Legislature(2017 - 2018)SENATE FINANCE 532
03/27/2017 09:00 AM Senate FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing: Alaska Gasline Development Corporation Board - David Wight, Hugh Short, and Warren Christian | |
| SB25 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | SB 25 | TELECONFERENCED | |
| + | HB 57 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 25
"An Act relating to the motor fuel tax; relating to
the disposition of revenue from the motor fuel tax;
relating to a transportation maintenance fund; and
providing for an effective date."
10:21:37 AM
Co-Chair MacKinnon OPENED public testimony.
10:22:10 AM
JEFF WAFFORD, UPS, LOUISVILLE, KY (via teleconference),
testified in opposition to SB 25. He discussed the impact
the bill would have on UPS (copy on file):
Thank you for the opportunity to provide testimony on
the proposed Motor Fuel Tax Bill and the impact it
could have on UPS and the air cargo industry. UPS is
one of several in our industry that oppose an increase
in the tax on jet fuel. UPS appreciates the long-
standing working relationship with the State of
Alaska. We have more than 1,100 employees in Alaska,
including 489 pilots who are domiciled here.
Traditionally, Alaska has played an important role in
UPS's global reach; not only do we deliver to
thousands of customers daily, but Anchorage serves as
our gateway to the Asia-Pacific region. Anchorage also
serves as the training location for our Representative
Doogan-11 and 747 fleets.
UPS located in Alaska because of the business-friendly
climate created by elected leadership. We pay close to
$6 million in general and aviation taxes here, as well
as approximately $7.2 million in landing fees annually
to cover costs at airports. We have also invested into
the local area, spending millions on a flight training
center that celebrated its tenth anniversary in
Anchorage last year.
We sympathize with the situation you are faced with.
We also understand that the budget outlook in Alaska
for future years in sunder a tremendous amount of
scrutiny given the lower price of oil and what it
means to the budget of Alaska.
UPS is in a unique situation as it related to the
proposed motor fuel tax bill. First, UPS faces the
risk of higher taxes on two different business units;
ground in the form of the motor fuel tax increase and
air in the form of the increased jet fuel tax. Second,
UPS actually supports the increase in the motor fuel
tax as it is a pure user fee. UPS uses most, if not
all, of the reads in Alaska and we believe we should
pay into maintenance of that infrastructure.
However, we oppose the jet fuel tax as it's not a user
fee. UPS and other airlines already pay user fees to
airports in terms of landing fees. As I mentioned
earlier, we pay roughly $7.2 million in landing fees
to the Alaska International Airport System each year.
AIAS is self-sustaining and requires little if any
state funding as the passenger and commercial airlines
pay for operational support and infrastructure
improvements.
In fact, the AIAS is thriving, and making an important
economic impact on the state. According to a DOT
study, the AIAS accounts for 17,000 jobs, including
one in ten jobs in Anchorage and one in 20 jobs in
Fairbanks.
Increasing the jet fuel tax also increases the
indirect subsidy to airports where there are no
landing fees and which UPS does not regularly use.
UPS does contract with carriers to deliver packages to
airports outside of the AIAS, but this is on a minimal
basis, and UPS is already paying jet fuel taxes on
domestic flights to subsidize those airports, along
with fees to the contracted carriers for any costs
they may incur.
In addition, UPS, Delta, and other members of the
aviation community, including those involved in
Airlines for America and the Cargo Airlines
Association, are concerned that targeting the aviation
industry for a budget shortfall could cause a
reduction on cargo and commercial flights to Alaska.
This increase could also cause an accelerated push
toward dependence on newer aircraft that can bypass
Anchorage, as at least one cargo carrier had started
to do already.
A decrease in the number of flights raises further
concerns, including the potential of diminished
investments in infrastructure if not as many airlines
are paying into the aviation fund through fuel taxes.
As it stands, cargo-related revenues account for
nearly two-thirds of AIAS revenues. If higher costs
cause carriers to fly elsewhere, this could indirectly
lead to either a reduction on revenues, or lead to the
remaining carriers having to pay more into the system
to account for those who bypass Alaska.
Again, UPS empathizes with the state of Alaska and its
budget deficit. We appreciate the partnership we've
had here and the growth-friendly environment that has
allowed UPS to operate here over many years. We hope
that you will greatly consider the consequences of
what an increase in the jet fuel tax can mean to the
great state of Alaska.
10:27:29 AM
DANA DEBELL, DELTA AIRLINES, LOS ANGELES (via
teleconference), testified in opposition to SB 25. She
relayed that Delta currently operated 17, peak day flights
to Alaska into Anchorage and Fairbanks, where they operated
year round, and seasonally into Juneau, Sitka, and
Ketchikan. She expressed concern that the increased income
tax would make an already tough environment to operate in
even more challenging. She expounded on the benefits that
Delta doing business in Alaska brought to the state. She
asserted that the tax increase would compound the already
challenging competitive environment. She shared that
through the connection to Delta hubs in various cities,
Alaska was only one-stop away from over 600 destinations on
5 continents. She reiterated that it was a challenge to
operate profitably in Alaska.
10:30:49 AM
FRED STURMAN, SELF, SOLDOTNA (via teleconference),
testified in opposition to the bill. He expressed concern
for the budget shortfall in his area of the state and the
subsequent job losses. He did not believed that taxes
should be implemented until further budget cuts were made.
10:33:45 AM
AVES THOMPSON, ALASKA TRUCKING ASSOCIATION, ANCHORAGE (via
teleconference), spoke in support of the bill. He expressed
support the development of a balanced, durable, and long
term fiscal plan that utilized cuts to state government,
use of permanent funds earnings, and taxes if required. He
believed that the tax proposed in the legislation was
acceptable within the framework of a long term fiscal plan.
He thought that action was critical during the current
legislative session. He said that the association supported
a motor tax increase if the funds were dedicated to
transportation needs. He stated that the trucking industry
paid 45 percent of the state motor fuel tax. He suggested
that intent language could be added that would make a
commitment to a highway fuel tax account that could be used
for roads and bridges. He hoped that the uses of the Public
Transportation Fund could be reined in so that the funds
could be directed toward transportation maintenance. He
relayed that he supported the change made by the house that
extended the implementation date to $.08 in 2017, and the
same in 2019.
10:37:13 AM
Co-Chair MacKinnon CLOSED public testimony.
10:37:45 AM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
discussed the presentation, "State of Alaska Department of
Revenue: SB 25 - Motor Fuel Tax," (copy on file). He said
that the presentation contained information from two
departments, revenue and transportation, as well as
sectional analysis and fiscal note information.
10:38:16 AM
Commissioner Hoffbeck turned to Slide 2, "Motor Fuel Tax
Increase":
"An Act relating to the motor fuel tax; relating to
the disposition of revenue from the motor fuel tax;
relating to the transportation maintenance fund; and
providing for an effective date."
10:38:57 AM
Commissioner Hoffbeck showed Slide 3, "Motor Fuel Tax
History":
· Began in 1945
· Tax rates have increased over time, but structure
unchanged
· Last increase: highway 1970, marine 1977,
aviation fuel 1994
· Tax was suspended from Sept. 1, 2008, to Aug. 31,
2009
· In 2015, HB 158 added $0.0095 surcharge on
· motor fuels and some other refined fuels
· Intended for spill prevention and response fund
10:39:55 AM
Commissioner Hoffbeck discussed Slide 4, "Relative Motor
Fuel Tax Rate":
· Alaska's fuel taxes are among lowest in U.S. (1)
o Highway fuel: lowest and the longest time since
increase
o Jet fuel: 35thout of 50
o Aviation gas: 24thout of 50
· Under this bill, Alaska taxes would be:
o Below national average for highway fuel
o Above national average for jet/aviation fuel
(1)Per Institute on Taxation and Economic Policy 2017
No comprehensive data for other states' marine fuel
taxes.
However, we believe that in most states the "marine" rate
is the "highway" rate.
Therefore, our "marine" rate is likely also one of the
lowest in the country.
10:41:51 AM
Commissioner Hoffbeck turned to Slide 5, "Motor Fuel Tax
Proposal," which showed a table that reflected the change
in rates over time under the bill. The current price of
highway fuel was $.08, and was expected to go up 50 $.16 on
July 1, 2017, and $.24 on July 1, 2018. The current price
of marine fuel was $.05, and was expected to go up to $.10
on July 1, 2017, and $.24 on July 1, 2018. The current
price of jet fuel was $.032, and was expected to go up to
$.064 on July 1, 2017 and $.096 on July 1, 2018. They
current "off road use' credit was -$.06 and was expected to
change to -$.12 in July 2017, and -$.18 in July 2018.
10:42:42 AM
Commissioner Hoffbeck displayed Slide 6, "Motor Fuel Tax
Impacts (examples)," which showed a table that offered
several examples of how the prices would affect Alaskans.
10:44:25 AM
Commissioner Hoffbeck moved to Slide 7, "Disposition of
Revenues":
· Creates "Transportation Maintenance Fund" as a new
fund within the General Fund.
o Aviation fuel taxes are other funds (dedicated
as required for participation in a federal
program) under current law
o HB 60 moves taxes on highway and marine fuel
from Undesignated General Fund to Designated
General Fund for budgeting
o Creates confidence that revenues from motor
fuel will be used to build and maintain
transportation infrastructure
Commissioner Hoffbeck said that people were more willing to
pay a tax when they were given assurances that the fund
would support the infrastructure for which the tax was
being collected. He related that though the funds could not
be dedicated, a designated fund structure would be created
within the general fund. [He noted that the slide should
reflect SB 25, not HB 60.]
10:45:24 AM
Senator Micciche asked how the funds would be accounted for
in the budgetary process.
Commissioner Hoffbeck stated that the money would be set in
separate funds: aviation, marine, and highway, and the
money to fund the services for those areas would be drawn
from the fund first. He said supplemental funds would come
from other general funds sources.
Senator Micciche asked whether Commissioner Hoffbeck
envisioned earmarking the funds.
Commissioner Hoffbeck answered in the affirmative.
10:46:39 AM
Senator von Imhof wondered whether there had been an
analysis done on how the increase would affect the fees and
taxes already paid to the state by large jet airlines.
Commissioner Hoffbeck offered to provide a report compiled
by DOT that examined landing fees and taxes associated with
various airport operations in hub cities.
10:47:50 AM
Commissioner Hoffbeck spoke to Slide 8, "Revenue Impact":
o Additional revenue about $40 million first
year, $80 million per year thereafter
ƒ$0.4 million will be shared with
municipal-owned airports
ƒRemainder: Transportation maintenance
fund, special accounts for road, water
transport, and aviation facilities
o Estimates based on fall 2016 revenue forecast
o Does not account for changes in fuel demand or
stockpiling
Commissioner Hoffbeck noted that approximately $71.4
million would come from marine and highway taxes, and
approximately $9.3 million from jet fuel. He shared that
the fall 2016 revenue forecast assumed that $370 million
gallons of highway fuel would be sold within the state, 120
million gallons of marine fuel, 130 million gallons of jet
fuel, and 10 million gallons of aviation fuel. He added
that of the 130 gallons of jet fuel that was taxed there
was 480 million gallons that were exempt because of the
international flight exemption.
10:49:05 AM
Co-Chair MacKinnon clarified that the tax was proposed to
collect $40 million additional dollars.
10:49:25 AM
Commissioner Hoffbeck addressed Slide 9, "Implementation
Cost":
o Dept. of Revenue must update:
ƒTax Revenue Management System (TRMS)
ƒRevenue Online (ROL) which allows a
taxpayer to file a return and apply for a
dealer license online
ƒTax return forms
o One-time implementation cost of $50,000 to
recreate tax forms and reprogram and test the
tax system to accommodate the rate changes
o No additional costs to administer the tax
program
Commissioner Hoffbeck qualified that there was minimal cost
associated with implementation of the tax.
10:49:59 AM
Co-Chair Hoffman asked which airports in the state were
municipally owned.
Commissioner Hoffbeck agreed to provide the information at
a later date.
Co-Chair Hoffman wondered how much the average Alaskan
benefitted from the taxes on marine fuel.
Commissioner Hoffbeck deferred the question to a later
date.
10:51:09 AM
Vice-Chair Bishop understood that the taxes would be
collected at the wholesale level, and not the retail level.
Commissioner Hoffbeck answered in the affirmative.
Commissioner Hoffbeck listed the municipalities that were
receiving payments from the gas tax funds:
Yakutat
Wrangell
Wasilla
Venetie Tribal Government
Thorne Bay
Soldotna
Sitka
Seldovia
Kwinhagak
Pelican
Palmer
North Slope Borough
Nenana
Kodiak
Ketchikan
Klawock
Kenai
Kake
Juneau
Haines
Igiugig
Delta Junction
Craig
Anchorage
Akutan
10:52:04 AM
Senator Dunleavy asked requested clarification of the
definition of "off road use credit".
Commissioner Hoffbeck explained that there was a provision
within the statute that allowed users to apply for
reimbursement of the tax paid on motor fuel purchased in
association with the highway tax that was used for non-
highway related purposes, such as a four-wheeler.
Senator Dunleavy surmised that Alaskan's who used the gas
for their four wheelers could apply for the credit.
Commissioner Hoffbeck answered in the affirmative.
10:53:21 AM
Senator Olson wondered whether the Origin Destination
exemption under AS 43.40.100 would remain intact under the
legislation.
Commissioner Hoffbeck stated that the bill did not change
the exemption in any way.
Senator Olson thought that the exemption created an unfair
advantage for carriers that traveled internationally.
Commissioner Hoffbeck replied that the justifiability of
the exemption had been questioned. He shared that part of
the exemption was federally mandated; if a flight was
leaving Anchorage or Fairbanks to land in a foreign
destination it could not be taxed. The state had increased
the exemption by saying that if a flight was arriving from
a foreign destination it would not be taxed, which expanded
the federally required exemption. He admitted that the
fairness of the exemption was in question, but that
generating business was also a consideration.
10:55:35 AM
Senator Olson wondered if the administration would be in
favor of abolishing the exemption, in order to create a
more equal playing field.
Commissioner Hoffbeck said that the economics of abandoning
the exemption would need to be studied before a
determination could be made.
10:56:33 AM
MARK LUIKEN, COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND
PUBLIC FACILITIES, referenced the presentation "Alaska
Department of Transportation and Public Facilities - Senate
Bill 25" (copy on file).
Commissioner Luiken looked at Slide 2, "Scope":
o This briefing addresses the Department of
Transportation & Public Facilities (DOT&PF)
operating budget.
o The funds generated by Alaska's Motor Fuel Tax
that will be placed in the Alaska
Transportation Maintenance Fund (DGF/Other)
replace an equal amount of Unrestricted General
Funds (UGF) that currently fund DOT&PF's
operating budget.
ƒUGF to DGF fund swap: $64.8M
ƒUGF to Other fund swap (Aviation): $4.5M
ƒTotal fund swap: $69.3M
o The budget components that are recipients of
the fuel tax revenue are the regional Highways
& Aviation components and the Alaska Marine
Highway System.
SB 25 was HEARD and HELD in committee for further
consideration.
Co-Chair MacKinnon discussed housekeeping.