and Social
Services rates were difficult to project. Mr. Teal had
noted that steep rate increases, particularly at the 1 and
2 levels of care could increase state costs by driving out
self-paying, less costly patients. The amendment would
still generate over $1 million in new revenues while
aligning the committee substitute with testimony already
heard from the public, the Legislative Finance Division,
and the sponsor. He asked members for their support of the
amendment.
Co-Chair Wilson asked Representative Fields to comment on
the amendment.
1:33:25 PM
REPRESENTATIVE ZACK FIELDS, BILL SPONSOR, supported the
amendment. He indicated that it was consistent with
overwhelming public testimony and testimony from the
Legislative Finance Division.
Vice-Chair Ortiz spoke in favor of the amendment. He
thought it could help to put the state in a better
situation, a goal originally put forth by the
administration.
Co-Chair Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, it was so ordered. Amendment 1
was ADOPTED.
Co-Chair Wilson MOVED to ADOPT Amendment 2 (copy on file):
Page 4, line 8:
Delete "$70"
Insert "$160"
Page 4, line 13:
Delete "$100"
Insert "$322"
Vice-Chair Johnston OBJECTED for discussion.
Co-Chair Wilson explained her amendment. She relayed that
the on the previous day the committee had heard that $70
[Bill language: a day for services provided in a home to a
recipient who requires the provision of housing, meals,
emergency assistance, medication administration, health-
related services, recreation, and extensive assistance with
activities of daily living for up to eight hours a day
between 6:00 a.m. and 6:00 p.m., including meals scheduled
during the period the recipient is receiving the services]
was not close to the amount per day and that $160 would be
more appropriate. She continued that 24 hours per day for
up to 14 days was $322 [Bill language: a day for room and
board provided in a home to a recipient who requires the
provision of housing, meals, emergency assistance,
medication administration, health-related services,
recreation, and extensive assistance with activities of
daily living for 24 hours a day for up to 14 consecutive
days]. She was inserting the amounts that had been heard
the previous day.
Representative Josephson thought the rate increases would
be short-lived because of a transition period. He asked if
he had heard correctly. Co-Chair Wilson responded that the
daily rate for 24-hour care was limited to 14 consecutive
days. She highlighted page 4, lines 13-16. There was no
limit on the daily rate for 8 hours per day. One service
was day service as opposed to an over-night service.
Representative Sullivan-Leonard was aware, having personal
experience dealing with home healthcare for family members,
that the proposed increase did not cover the cost but was
closer to what it might be. She would be supporting the
amendment.
Vice-Chair Johnston WITHDREW her OBJECTION.
There being NO OBJECTION, it was so ordered. Amendment 2
was ADOPTED.
1:36:39 PM
AT EASE
1:38:16 PM
RECONVENED
Representative Knopp MOVED to ADOPT Conceptual Amendment 3
(copy on file):
Page 1, line 6
Delete "$200"
Insert "$500"
Co-Chair Wilson OBJECTED for discussion.
Representative Knopp explained his amendment. He understood
increasing rates for those who could pay. However, there
were seniors that simply could not pay. He was trying to
offer protection on the lower end.
Representative Tilton referred to page 2, line 13. She
asked if the amount needed to also be changed for
consistency.
Co-Chair Wilson read from line 13. She thought the line had
to do with payment assistance received by a home resident.
She suggested directing the question to Mr. Lasley, the
division director.
1:40:38 PM
CLINTON LASLEY, DIRECTOR, DIVISION OF ALASKA PIONEERS HOME,
DEPARTMENT OF HEALTH AND SOCIAL SERVICES (via
teleconference), responded that the $200 was referred to
HB 96 and in regulations. The amount was related to an
individual on payment assistance. The individual was
allowed to keep $200 of their monthly income and could use
it for things like clothing and, personal hygiene products.
The payment assistance program took taxes and insurance
premiums into account. They were taken off the top of their
income prior to determining how much they were required to
pay. He reiterated that the $200 was for items personal in
nature.
Co-Chair Wilson suggested that the amendment would give
individuals $500 to spend the way they liked. She referred
the $200 noted on page 2, line 13. She thought the $200
amount had to do with payment assistance and what funds;
were included in the payment assistance. She wondered
whether the $200 listed would need to change to $500 as
well, or whether they were 2 separate ideas.
Mr. Lasley thought the amount on page 2 would need to be
changed as well.
Representative Knopp MOVED to ADOPT Amendment 1 to
Conceptual Amendment 3:
Page 1, line 6
Delete "$200"
Insert "$500"
Page 2, line 13
Delete "$200"
Insert "$500"
Co-Chair Wilson OBJECTED for discussion.
Representative Knopp explained the change.
There being NO OBJECTION, it was so ordered.
Co-Chair Wilson WITHDREW her OBJECTION. There being NO
OBJECTION, it was so ordered. Amended Conceptual Amendment
3 was ADOPTED.
Vice-Chair Johnston MOVED to report CSHB 96(FIN) out of
Committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CSHB 96(FIN) was REPORTED out of committee with four "do
pass" recommendations and with six "no recommendation"
recommendations and with two new fiscal impact notes by the
Department of Health and Social Services.
1:44:30 PM
AT EASE
1:45:04 PM
RECONVENED
HOUSE BILL NO. 102
"An Act relating to rental vehicles; relating to
vehicle rental networks; relating to liability for
vehicle rental taxes; and providing for an effective
date."
1:45:33 PM
REPRESENTATIVE ADAM WOOL, BILL SPONSOR, introduced himself
and his staff. He indicated HB 102 was essentially a
vehicle rental bill. He provided an overview of the bill
which applied to peer-to-peer car rental companies. The
largest company, Turo, operated in Alaska. The service was
similar to Airbnb where someone rented out rooms in their
private home much like a hotel. Customers paid for a room
via a phone application. The home owner received payment
for the room rental and Airbnb received a portion of the
money. The same business model applied to car rentals and
Turo. If someone wanted to rent their private vehicle out
it would be done through a phone application. The business
model was called car sharing where a financial exchange
occurred. He liked to refer to the exchange as a rental.
Alaska's state law applied a vehicle rental tax of 10
percent. Everyone paid a rental tax when they rented a
vehicle. He explained that peer-to-peer companies were
liable for the tax. The state had been trying to obtain the
tax money from the industry. When a person rented from Avis
or Hertz they had to pay a tax. Through Turo a person did
not pay the tax. The rental company and the State of Alaska
would like to have the entities pay the vehicle rental tax.
House Bill 102 would define the vehicle rental tax as it
applied to peer-to-peer businesses. It would also have the
corporation pay the tax to the State of Alaska instead of
the renter or owner of the vehicle. The idea of the bill
was to have the application companies, like Turo, be
responsible for paying the state. He mentioned a lawsuit
between the State of Alaska and Turo because it was
difficult to know who the owners of the vehicles were. He
noted that the same kind of thing applied to cigarette tax.
A person could avoid paying taxes by ordering cigarettes
online. However, it was against state law. The state had
targeted buyers of cigarettes going after them for
cigarette taxes. Instead of the State of Alaska looking to
collect taxes from owners of cars (700 owners of cars
operated with Turo), the bill would require Turo to pay the
taxes. He noted an article in the Anchorage Daily News and
the Fairbanks paper that listed Alaska as one of the states
pursuing a vehicle rental tax. The bill would not raise or
lower the tax. Rather, if a person were to rent a vehicle
through Turo, similar to Avis or Hertz, the company would
have to pay the vehicle tax.
1:50:20 PM
Vice-Chair Johnston asked how taxes were handled through
Airbnb and VBRO. Representative Wool explained that Alaska
did not have a statewide hotel tax. It was governed by
municipalities. He was aware that in Fairbanks the owners
paid the taxes. He could not speak for other
municipalities.
Vice-Chair Johnston asked if Turo had a fleet of cars.
Representative Wool explained that Turo did not have
vehicles. The company was a technology platform. There were
some people that had multiple cars they rented out. He had
a friend that had a third car that she only rented out.
Representative Merrick read a portion of an opposition
letter from Turo:
"We urge you to consider holding this legislation
until it can be worked on in a structured reasonable
way with the most important stakeholders at the
table."
Representative Merrick asked if Turo had been at the table
regarding the bill. Representative Wool responded that Turo
had testified in another committee. The company had flown
some of their representatives from California, and some of
their legal people were on the phone. They had indicated
they wanted to work with the legislature to craft a bill.
He interpreted their attitude as wanting a rate lower than
10 percent. He was not addressing the vehicle rental tax in
Alaska, nor was he trying to do a carve-out specifically
for Turo or other companies relating to the business. He
asserted he just wanted to see the people renting a car
through Turo paying the same 10 percent tax as people who
rented cars elsewhere.
Representative Sullivan-Leonard asked whether a vehicle
owner working under the umbrella of Turo would be required
to have a limited liability corporation (LLC), a business
license or any type of license to rent out their vehicle.
Representative Wool did not write any legislation that
allowed peer-to-peer car rental to operate in Alaska. He
was certain an LLC was not necessary. He did not believe
business licensing was required.
1:54:08 PM
ASHLEY STRAUCH, STAFF, REPRESENTATIVE ADAM WOOL, responded
that a person did not have to have a business license to
register with Turo. A person could simply sign up for the
app as a car sharer which allowed someone to be able rent
their vehicle.
Representative Sullivan-Leonard thought it looked like it
was an opportunity for a small business type entity to fill
a niche where vehicles might not be available. She asked
about the price variation between a rental car agency and
Turo
Ms. Strauch responded there was a significant amount of
price variation in rental vehicles through traditional
outlets. For example, if a person were to try to get online
to Enterprise Car Rental to try to rent a vehicle, it might
be between $12 per day to greater than $100 per day
depending on the type of vehicle a person was renting, the
duration of the rental, and other factors. Generally, the
prices a person would find on such a platform as Turo would
be lower per day than the prices found through traditional
car rental platforms.
Representative Sullivan-Leonard asked if the reason for the
price difference was because traditional car rental
companies had full fleets for people to choose from as
opposed to an individual who might only have one or two
vehicles available. Ms. Strauch relayed that someone from
Enterprise Car Rental was available online to answer the
representative's question.
Co-Chair Wilson remarked that hopefully some of the
questions could be answered during the public testimony
portion of the bill.
Representative Wool commented that in the bill's previous
committee there had been a caller from Anchorage that had
used Turo to rent his Jeep. He had a 4-wheel drive Jeep
that was good on certain kinds of roads. He placed it on
Turo. The charge was $50 or $60 per day for his car to be
rented. The representative did not find the amount
particularly inexpensive. He thought it depended upon the
individual and the vehicle. He commented that the article
in the Anchorage Daily News reported that a guy that had a
BMW sportscar rented it out through Turo and managed to pay
for it.
Representative LeBon wondered that if he wanted to rent a
vehicle as an individual but did not want to go through
Turo, would he be expected to submit a 10 percent tax for
renting the vehicle. Ms. Strauch responded in the
affirmative and added it would also include individuals who
rented their vehicle through Craigslist, for example. They
would still be subject to the tax of 10 percent. However,
the tax division did not tend to have the staff to chase
down individuals through the other outlets.
Representative LeBon asked if the state was currently
expecting a remittance of a 10 percent sales tax from
individuals if they were renting their own private vehicle,
but not through a clearing house. Ms. Strauch responded
that they would still be required to pay the tax. However,
it would be difficult to enforce.
Representative LeBon commented that the state law asked
everyone who rented out their car to remit the 10 percent.
Ms. Strauch responded, "That is correct."
1:58:24 PM
Representative Josephson suggested that to get into the
transportation network companies (TNC) the state insisted
on some oversight from a regulatory stand point. He
wondered if there was anything that prohibited Turo from
acting at the outset. He wondered if they were presently
acting legally.
Representative Wool answered that there was a liability for
vehicle rental tax. The person that rented the vehicle paid
the tax. The person that owned the car, if they did not
collect it from the renter, would have to pay the tax. He
noted a lawsuit between the State of Alaska and Turo. The
point of the lawsuit was to determine who were the people
renting the cars and could the state recover its taxes. The
case stemmed from Turo not releasing the needed information
to the state. He did not believe Turo was breaking the law
by not remitting taxes. The bill would provide the state a
vehicle to recover the taxes. He thought the Department of
Revenue (DOR) might be able to add to his answer.
Representative Josephson asked if there had been an
insistence that a law was passed for companies such as Turo
to operate, similar to the TNCs.
Co-Chair Wilson asked Representative Josephson to define
TNC. Representative Josephson responded, "Transportation
Network Companies."
Representative Wool believed the requirement that TNCs had
a state law was put in only after they arrived. There was a
discrepancy with the Department of Labor and Workforce
Development when TNCs arrived in the City of Anchorage. He
did not believe there was a specific statute in place for
Turo to operate.
Ms. Strauch explained that the state was already considered
Turo to be liable to pay the 10 percent vehicle tax. They
had already started the process of trying to collect it by
asking Turo for information about the number of drivers the
company had in Alaska.
Co-Chair Wilson asked Mr. Spanos to help with the
conversation. She wondered if the state was currently
collecting taxes from vehicle rental networks.
2:01:56 PM
BRANDON SPANOS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT
OF REVENUE (via teleconference), restated Co-Chair Wilson's
question. He responded in the affirmative. The statute was
very broad and stated that a renting of a vehicle within
the state boundaries was a taxable event - a 10 percent
tax. The state already considered in the current statute
that the vehicle rental networks would be subject to the
tax. It specified that the individual making the vehicle
available for rent was the tax payer. For example, if an
owner of a vehicle made it available on Craigslist, they
would be responsible. In the past, the division had gone
after the individuals, particularly people who had rented
out their RV for the entire summer. There had been appeals
that had gone to the courts, and the courts had determined
that they were taxable events requiring the owners to pay
the tax. In the case where there was a peer-to-peer
network, there was a veil over the identity of the owner of
a vehicle. The division did not have the ability to
determine the owners of the vehicles. The vehicle rental
was subject to tax, but it was difficult to enforce a tax
without the ability to determine the vehicle owner.
2:03:23 PM
Co-Chair Wilson asked for a better understanding between a
peer-to-peer platform and the TNCs. She thought it sounded
as if it was already illegal not to pay the taxes.
Mr. Spanos relayed that the administration was neutral on
the bill. He reported that currently if someone listed on a
peer-to-peer network the transaction was taxable. However,
the individual owner of the vehicle was subject to the tax.
Therefore, the peer-to-peer online service, while they had
the information identifying the owner of the vehicle, they
were not breaking the law by not remitting a tax. The
statute currently did not state that the network providing
the service would collect and remit the tax - it stated the
owner of the vehicle would collect and remit the tax. The
individual should be remitting the tax. The division
researched many of the websites, most of which state that
the onus for the tax was on the owner and they needed to
know and follow the law. One of the peer-to-peer networks
testified in a previous committee that they were a business
and had insurance on the vehicles that was made available
when a rental occurred. They also took a percentage of the
rental in the transaction. If the bill were to pass, there
would be another line item where a tax would be charged to
the renter. The peer-to-peer network would collect and
remit the tax to the state.
Co-Chair Wilson thought it would be good to have the
Department of Law present at the next hearing.
Representative Josephson asked if peer-to-peer network
companies could exist legally in Alaska. Representative
Wool reported that peer-to-peer networks could operate in
Alaska. They did not require a specific statute. Ride
sharing companies, Uber and Lyft, came to Anchorage and
operated before a statute was established. However, there
was an issue with the municipality, and they were kicked
out. The Department of Labor and Workforce Development
issued a statement requiring a change in statute for them
to return to Alaska. It prompted the TNC statute that was
currently in place. He relayed that part of the ride
sharing bill included a provision that assessed a local
sales tax as a ride sharing customer. The money went to the
ride sharing who in turn submitted the corresponding tax
payment. He was trying to incorporate the same type of
provision for peer-to-peer car rentals in the bill.
2:07:59 PM
Representative Knopp spoke about working on the legislation
for TNCs. At the time of the debate he and Representative
Wool argued for local control to enable local
municipalities to collect the tax. He noted that ride
sharing involved renting both the driver and the vehicle,
whereas, peer-to peer vehicle rentals was limited only to
renting a vehicle. He thought it would be much easier to
collect the tax from the enterprise company rather than the
individual owner of the vehicle. He suggested that the law
could simply require peer-to-peer companies to release the
names of the participants and let the state collect the
taxes from individual owners. He thought the issue was
debatable. He spoke of equality between taxi services and
TNCs. He was unclear his position on the bill.
Representative Merrick asked Representative Wool to confer
that the vehicle rental tax went into the state's general
fund. Representative Wool believed the vehicle rental tax
was designated but not dedicated to certain other funds,
but he believed it went into the general fund.
Co-Chair Wilson thought the tax went to a designated fund.
It was not dedicated and could be used for any purpose.
Representative Merrick clarified that Co-Chair Wilson was
talking about the rental tax and that it did not go to a
dedicated fund. Co-Chair Wilson responded in the
affirmative.
Representative Merrick asked what the fund was typically
used for. She wondered if the funds were used for tourism.
Co-Chair Wilson explained that the fund had been used for
public safety and roads. The House intended to use it for
tourism. The Senate had made a change in the budget and she
was unsure where the rental tax funds would be spent. For
the public that was listening in, she explained that the
state constitution did not allow for dedicated funds.
Designated funds were different in that the legislature
could indicate how it wanted the funds spent but they could
be used for anything.
2:12:03 PM
Representative LeBon mentioned hearing earlier about 700
clients participating in the Turo program. He wondered how
many of the clients were remitting the 10 percent sales
tax. He wondered if the department tracked the information.
Mr. Spanos could not speak to specifics but could aggregate
information. The division had not received any taxes from
anyone operating with a peer-to-peer platform. The division
had tried to determine how many vehicles were available for
rent. There were 2 numbers provided in the previous
committee by one of the peer-to-peer networks. The first
number was 700 and in a later hearing they reported 200 or
more. He was unclear of the number. The number was between
200 and 700.
Representative LeBon asked how many individuals were
remitting 10 percent sales tax for renting out their
vehicle. Mr. Spanos clarified whether the representative
meant through a peer-to-peer car sharing network or in
general including other vehicle rental companies.
Representative LeBon provided his previous scenario in
which he listed his car for rent on craigslist or in the
newspaper. He wondered if any of those people had submitted
a tax. Mr. Spanos indicated the number was very low. Most
people submitting a payment paid a 3 percent or 5 percent
rate for an RV rental. He did not believe the state had
received any remittance for an individual. He could
investigate the number further. Representative LeBon did
not need a response. He suspected the number would be low.
Vice-Chair Johnston likened Airbnb to Uber and Lyft. She
spoke of a bed tax in the municipality of Anchorage. The
municipality collected tax from each participant of Airbnb
rather than the platform. She thought the intent of the
bill was worthy. However, her concern had to do with new
and rapidly changing technology. She asked if the bill
sponsor was open to creating a small section or subsection
for platforms similar to Turo, rather than wrapping the
idea into the regular car rental section in statute. She
suggested that ride sharing in urban areas had taken on
many different dynamics. She thought things were of a
high-intensity nature in the urban areas versus anywhere in
Alaska. She could see a platform like Turo working in the
smaller communities. She thought leaving the peer-to-peer
model in a different section of the statue would allow for
future adjustments.
Representative Wool would have to think about his answer to
her question. He relayed that in previous testimony
peer-to-peer companies alluded to being different and
needing a different rule. He had asked the companies what
they thought was so different about their model to justify
a lower tax percentage. At the time of his question, he did
not receive a satisfactory answer. He thought at the end of
the day it was a person needing to rent a car. He suggested
that both car rentals and peer-to-peer rentals had to take
care of and store their vehicles. He also did not believe
the best way to collect the tax would be by trying to
collect from individuals. He provided an example of
inefficiency by having individuals pay the tax on their
own.
Vice-Chair Johnston was uncertain whether they should pay a
lesser rate. She noted how platforms such as Airbnb had
taken off. She thought it was important to be flexible in
addressing the issue. She was unsure of how to move
forward. She did not want to lock the state into something
that would not be appropriate in 2 years.
Co-Chair Wilson added that rental companies like Enterprise
owned the cars. They were renting cars they own and should
be responsible for paying the tax. The individuals renting
their cars were currently liable for paying the tax. She
was concerned with going after an entity that was not the
owner of the vehicles. She informed members that they would
be hearing public testimony during the meeting and that she
did not intend to move the bill presently.
Representative Wool appreciated the comments from
Representative Johnston. He agreed that Enterprise owned
the cars, but Turo did not. Turo was only the technology
platform but made a significant amount of money on the
transactions, much more that the individual drivers. Turo
was working as a central clearing house for the
transactions.
Co-Chair Wilson clarified that Representative wool was
suggesting that they should be taxed because they were
making a significant amount of money, not because they were
the responsible party. Representative Wool rebutted that
the tax would be paid by the person renting the car. Turo
was just a clearing house. For example, if he rented a
vehicle from Representative Josephson. he would use his
phone to rent the vehicle through Turo's app. His credit
card would be processed through Turo. Turo would keep a
portion of the payment and send along the other portion of
funds to Representative Josephson. The transaction went
through Turo who kept a percentage of the money.
Co-Chair Wilson provided an example of using her credit
card. She wanted to make certain that the legislature was
not going after a company because of the money they made
but because they were responsible for the actions that
occurred.
2:25:09 PM
Representative Knopp wondered what would prevent a person
from becoming a rental car company simply using the
platform.
Vice-Chair Ortiz thought the sponsor of the bill was
introducing the bill to level the playing field and create
additional revenue for the state. Co-Chair Wilson clarified
that it was illegal for individuals to rent their cars out
without paying a tax. She thought the question came down to
who was paying. Vice-Chair Ortiz commented that the person
renting the car would be paying the tax. Co-Chair Wilson
commented that they were going into dangerous territory.
2:28:15 PM
Co-Chair Wilson OPENED Public Testimony.
2:28:25 PM
ROSE FELICIANO, INTERNET ASSOCIATION, SEATTLE (via
teleconference), relayed that Internet Association
represented more than 40 of the world's leading internet
companies and advanced public policy solutions that
fostered innovations, promoted economic growth, and
empowered people through a free and open internet. She
spoke in opposition to HB 102. Internet Association
appreciated the Alaska State Legislature for acting to
provide regulatory clarity for transportation network
companies and phone sharing platforms so they could
continue to operate in Alaska to the benefit of tourists
and residents. Similarly, she believed clear and fair rules
for peer-to-peer car sharing platforms would benefit the
State of Alaska. Unfortunately, HB 102 treated the
peer-to-peer vehicle sharing platform the same as a rental
car company. They were two different business models and
should not be considered the same. Most prominently, car
rental companies owned and maintained a fleet of vehicles
while peer-to-peer car shares did not. She thought HB 102
needed some work with shareholders. Internet Association
and its members were willing to figure out a solution for
appropriate regulations. She argued that categorizing and
defining a peer-to-peer car share as a car rental company
did not work. Peer-to-peer vehicle shares offered car
owners a chance to earn extra money at the owner's
convenience. She thought it provided an opportunity for
residents and tourists to have access to cars that they
would not otherwise have. Internet Association and its
members were willing to work with the bill sponsor and DOR
to try to figure out a solution.
2:31:36 PM
BRIAN ROTHERY, VICE PRESIDENT, ENTERPRISE HOLDING,
SACRAMENTO, CA (via teleconference), shared some background
information about the company. The company had operated in
Alaska since 1989 and had more than 100 employees that
lived in Alaska. They had a fleet of 1900 cars in 20
locations in the state. They recruited college students,
had a broad base of employees, and paid taxes in Alaska. He
thought the taxes reflected the company's fair share of
contributions into the economy. He continued to provide
additional information about the company's contributions to
the state. He spoke in support of HB 102. He thought it was
the right way to embrace a new source of supply into the
car rental market. He believed enacting fair rules would
result in greater choice to rental customers, more
competition in the industry, and allow car owners to make
extra money. In particular, remote locations could benefit
from increased access to transportation options. He spoke
of additional benefits. He argued that the rules for the
new source of supply should be clear to customers and
service providers.
Mr. Rothery offered that the need for rental cars was not
impacted by the ownership model for the service provider.
He suggested that the supply was also the same. From the
vantage point of the customer, the supply and the demand
were the same. His company believed that for-profit
companies competing for the same demand using the same
supply should be treated the same under the law. The source
of the supply was not material to the issues in HB 102. He
thought the bill related to the companies operating in the
space and about making sure all for-profit companies paid
their fair share.
2:36:45 PM
MICHELLE PEACOCK, VICE PRESIDENT, TURO, SAN FRANCISCO,
CALIFORNIA (via teleconference), referenced a letter
submitted to members. She explained that Turo was a
platform and a marketplace where car owners and people who
needed cars could find each other to work out an
arrangement to share a car. It was similar to eBay except
instead of buying and selling goods people were car
sharing. Turo was headquartered in California but operated
in several places in the world. Turo's customers were eager
to share cars for several reasons. First, they liked to
monetize an under used asset. Turo provided an opportunity
to cut costs for a person to own their car. It was a great
way to cover car payments. It also provided opportunities
for people looking to rent cars as well. Turo had over 850
different makes and models made available by the car owner
customers. The owner decided on the price. She relayed that
TNCs were very different as businesses from Turo. The only
thing they really had in common was a car. It was a new
idea being embraced in Alaska. Turo opposed HB 102 and
would appreciate an opportunity to work with the
legislature to craft a piece of legislation that made sense
for the state. She encouraged Alaska to put in place a
regulatory framework. The company had great experiences
working and collaborating with legislatures across the
country over the prior couple of years. Legislation
creating a framework had passed in 2018 in Maryland and,
more recently, in Indiana and Colorado. The company's goal
was to recognize what made sense for a state and for the
people of Alaska. She reported that 13 other states had put
forward similar legislation that was rejected. The trend
was collaborating with a community of peer-to-peer car
sharing companies to work out the issues.
2:43:30 PM
Representative LeBon asked about the process of applying on
Turo to list his car for sharing. Ms. Peacock explained
that a person would apply online at Turo's website and go
through a screening process. Following the steps, a person
would be allowed by Turo to list their car for sharing.
Representative LeBon continued that assuming he was
accepted as part of the clearing house, he would be added
to the group of car owners that were renting their cars
through Turo's system. He asked how many clients Turo
numbered in Alaska at present. Ms. Peacock responded that
700 customers in Alaska had listed their cars on the Turo
platform
Representative LeBon assumed Turo was present in every
state in the United States. He asked if Turo had run into
the issue in other states about who was responsible for
collecting a sales tax. He wondered if Turo remitted sales
taxes on behalf of its clients in other states. Ms. Peacock
responded in the affirmative. She noted that when the law
required Turo to collect and submit the tax on behalf of
its customers, the company did so. Presently, Maryland was
the only state that had the requirement. The legislation
which passed more recently in Indiana would also require
Turo to remit sales taxes on behalf of its clients.
Representative Merrick asked if the consumer ultimately
paid the 10 percent tax. Ms. Peacock responded in the
affirmative. The customers would pay the tax. However, she
thought it was important to draw a distinction between the
operations that a rental car company underwent to address
the tax collecting and remittance and the impacts there
would be on an individual citizen of Alaska. The main issue
was about the chilling effect that a new tax on a new kind
of business platform in Alaska would have on the growth of
the business.
2:46:34 PM
Representative Merrick wanted to hear more about the
impacts on the citizens of Alaska. She also wanted to know
if Ms. Peacock was aware that Alaska did not have a
statewide sales or income tax. Ms. Peacock was not opposed
to a tax but wanted to be included in the conversation to
figure out what would be appropriate. She brought up the
issue of certain complexities in Alaska.
Co-Chair Wilson asked if she knew the State of Alaska
charged a different rental tax to different entities. Ms.
Peacock responded that the RV industry paid a different tax
than the car rental industry. Co-Chair Wilson clarified
that there was a different RV tax and a motorcycle tax. She
wondered if Turo was comfortable with the fees if the state
was consistent. Ms. Peacock asked her to restate her
question. Co-Chair Wilson asked if Turo would be okay with
collecting taxes as long as the state was consistent.
Ms. Peacock clarified that Alaska had clearly undergone an
evaluation of other industries such as motorcycles and RVs
and determined, because they were different, they should
have a different tax rate. Turo was asking to have a
conversation about the tax rate. Turo believed the tax rate
should be less than the car rental industry. The peer-to-
peer car sharing industry had a lower impact on roads and
services and a different impact on communities than a car
rental company.
Co-Chair Wilson commented that taxes for motorcycle rentals
were lowered because of the vehicle type. She did not know
why Turo thought it should have a lower tax rate. Ms.
Peacock respectfully argued that the business was a
different business. She returned to the notion of working
collaboratively to craft legislation.
2:52:35 PM
Co-Chair Wilson CLOSED Public Testimony.
Co-Chair Wilson wanted to have the Department of Law speak
to the committee about the bill. She also wanted to look
into the recently adopted legislation in Maryland and
Indiana.
Representative Wool indicated that HB 102 also defined a
vehicle rental network modernizing some language in
statute. It also included traditional rental car companies
such as Enterprise - it would be defined as a vehicle
rental network. The direct renter of vehicles would be the
individual on Craigslist for example. He asked Turo why
they should have a discount on vehicle rental tax. He had
not heard a satisfactory answer. He suggested that no
matter the modality of purchase, it made sense for the
peer-to-peer networks to collect and pay the tax. He
thought they should be liable for the tax. Since all the
transactions went through Turo, it made sense that the
company would be responsible for submitting the tax to the
state rather than DOR searching out 700 individuals. He
relayed that the average Turo renter host had 3 vehicles.
He thought the state should be getting its fair share of
vehicle rental taxes.
Co-Chair Wilson argued that there were several more
questions to be answered prior to moving the bill out of
committee. She would not set a time for amendments.
HB 102 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 131
"An Act relating to an appropriation limit; relating
to the budget responsibilities of the governor; and
providing for an effective date."
2:56:14 PM
^PRESENTATION: APPROPRIATION LIMIT BY OFFICE OF MANAGEMENT
AND BUDGET
Co-Chair Wilson had asked for a comparison of spending. She
had been working with Vice-Chair Ortiz and his staff.
2:56:50 PM
ED KING, CHIEF ECONOMIST, OFFICE OF MANAGEMENT AND BUDGET,
introduced the PowerPoint presentation: " Comparison of
Various Appropriation Limit Proposals." He asked if the
committee wanted him to skip some of the introductory
slides if necessary.
Co-Chair Wilson remarked that the finance committee had
nowhere else to be.
Mr. King began with the graph on slide 2: "UGF Spending
History." The slide showed an illustration of the history
of spending and why a spending limit was important to the
governor. In 1977, when oil started flowing on the North
Slope, the revenues of the state increased dramatically as
did spending which generated a desire by the public to
introduce a spending limit within the constitution. In
1982, after a 264 percent increase in government spending
the people voted to limit the spending. Over the following
25 years spending was kept relatively in-check. The state
had 20 years where spending barely moved other than the
volatility in some of the revenues generated. The state had
fairly flat spending for 2 decades until 2005 when oil
prices started to escalate at a meteoric rate. The state
saw the 264+ percent increase in undesignated general funds
(UGF) spending reminiscent of what was seen in the 80s. It
brought to mind the question of whether the spending limit
was actually being effective. In both instances where there
was an increase in spending, there was a decrease in
spending. However, it was much quicker to increase spending
than to cut it back. In the current fiscal environment,
spending was far above what it was before the increase in
revenue was experienced.
Mr. King reviewed slide 3: "UGF Spending History and
Different Limits." He reported that the spending limit that
was currently in the constitution, the $2.5 billion that
grew with population and inflation represented by the
dotted black line, grew overtime regardless of whether the
government was actually growing or not. The limit continued
to grow based on the previous year's limit, not based on
the previous year's spending or revenues. It continued to
grow regardless of any circumstances occurring. He noted
the blue area represented agency operations, the red area
represented statewide items such as debt service and oil
tax credits, and the grey area represented the capital
budget. All three classifications of government spending
had increased over the period on the chart. He also
included a couple of other representations. The dotted line
in the middle represented what would have happened if the
one-half of inflation and population that was contemplated
in House Joint Resolution (HJR) 7 were to have been put
into place rather than the full consideration of population
and inflation. The rate of increase was about half as much.
The black dashed line below tracked actual spending which
was adjusting every year. It was the language that was in
the current constitutional amendment before both bodies. He
suggested that because the limit was adjusting to actual
spending, it never detached from what actual spending was.
When revenues increased, it would not have allowed the
increase to occur. Otherwise, it just tracked what actual
spending was, and when an increase occurred it stayed flat.
It showed what the spending would have looked like had the
provision already been in the constitution. It was
consistent with what it was in 2004 adjusted for inflation.
Mr. King also presented one other idea. He reported that
the red dashed line was representative of what the current
limit would have been if, instead of pegging the spending
to the high level of spending in the 80s, the base was
pegged to the level of spending before the increase in
revenues in 1982 and using the same language that was in
the constitution. He added that the 1975 spending adjusted
for full inflation and population would be right around
what agency operations were the previous year. It was about
$500 million or $600 million below the total budget because
of the other items. The way the limit was structured had
meaningful impacts on how the limit grew over time.
3:01:45 PM
Mr. King addressed slide 4: "Sources of UGF Spending
Growth." He explained that when he showed the graph of
escalated spending, much of the time the question arose
about how the state spent its money. The chart showed a
breakout of the different ways the state increased its
spending from 2005 to 2013 and where the cuts occurred in
the years that followed. He highlighted that a significant
amount of capital budget spending occurred and was
represented in grey. Other changes occurred including
changes to agency operations, the retirement system, and
oil tax credits which all contributed to the increase in
spending. He pointed to the black bars that represented
actual agency operations spending in 2005 continued over
time and adjusted for inflation. The red bar showed agency
operations that had grown more than inflation. It
represented real growth in operations. In 2013, the real
operations growth was $1.3 billion above what it would have
been in 2005. Since then, about half had been pulled back
out of the budget. The state was currently about $750
million above what inflation would have allowed.
Representative Josephson wondered why, relative to Mr.
King's previous comment about the $750 million above what
inflation would have allowed, he did not see anything so
large on the chart. He asked about the numbers.
Mr. King responded that the numbers were provided by the
Legislative Finance Division. He took the 2005 operations
and inflated it with actual inflation. The actual spending
was $750 million above that level.
Representative Josephson relayed that in oil tax credits
alone, Mr. King had $100 million and other statewide
growth. Public Employees' Retirement System (PERS) and
Teachers' Retirement System (TRS) were more substantial. He
asked how the numbers were backed out in deriving the $750
million difference.
Mr. King responded affirmatively. They were separated. The
$750 million was in addition to the PERS and TRS and the
oil tax credit contributions. The total increase in
spending was just over $1.2 billion above what an inflation
adjustment would have allowed.
Co-Chair Wilson asked committee members to hold their
questions until Mr. King finished his presentation.
Mr. King detailed the bar graph on slide 5: "UGF Revenue
and Expenditure History." He relayed that another question
that occurred had to do with revenue and response to
revenue. It was accurate that the legislature responded to
changes in revenues. On the chart he plotted the 5-year
average revenue against actual spending. He thought it
correlated well. It was a fact that the legislature was
responding to changes in revenues which was one of the
reasons the interest in a spending limit was so high. If
there was another increase in revenues in the future, the
governor did not want to see a substantial increase in
spending.
Co-Chair Wilson wondered if the legislature did not reduce
the budget by $750 million whether it would change the
spending cap proposed by the governor. She was trying to
determine the starting point and how it would change if the
legislature was not at the specified amount.
Mr. King explained that the governor's proposed
constitutional amendment took the previous 3 years of
budgets (actual appropriations) and reset the spending
limit for the following year. If the legislature spent
below the limit, the following year the limit would go
down.
Co-Chair Wilson asked for the reset amount for the first
year. Mr. King responded that if the spending limit went
into effect in the following year, the spending limit would
be slightly more than $5.3 billion which was more than the
body was contemplating spending. Therefore, the year after
that the limit would go down because the average would go
down. He would point out the transition period later in his
presentation.
Co-Chair Wilson asked if the average would continue to
decrease each year the state spent less. Mr. King replied,
"That's correct. The limit adjusts to the actual needs of
the government."
3:06:53 PM
Mr. King discussed the table on slide 6: "Limit Rules
Comparison." The chart showed a side-by-side comparison of
the different versions of the spending limit. It compared
the House and Senate versions of the statutory spending
limit as well as the House and Senate versions of the
constitutional spending limit put forward by the governor.
The current constitution spending limit rules were also
included. He broke out a few spending categories to show
how they were similar and how there were different. In all
the proposals federal funds and things that were not
included in the general fund were all excluded from the
cap.
Mr. King relayed another item excluded from the cap was
disaster relief and things that were part of the budget but
not considered spending. For example, transferring money
from one account to another without spending it or
duplicated funds, like interagency receipts or
reappropriations, were not considered spending.
Mr. King mentioned that general debt obligation service was
also excluded. Things that were included in the cap were
agency operations and capital projects. The bottom 5
categories listed on the chart were where the differences
could be seen in the version comparisons. Revenue bond debt
services was excluded in all the versions except for in the
current constitution. Other designated general funds were
excluded in the constitution and in both constitutional
amendments. However, it was excluded in the statutory
versions. In both HB 131 [Legislation introduced in 2019
regarding an appropriation limit] and its companion bill,
SB 104, the designated general funds lived outside the cap
which meant they could grow without limit. Whereas, in
House Joint Resolution (HJR) 7 [Legislation introduced in
2019 - Short Title: Const. Am: Approp. Limit; Reserve Fund]
and its companion bill, Senate Joint Resolution (SJR) 6,
they were included in the cap and part of the limitation.
School debt reimbursement was excluded in HB 131 because
the language indicated all debt service.
Mr. King elaborated that in the working draft version K of
SB 104 there was a provision that specifically included
school debt reimbursement. In HJR 7 and SJR 6 they were
included in the cap by necessity. The Public Employees'
Retirement System (PERS) and TRS contributions were
included because they were not considered to be actual debt
of the state even though they were an obligation of the
state. He pointed out that there was some ambiguity in the
current version of HB 131 that came up because in SB 104
language was included to specifically exclude PERS and TRS
contributions which raised the question whether it was
otherwise included. Lastly, in the constitutional
provisions Permanent Fund Dividends were excluded from the
cap. In the statutory proposals the Permanent Fund
Dividends were under the cap.
3:10:28 PM
Mr. King continued to slide 7: "Limit Rules Comparison."
The 3 moving pieces of the bills included the base limit.
The current version of the bill had a $5 billion limit. The
senate version increased the limit to $6 billion. The
governor's proposed constitutional limit in both bodies
used an adjusting average every year and reset to a 3-year
average. The current constitution had a $2.5 billion base
and was based on 1982. The others were based on 2020.
Mr. King relayed that in terms of how the limit changed
over time, the version in front of the committee had a
5-year average inflation adjustment. He pointed out that
the language indicated that the amount did not grow over
time -the last 5 years of inflation was pegged to the $5
billion. In the Senate's committee substitute the language
was changed to the 5-year average since 2020. The average
was adjusting based on the 5-year average of inflation
allowing the rate to grow at the rate of inflation. In the
governor's original proposal, the escalation rule was
one-half of the prior year's inflation and population
growth, but it was capped at 2 percent. If there was high
inflation or population in a year, it would not be able to
grow more than 2 percent.
Mr. King continued that in the Senate's version of the bill
currently in the Senate Finance Committee it was changed to
the average of the previous 5 years of inflation and was
tied to the average of the 3 previous years of
appropriations. The current constitution allowed a full
rate of inflation and population growth year-after-year. It
allowed the rate to grow based on inflation. The exception
applicable to the capital budget was that the limit could
be broken for capital projects. In the version before the
committee there was no exception. In the Senate's version
and committee substitute included a 5 percent kicker above
the limit. He indicated that in the governor's proposal
there was no exception. However, in the Senate's substitute
a 10 percent deviation was allowed if funds were available.
The current constitution stated that although there was a
limit, it could be broken with a super majority of the
legislature.
Co-Chair Wilson asked for clarity about capital projects
and exceptions to the capital budget cap. Mr. King relayed
that in the current version the term "Capital Improvement"
which was interpreted as brick and mortar. The provisions
in the Senate's version of the constitutional amendment
contained the same language. From a statutory perspective
it was difficult to interpret because the legislature had
the authority to appropriate and could include anything it
wanted to. He noted that for the constitution it would
depend on how the court interpreted the phrase, "Capital
improvement." He asserted that just because it was in the
capital budget did not mean it qualified.
Mr. King talked about the spending trend reflected on
slide 8: "UGF Spending Trend." The slide showed the growth
rate of the budget since 2000. From 2004 to 2013 the budget
grew about 14 percent per year. The 15-year average rate of
growth of the budget was 4.6 percent, much higher than the
rate of inflation. He conveyed that when looking forward on
how the limit was changing and how government spending
could be expected to change, there was some historical
context that might be reasonable to assume.
3:15:03 PM
Mr. King turned to the graph on slide 9: "Revenues, Target
Budget (4 percent growth), and HB 131 Spending Limit ($5
billion plus inflation)." The slide showed the target
budget at a 4 percent growth rate which was represented by
the black bars. The red dashed line showed the spending
limit in HB 131 of $5 billion. If the budget target
exceeded the budget limit, it would not allow it to grow.
Mr. King continued that with a budget growth of 4 percent
and a spending limit of less than 4 percent, they would
eventually converge. The stacked bar showed how items were
paid. The bottom portion of the bars (shown in black)
represented UGF revenues, mostly oil revenues. The
remainder of the stack (denoted in green, green hashes, and
purple combined) represented the percent of market value
(POMV). The green portion of the bar was what was left over
after deducting the statutory PFD. The top area [including
the purple and green hashed portions of the bar]
represented the PFD calculation. The green hashed bar
represented what should have been given to the people as
part of their PFD but was diverted for government spending.
He reported that the limit could be distributed to the
people only above what the government was spending and
below because the limit included the PFD. In other words,
any amount more than the PFD could not be distributed. Even
if there were enough revenues to pay a larger PFD, the
legislature was prohibited to do so because the law did not
allow it.
Mr. King continued to explain that in all the cases he was
presenting, there was revenue exceeding the limit, which
meant there was money available to pay a greater PFD.
However, the legislature was prohibited to do so. The only
way to pay a PFD (if the PFD was under the limit) would be
to decrease government spending. Even with more revenues
from additional taxes, the limit would not change.
Therefore, a larger dividend could not be paid even if a
tax was raised. The difficulty of including the PFD under
the limit was that it inserted conflict with the PFD and
government spending with no other options of revenue.
Revenues more than what the legislature was allowed to
spend were above the line. Therefore, the money stayed in
the bank rather than being distributed.
Representative Josephson thought he heard Mr. King saying
that under the new proposed bill, the legislature would be
hemming in its capacity to pay a larger dividend because
the state could raise revenue above the red line but not
spend it on a dividend. He wondered if he understood
correctly. Mr. King responded that he was correct. The
legislature could not spend the excess money on anything
under the cap including larger government or larger PFDs.
The limit was not actually limiting government growth, it
was only limiting the legislature's ability to pay the PFD.
Representative Josephson was struck by some irony because
the administration also hemmed in expenditures by not
allowing any real discussion of other revenue. Mr. King
responded that the governor's proposed spending limit did
not include the PFD. Therefore, the PFD was unlimited. It
would prevent the government from growing, which the limit
was intended to do. By implication, it meant the state
could raise more revenues but could not spend them. He did
not follow the representative's question.
Co-Chair Wilson suggested that in HB 131, by including the
dividend in the cap with the intention of keeping spending
down, it might have the opposite effect. The dividend might
get squished rather than reducing spending. She supposed
that the government could increase its revenues, but the
legislature would still be limited to how much it could
spend with a spending limit in place based on the average
spending for the previous 3 years and inflation. In other
words, it was not about how much revenue was generated, it
was about the limit in spending.
Mr. King added that if the legislature wanted to raise
government spending by raising new revenues, it could be
done under the limit. However, to do so, a tax would have
to be implemented, and because the PFD was under the limit,
it crowded out the PFD. As a result, people would end up
getting both a tax and a cut to their PFD because of the
PFD being under the limit.
Co-Chair Wilson asked about what should be inside the cap
and what should be outside the cap. She wondered whether
there would be more pressure on how much the legislature
was spending if the PFD was outside of the cap. Mr. King
responded that if the PFD was outside of the cap, the cap
would only apply to spending. The limit would only be
controlling government spending - it was not controlling
the PFD and how much was being distributed. It would be up
to the legislature to decide or the people to decide if
they wanted to put it in the constitution.
3:22:25 PM
Mr. King continued to slide 10: "Revenues, Target Budget (4
percent growth), and HB 131 Spending Limit ($6 billion plus
inflation)." He relayed that in the Senate's committee
substitute version of the bill the spending limit was
increased to $6 billion which was reflected on the slide.
Because there was room under the limit, the legislature
could raise more revenues and grow government without
cutting the PFD further. He pointed out that the spending
limit was not limiting anything. It was hovering above the
spending limits. If the intent was to limit government
spending, it was not working the way it was intended.
Co-Chair Wilson did not think the charts reflected where
the state wanted to go. She thought perhaps the PFD should
be kept outside of the spending cap. Mr. King responded
that she was correct in that the consequence of putting the
PFD inside the cap was that it competed for the other
budget. He pointed out that the statutory calculation for
the PFD was represented in purple and the hashed portion.
The hash was the portion of what should be the PFD that was
being diverted to government to get to the spending target.
Vice-Chair Johnston asked if the chart reflected the
current POMV. Mr. King replied that the green, hashed, and
purple bars added together was the POMV. The green was left
over after removing the statutory PFD.
Vice-Chair Johnston clarified that the green, hashed, and
purple equaled the POMV. Mr. King responded, "That is
correct."
Co-Chair Wilson noted the chart was very helpful.
Mr. King highlighted that the chart showed the distribution
of money from the POMV that was going in each direction.
The green was about a third of the total bar. Therefore,
two-thirds was the calculated POMV and one-third was what
was left over from the POMV after the PFD payment. If the
calculation were to change to 50 percent of the POMV, it
would not change the numbers, just the colors of the bar.
The green would go higher, and the hash would turn green.
It did not change anything. The same amount of PFD would be
paid.
Co-Chair Wilson referred to the governor's proposed budget.
She asked for clarification as to how the bars would
change. Mr. King responded that the specific graphic did
not contain the 3-year adjustment. The chart included the
statutory provision allowing growth with inflation. He
relayed that if the budget was cut further to what the
governor proposed, the black line would shift down. It
would mean that the hashmark, instead of being diverted to
government, would turn purple and would go to the people of
Alaska.
Co-Chair Wilson suggested that even though the 5-year
average was not accounted for in the chart, 202 would be
part of the average and the numbers would continue to reset
the spending cap down a certain percentage for the
following year. Mr. King responded that if the base could
readjust to spending like in the constitutional amendment
proposal, her statement would be true. House Bill 131 did
not adjust for the spending level.
Representative Josephson asked for clarity around what the
chart would look like if the governor's intensions were
achieved. Mr. King responded that the governor intended for
the legislature to pay the full PFD and the budget would
have to be moved down to the green to do so.
Representative Josephson suggested neither body [House or
Senate] could come close to what was being proposed. He
asked why the bill was a practical path forward.
Co-Chair Wilson commented that it was not about how
practical the proposal was, rather, it was about what the
bills did. The committee was trying to learn what the bills
did. She thought that it was an entirely different policy
discussion as to why the legislature spent more money than
it needed to. She asked Mr. King to continue to the
following slide.
3:28:17 PM
Mr. King presented scenario 1 on slide 11: "Randomly
Generated Scenario 1." He indicated that in looking at
spending limits under static conditions where there were
nice smooth lines, projections were flat, and everything
appeared easy. It was not how reality worked. He thought it
was important to look at what circumstances were created
when volatility was introduced. The following 2 slides were
reflective of the computer randomly generating an oil
price, oil production level, investment return level, and
inflation level. It looked at what happened under the
different provisions when volatility could occur. The slide
showed one scenario showing 2 provisions. He could not show
the line on the same chart because when there were
different impacts on the savings accounts, there were also
different impacts on investment returns.
He relayed that in the scenario oil prices spiked up and
down and up again, as well as investment returns jumping
around. Under the $5 billion limit, there were small PFD's
that went away over time. There were enough revenues to pay
a larger PFD, but the limit would not allow it. On the
right the limit was a $6 billion. However, the limit was
not limiting anything unless oil prices went up or
investment returns went up significantly. When it limited
something, it limited the PFD. Unless the body was willing
to reduce the black line further, they could pay a larger
PFD. However, that was not what the limit was doing.
Mr. King moved to the second scenario on slide 12:
"Randomly Generated Scenario 2." The slide showed another
scenario where the oil prices were different as well as
investment returns. He highlighted that the limit was
restricting the PFD distributions, although there was
revenue to pay for them. On the righthand chart showed the
$6 billion which only limited in high revenue years. He
pointed out that there was something interesting that
happened in a couple of the scenarios where the
distribution of the POMV got what was left over after the
PFD calculation got very small in some circumstances. He
thought it was worth paying attention to.
3:30:57 PM
Vice-Chair Johnston needed to know how Mr. King was
modeling the scenarios. She wondered if the operational
budget was growing in his examples.
Mr. King responded that the model was setting the 2020
number at the level the legislature was proposing. It
started at the level of proposed spending by the
legislature. Each year the budget attempted to grow at a
rate of 4 percent - slightly lower than the historic rate.
The model indicated to try to grow the government at 4
percent if allowed. Once the budget ran up against the
limit, it was not allowed to grow, therefore the limit was
controlled. On the left it showed the $5 billion limit and
that government growth was limited in 2027. On the right,
because of the higher limit, the growth could continue
causing smaller investment returns. More outflow of money
being taken from the savings accounts lead to smaller
returns.
Vice-Chair Johnston was concerned with the modeling of the
revenue. She wondered how he reached the revenue amounts.
Mr. King explained that the model was calculating what the
anticipated royalty and tax payments would be from oil
companies by allowing the oil price and production levels
to be randomly generated within the distribution he
defined. It was between $40 to $120 and bounced around. In
the production world there were three cases: high, low, and
medium. He used them as parameters. There was a
distribution the computer could select within the confines
of production projections. For investment returns, it
figured out what was being spent. If there were excess
revenues, the savings rules were followed. The savings
accounts received a return on their asset levels based on
the defined distribution - the historic performance of a
particular fund. The actual POMV beginning in 2022 was 5
percent of the total fund value. The combination of the 4
components made up the entire POMV which was calculated in
the way SB 26 [Legislation passed in 2018 regarding an
appropriation limit, the Permanent Fund, the Permanent Fund
Dividend, and the Permanent Fund Earnings] contemplated.
3:35:07 PM
Vice-Chair Johnston asked Mr. King if he was basing the
revenue on a consistent forecast derived from based on the
most recent revenue forecast other than the POMV. Mr. King
indicated that he was using all the current laws and the
revenue forecast as the baseline forecast defining the
random distribution. The model was a scenario randomly
generated within the distributions. The purpose was to show
what volatility might do. Vice-Chair Johnston would be
interested in doing additional modeling with Mr. King's
tool.
Co-Chair Wilson mentioned there was an assumed growth rate
of 4 percent. She thought it would be interesting to see a
model reflecting other growth rates such as 1 percent, 2
percent, or 3 percent. She wondered if the purple was on
the bottom and fulfilled first. She thought the modeling
showed the PFD getting squished rather than government
growth which was not necessarily the intent of the
committee. She thought some other modeling would be nice.
Mr. King explained that the bars represented revenues
rather than expenditures. The chart reflected the statutory
calculated PFD, not what the legislature actually paid as
the PFD. There was no paying the PFD first.
Co-Chair Wilson thought what he was saying was that the
amount spent on government was going up 4 percent per year
which was why the purple bar ended in 2025. She believed
Mr. King was assuming the state's spending would not
decrease. She wondered if the graph would change
significantly if the state reduced its spending by 2
percent.
Mr. King tried to explain that it would not change the
graph. The red line would remain the same. The only thing
that would be different was the black line. At any point,
the legislature could reduce the budget and increase the
PFD.
Co-Chair Wilson thought the graphs made the legislature
appear to be considering the PFD last. She wanted the
public to know that the exercise was about deciding whether
the PFD should be inside or outside a cap. Based on the
graph she did not think the PFD should be inside the cap.
She wanted to see the state control its spending. If the
legislature could not reduce spending on its own, she
wondered how to force the spending. She did not want the
dividend to be the looser. She emphasized trying to
understand what was included in a spending cap and what was
not. She wondered if the administration had considered all
factors before coming up with their idea.
Mr. King was not suggesting what future legislatures might
do. He was showing that if the legislature continued to
grow at the rate it had over the previous 15 years, there
would be consequences. The consequence was putting the PFD
under the limit. It forced the legislature to make the
decision. If budget growth could be restricted, a person
could get a larger PFD. However, it had not been the
tendency. If a certain PFD amount was designated, by
necessity the level of spending would be constrained. The
current budget was not drafted accordingly.
Representative Knopp thought Mr. King had stated that
limiting budget growth would determine the size of the PFD.
He asked if the statement was accurate that the size of the
PFD was determined by rate of return on investments. Mr.
King explained that under HB 131 if the PFD was within the
limit, there was only so much money to spend. Every dollar
that was spent on government was a dollar that could not be
spent on the PFD and vice versa. He suggested that by
including the PFD under the limit, the PFD would be limited
by how much was spent on government.
3:40:58 PM
Representative Knopp returned to slides 8 and 9. He noted
Mr. King spoke of 15 year averages and showed a growth of
4.6 percent. He asked what rate of growth Mr. King
recommended under HB 131. He quoted AS 37.05.540 regarding
appropriation limits. He wondered why the existing
appropriation limit was not working.
Mr. King thought Representative Knopp had referenced the
statute relating to the statutory limit associated
exclusively with the Alaska Mental Health Trust. The
current constitutional spending limit allowed the limit to
increase by the rate of inflation and population which was
less than the 4.6 percent average growth through the
previous 1.5 decades. The proposal by the governor was to
cut the rate in half - half of population and half of
inflation. The Senate suggested that a 5-year average
inflation rate was more appropriate with no consideration
of population. It would be up to policy makers to decide
what was appropriate. The idea was that some limit must be
in place if the legislature wanted to have a limit.
Representative Josephson pointed to the lavender bar on the
right of slide 12 of the presentation. He asked if the bar
represented unfunded Permanent Fund Dividends. Mr. King
responded that it was money available for distribution for
the PFD but was unable to be distributed because of the
limit in place. With $100 oil in the current year, there
was were high oil revenues. There were enough revenues to
pay a larger PFD, but the limit would not allow it because
the PFD was under the limit.
Representative Josephson thought under the current random
scenario Mr. King was projecting the dividend outlay to be
about $4 billion. In other words, people would receive a
$6000 check. For a family of four they would receive
$24,000. Mr. King answered that the randomly generated
scenario generated a dividend as large as the
representative had suggested.
Representative Josephson surmised that under the current
formula, the state was on a track to pay a family of four
$24,000 in dividends in 10 years. Mr. King responded that
he was not showing an actual projection of future events.
It showed one possibility of many outcomes. In the
particular year there was a 25 percent return which
generated the exceedingly high PFD calculation. However,
the POMV number had not caught up because of the lag in the
averaging. There was a high PFD calculation, even though
other scenarios would generate a smaller number because of
smaller returns. He was not suggesting what would happen,
but it was a possible outcome.
Representative Knopp had spoken to the LFD director who
affirmed what he thought: AS 37.05 did not refer to the
Alaska Mental health Trust appropriation. Section B
outlined what was exempt from the cap. It also discussed
the level of appropriation. He wanted Mr. King to look at
the existing statute. He was wondering why the cap was not
working.
3:45:32 PM
Mr. King moved to slide 13 and reviewed the House and
Senate joint resolutions put forward by the governor and
changed by the Senate. In the original provision there was
an allowed escalation of one-half of inflation and
population with a maximum of 2 percent. The 2 percent limit
did not actually kick in in the baseline projections. It
was just half of inflation and population. The Senate
adjusted it to a 5-year average adjusted for inflation
without a consideration of population. It grew slightly
more but not excessively. He highlighted that, because of
the 3-year averaging, there was a period where the state
was spending less than the limit which required the limit
to be adjusted downward. In either case, there was a period
of transition before the growth trend kicked in.
Mr. King looked at slide 14: "Comparison of No Limit to HJR
7 / SJR 6 Limit." He explained that because the PFD was not
under the limit there were no hashes. He clarified that he
was only looking at revenue. The black line represented the
target budget. The dotted line showed what the 4 percent
budget growth would look like. He continued that the red
dotted line represented what SJR 6 growth would look like
without consideration of spending. If the state were to
spend to the limit every year, there would be a very small
growth rate. The dashed line showed the adjusting rate down
to the actual amount. In FY 20 he expected actual spending
to be below the calculated spending limit which would
trigger a reduction in the limit. It trended down to a
level similar to FY 05 and grew at the same rate. The chart
showed the baseline projection of revenues projected to the
10-year mark. It was also the Alaska Permanent Fund
Corporation's projection of earnings.
Mr. King explained that the green and the purple combined
equaled the POMV. The purple was the calculated amount for
the PFD. He pointed out there was a decrease in revenue in
the near term. As new infrastructure was being developed
there would be an increase in out years once it came into
production. Anything under the black line needed to be
funded somehow. He suggested that because there were not
enough revenues, there was a shortfall between the black
line and the green bar that needed to be addressed. He
offered that because the PFD was not under the limit, it
could be addressed through taxes, savings draws, budget
cuts, or through the PFD. If the state were to use the PFD,
everything above the line would be distributed as the PFD.
By comparing the different lines, the potential impacts
could be seen showing how much of the funds would get
diverted from the PFD calculation to government and how
much could be distributed. If budget cuts were made, there
would be a larger PFD payout. Eventually, without a limit
there would not be enough revenues to fund the call for
cash.
Co-Chair Wilson asked what percentage decrease in the
operating/capital budgets would be needed to maintain a
full PFD and keep the state under the red line. Mr. King
answered that cuts would have to be greater than what was
being proposed. He thought an additional $500 million to
$600 million would have to be cut from the budget.
3:49:55 PM
Co-Chair Wilson asked if they would have to take out $2.1
billion in FY 20. Mr. King replied that the state would
have approximately $3.8 billion in revenues to spend on UGF
and designated general funds (DGF). It was another several
hundred million below what was being proposed.
Co-Chair Wilson noted the black dotted line representing
the budget growing at 4 percent. She asked if the
anticipated growth rate was 2 percent per year in the
Administration's proposal for SJR 6. Mr. King replied the
anticipated growth rate was just under 1 percent which was
what the limit allowed.
Co-Chair Wilson noted the state had just signed contracts
reflecting a range of zero to over 4 percent plus 7 percent
for public safety. The contracts did not include steps. She
assumed the number of employees would have to be reduced
rather than looking at salary reductions. Mr. King
suggested that the legislature would have to find
efficiencies or reductions.
Co-Chair Wilson rebutted that the legislature was not being
discussed. She was talking about the administration. She
was trying to figure out how the administration would apply
a spending cap based on a 1 percent growth rate when
contracts were currently being signed and without
legislation that would reduce the rate to 1 percent. The
governor had offered legislation that would increase the
rate to 1.7 percent. The numbers in her head did not work.
She wondered how many positions would have to be reduced to
stay within the 1 percent growth rate based on the
administration's spending limit.
Mr. King responded that it was a significant challenge. He
did not have the answers. There were no easy answers.
Co-Chair Wilson asked who might be able to answer her
question. She was not trying to figure out the numbers. She
wanted further clarification. Mr. King replied that he
would have to get back with the representative with an
answer. He offered that presently the governor put forward
a proposal and it would go through a process. The
administration was willing to have a conversation about
what the right numbers should be. Co-Chair Wilson thought
it was important to know where the numbers came from and
what levers were used. She wanted to understand what had
changed to get the numbers right.
3:55:09 PM
Vice-Chair Ortiz asked Mr. King if he thought that any
constitutional change would require a spending cap. Once
things were put in the constitution it became more
difficult to adjust. He wondered if things like
inflationary rates should be taken into consideration.
There had not been significant inflation in the past
several years. He noted the employment rate of the nation
had dropped below 4 percent. He asked Mr. King if he agreed
that lowering unemployment rates was a significant
inflation causation. He thought inflation could increase up
to 6 percent or 7 percent in a few years.
Mr. King responded that the inflation rate was something
the Federal Reserve tracked and tried to control. They had
done a great job. The expectations for inflation were in
the range of 2 percent to 2.5 percent for the next decade
or more based on the federal target. Vice-Chair Ortiz was
correct that there were things beyond their control, and
anything was possible.
Vice-Chair Ortiz made the point that if something was going
to be placed in the constitution a consideration should be
made. Mr. King indicated that if something was to be placed
in a document that was rigid, there needed to be a
mechanism that would adjust to things like inflation or the
rate of spending to allow for flexibility. A fixed number
was currently in the constitution and allowed it to be
detached for the actual needs of government. Co-Chair
Wilson comment, "Rigid but flexible. Those two items go
together."
Vice-Chair Johnston thought the current federal
administration was hoping for 4 percent inflation to come
close to preventing the nation's debt from growing. She
referred to page 6 regarding what was included and not
included. In HJR 7 version A agency operations, capital
projects, and PERS and TRS contributions were included. She
wondered what modeling was used in contract negotiations.
She suggested that if the legislature was going to look at
agency operations, it should first look at what modeling
was being done. She also noted that when doing the modeling
for HJR 7, Mr. King included PERS and TRS contributions.
She suggested that he would have to include the ARM Board
and the cost of downsizing government. She suggested that
as Mr. King was modeling all levers needed to be presented.
The cost of downsizing government should also be included,
as it would be part of the levers. She did not think the
legislature was getting a full picture including cost
drivers and levers.
Co-Chair Wilson was going to work with Mr. King about the
levers. She wanted to move the bill through committee in
the current year, if possible. She thanked Mr. King for
being in the meeting.
Co-Chair Wilson indicated that she would be recessing the
meeting in anticipation of receiving the crime bill.
^RECESSED TO THE CALL OF THE CHAIR: THE MEETING RECONVENED
ON SATURDAY, MAY 4, 2019 AT 12:00 P.M.
4:01:09 PM
ADJOURNMENT
4:01:09 PM
The meeting was adjourned at 4:01 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 102 Sponsor Statement Version U.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 102 |
| HB 102. Sectional Version U.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 102 |
| HB 102.Backup Support Letter Enterprise.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 102 |
| HB 102 Public Testimony.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 102 |
| HB 96 Amendment 2 Wilson .pdf |
HFIN 5/3/2019 1:30:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB 96 Amendment 1 Josephson.pdf |
HFIN 5/3/2019 1:30:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB 102 Opposition Letter.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 102 |
| HB 131 Spending Limit Comparison.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 131 |
| HB 49 CS WORKDRAFT FINv.E.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 49 |
| HB 49 v.E CS FIN Sectional Summary.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 49 |
| HB 102 Opposition Comptia.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 102 |
| HB 49 HB 49 Public Testimony Pkt 3.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 49 |
| HB 49 Public Testimony Pkt 2.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 49 |
| HB 49 DRAFT Fiscal Note Packet.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 49 |
| HB 49 Public Testimony PKT 4.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 49 |
| HB049CS(FIN)-DPS-PT-DRAFT 05-04-19.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 49 |
| HB 49 HB 49 Public Testimony Pkt 3.pdf |
HFIN 5/3/2019 1:30:00 PM |
HB 49 |
| HB 96 Amendment 3 Knopp.pdf |
HFIN 5/3/2019 1:30:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |