Legislature(2021 - 2022)BUTROVICH 205
02/04/2021 03:30 PM Senate STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SJR5 | |
| SJR7 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 53 | TELECONFERENCED | |
| *+ | SJR 6 | TELECONFERENCED | |
| *+ | SJR 5 | TELECONFERENCED | |
| *+ | SJR 7 | TELECONFERENCED | |
SJR 7-CONST. AM: STATE TAX; VOTER APPROVAL
4:08:06 PM
CHAIR SHOWER announced the consideration of SENATE JOINT
RESOLUTION NO. 7 Proposing amendments to the Constitution of the
State of Alaska relating to prohibiting the establishment of a
state tax without the approval of the voters of the state; and
relating to the initiative process.
4:08:13 PM
MIKE BARNHILL, Deputy Commissioner, Department of Revenue,
Juneau, Alaska, stated that SJR 7 amends Art. IX, Sec. 1,
Constitution of the State of Alaska to require voter approval
for any new tax enacted by the legislature. It was similar to
Senate Joint Resolution 4 that this committee considered two
years ago.
He reminded members that the Alaska Constitution already has two
forms of direct democracy. These are the people's power to
initiate laws through initiative and the people's power to
repeal laws enacted by the legislature through referendum. SJR 7
adds a new form of direct democracy to the constitution,
functionally authorizing an automatic referendum on new taxes.
The people already have the power to initiate a referendum to
repeal a tax measure enacted by the legislature and SJR 7 makes
it automatic by placing it in the constitution.
MR BARNHILL said the second part of SJR 7 amends the people's
constitutional power of initiative by requiring legislative
approval with a majority vote in joint session of any new tax
enacted by initiative. Functionally, it is a form of checks and
balances. He described this as a new partnership between the
people and the legislature.
4:11:10 PM
SENATOR COSTELLO asked if the majority vote requirement means 31
votes regardless of the votes in the individual bodies or a
majority of the votes in each body.
MR. BARNHILL replied he reads it as a majority vote of 31 in a
joint session.
4:11:53 PM
SENATOR REINBOLD pointed out that Alaska's government is a
representative republic, which means that the voters elect
people to make decisions on things such as taxes. She said she
does not like taxes but she feels that this administration is
tying the hands and reducing the power of the legislature.
CHAIR SHOWER referred to the last sentence in the proposed new
subsection (c) and asked if this would be interpreted to apply
to only this provision for a tax increase that the voters
approve by initiative or if the judiciary could interpret it to
apply to any initiative.
4:13:43 PM
MR. BARNHILL directed attention to the language on page 2, line
7 that confines the application to an initiative that
establishes a state tax. He said that triggers the legislature's
ability to approve the initiated law by a majority vote in joint
session.
CHAIR SHOWER expressed concern about how the court might
interpret that and said the committee would take a harder look.
4:14:50 PM
MR. BARNHILL said that in 1955 the direct democracy elements of
initiative and referendum were added to the representative
democracy in the Alaska Constitution. That is part of Alaska's
legal heritage and the governor is proposing to automate a
referendum in the sole instance of legislative enactment of a
new tax.
4:16:22 PM
MR. BARNHILL proceeded to slide 7 and described other states
that have similar constitutional provisions regarding voter
approval of new or increased taxes.
Colorado, in 1992, amended its constitution to add the Taxpayer
Bill of Rights (TABOR). He noted that TABOR was essentially a
combination of SJR 5 and SJR 7. It requires voter approval of
any new tax or increase to existing taxes at the state and local
level. Notably, Colorado voters approved a marijuana tax in 2013
and certain tobacco tax increases in 2020.
4:17:55 PM
SENATOR COSTELLO asked if he had a definition of tax.
MR. BARNHILL said the Department of Revenue's view was that a
tax includes a broad-based sales tax, a broad-based income tax,
and an excise tax. It does not include user fees, such as court
filings tied to a specific service to defray the cost of that
service.
4:19:23 PM
SENATOR COSTELLO asked if a reduction in the permanent fund
dividend (PFD) would be considered a tax.
MR. BARNHILL answered no.
CHAIR SHOWER asked Mr. Milks if he had anything to add to the
definition.
4:19:51 PM
BILL MILKS, Assistant Attorney General, Labor and State Affairs
Section, Civil Division, Department of Law, Juneau, Alaska, said
the framers put the term "tax" in the constitution and the basic
definition came from dictionaries used at that time. It was a
charge levied by the government on persons or property for a
public purpose. He agreed with Mr. Barnhill that user fees were
different and would not be considered a tax.
4:21:27 PM
SENATOR KAWASAKI relayed that years ago in Fairbanks, property
taxes paid for the garbage utility. Then the assembly changed
that tax to a fee so it would be outside of the revenue cap.
There was vigorous debate because residents inside the city were
required to get the garbage utility but apartment complexes of
more than four could contract with a private vendor. He asked,
under that circumstance, if that was a fee or hidden tax.
MR. BARNHILL said it was difficult to assess but from a policy
perspective, it sounded more like a fee than a tax. It was tied
to a specific function and the purpose was to defray the cost of
that specific function. That is different from revenue raised
broadly for the purpose of funding public services generally. He
added that he could see the argument going both ways. He
deferred further explanation to Mr. Milks.
4:23:29 PM
MR. MILKS said Mr. Barnhill's explanation was reasonable but it
was difficult to assess the example.
SENATOR KAWASAKI posed the hypothetical example of increasing
the cost of what the Division of Motor Vehicles (DMV) charges
far more than the cost to operate the division. He asked if that
would be considered a tax.
MR. BARNHILL said it would be difficult to say categorically one
way or the other in that situation.
MR. MILKS agreed with Mr. Barnhill.
4:27:09 PM
SENATOR REINBOLD asked how SJR 7 answers to Art. IX of the
Alaska Constitution that says, "The power of taxation shall
never be surrendered. This power shall not be suspended or
contracted away, except as provided in this article."
MR. BARNHILL replied the resolution proposes to amend the
constitution so it would fall under the existing words, "except
as provided in this article."
CHAIR SHOWER asked if he was saying that the resolution would be
constitutional because it would amend [Art. IX, Sec. 1] of the
Alaska Constitution.
MR. BARNHILL agreed.
SENATOR REINBOLD questioned whether it made sense to allow and
not allow something in the same sentence.
CHAIR SHOWER asked Mr. Milks to give a more precise legal
definition of the process.
4:29:16 PM
MR. MILKS explained that the constitution currently says that
the power of taxation shall never be surrendered or contracted
away except as provided in [Art IX, Sec.1]. SJR 7 adds two new
subsections to that article that address the separate question
of establishing a state tax.
SENATOR REINBOLD asked him to read the constitution with the
addition of the two new subsections.
MR. MILKS directed attention to page 1, line 9 of the resolution
and explained that the new subsections would fall immediately
after the existing language in Art. IX, Sec. 1. The new
subsections set the rules regarding establishing a state tax.
SENATOR REINBOLD observed that it sounds like, "it's shall not
and then we're going to."
4:31:29 PM
MS. SCHULTZ said an example in the constitution appears in Art.
IX, Sec 7, the anti-dedication fund clause. As originally
drafted, it prohibited the dedication of state funds. That was
amended in 1976 to add "except as provided in Sec. 15, which
allowed the creation of the permanent fund.
SENATOR REINBOLD said the people voted to support the permanent
fund and the dividend and now it is being taken. She said she
appreciated Senator Costello's question about the permanent fund
because many people feel the reduction in the dividend is a tax.
She said she was not a fan of taxes, but this resolution gave
her pause.
CHAIR SHOWER asked if the Department of Law could provide a
written explanation, with examples, about how it was done
before.
MR. MILKS agreed to do so.
4:34:14 PM
SENATOR HOLLAND asked how many tax proposals Colorado voters
rejected after the passage of TABOR.
MR. BARNHILL said he would follow up with the information. He
recalled that a number of taxes in Colorado failed from 1992 to
the present.
CHAIR SHOWER asked him to provide the information by the next
hearing on the resolution.
4:35:17 PM
MR. BARNHILL continued the presentation on slide 7 regarding
states that require voter approval of new or increased taxes. He
said he included Missouri and Washington to show the variation.
The constitutional provision in Missouri requires voter approval
of tax increases of $50 million or more, adjusted for inflation.
In 2018, voters defeated Proposition D to increase gasoline
taxes by $400 million.
He explained that the state of Washington has a constitutional
provision that requires voter approval of certain increases to
real and personal property taxes referred to as "levy lid
lifts." In recent years, voters approved 75 percent of proposed
levy lid lifts. Further, California has a constitutional
provision that requires voter approval of general local taxes
and special local taxes.
CHAIR SHOWER asked him to provide information on any other
states that have enacted similar constitutional provisions.
MR. BARNHILL replied that these four are the states that have
amended their constitutions; there may be more examples at the
local level.
4:37:13 PM
MR. BARNHILL displayed slide 8 and highlighted that the National
Council of State Legislatures has summarized the pros and cons
of the experiences of states from a policy perspective. They
call the amendments proposed in SJR 5 and SJR 7 "tax and
expenditure limitations." He noted that the link to the entire
article was on slide 10. It exhaustively lists and categorizes
the states, the nature of the tax, and expenditure limitations.
A sample of the pros of a tax and expenditure limitation
includes make government more accountable and efficient; foster
public prioritization of programs and services; and voter
consent to new taxes may increase tax compliance. He noted the
latter was from a study of Eastern Bloc countries post communism
and the use of the referendum to engage voters and improve tax
compliance. The researchers found a positive relationship.
A sample of the cons of a tax and expenditure limitation
includes: more difficulty raising new revenue; waiting for voter
consent can delay implementation and collection of new revenues
(which may be an issue for Alaska that needs revenue soon); and
it shifts fiscal decision making away from elected
representatives (as Senator Reinbold pointed out).
MR. BARNHILL advised that slides 9 and 10 are cut and paste from
the National Council of State Legislatures webpage of more pros
of "Tax and Expenditure Limitations" for policy makers to
consider.
4:40:25 PM
SENATOR KAWASAKI mentioned discussions in past years about
locking in the price of natural gas. He described it as a
contingency that the legislature did over a number of years so
oil companies could figure out on the books how the gas line
would work in the future. He asked what SJR 7 does to the
situation in which the legislature enacts a longer-term tax that
the industry agreed to but is then subject to the will of the
people.
MR. BARNHILL clarified that Senator Kawasaki was talking about
locking in the tax rate for a number of years to make the
economics of the gas line predictable over a longer period. He
offered his understanding that three attorneys general
considered this at separate times and rendered three opinions
expressing different views on the time a tax rate could be
locked in. He deferred further discussion to Mr. Milks.
4:42:04 PM
MR. MILKS said the constitutional provision on taxing power
would still be there so the question is whether the legislature
can agree to limit potential to adjust a tax for a certain
period. He offered to follow up with more information if the
chair wished.
CHAIR SHOWER said he would rather have more information than
less even if it leads down a bit of a rabbit hole.
SENATOR REINBOLD asked if it would be considered a statewide tax
if the legislature applied the same tax formula on all mining
products; if SJR 7 would limit the legislature's ability to
establish such a tax; and if such a limitation would undermine
the representative republic.
MR. BARNHILL opined that a new tax on mining products would be
subject to SJR 7.
SENATOR REINBOLD asked if SJR 7 would prevent the administration
from raising fees in any way or if it was just another step for
revenue.
MR. BARNHILL replied nothing in the resolution controls costs or
reduces the budget. With respect to raising fees, he said that
state agencies that have regulatory authority to assess fees
would still be able to do so.
SENATOR REINBOLD asked Mr. Milks to state for the record whether
the administration believes Alaska is a representative democracy
or a representative republic.
4:47:52 PM
MR. MILKS explained that the Alaska Constitution sets out that
both the legislature and the people can enact laws and both can
repeal laws enacted by either one. The people can repeal a law
through referendum and the legislature can repeal a law passed
through initiative after two years. SJR 7 follows that model.
CHAIR SHOWER asked whether Alaska is a representative democracy
or a representative republic.
4:49:37 PM
MR. MILKS replied Alaska has a representative form of government
by having a legislative branch and a direct democracy component,
which is the people's power to enact laws through initiative.
Laws are made through a representative republic model and a
direct democracy model. He advised that Art. 1, Sec 2 identifies
the source of government.
MR. BARNHILL added that the US Constitution Art. IV, Sec. 4
states that, "The United States shall guarantee to every State
in this Union a Republican Form of Government." He said he views
the terms representative democracy and representative republic
as synonymous. Importantly, multiple states have added direct
democracy features to their constitution and those additions
have never been found to violate the guarantee of the
constitutionally required republican form of government.
4:52:24 PM
SENATOR KAWASAKI asked if Section 2 of the resolution would
apply to modification of an existing tax. For example, the
mining license tax that was created in 1959 was modified several
years ago to change the progressivity in each of the tiers.
MR. BARNHILL answered no; a tax modification would not be
covered.
SENATOR KAWASAKI listed the existing taxes on fish and mining
licenses and asked if he was saying that changes to the
percentages on those existing taxes would not be included in the
proposed Art. IX, Sec. 1(b).
MR. BARNHILL said yes.
CHAIR SHOWER asked if this could be interpreted to apply to more
things than intended.
4:54:42 PM
MR. BARNHILL replied, "It clearly just applies to a new tax."
SENATOR REINBOLD said she had a real problem with Section 2
based on concerns about a representative republic versus a
representative democracy.
MR. BARNHILL said he believes subsection (c) in Section 2 of the
resolution should help the concern about a direct democracy
taking away from the elements of a representative republic,
because it essentially restores that legislative power with
respect to initiated taxes.
SENATOR REINBOLD emphasized that this was not transparent
government and it caused her pause.
4:58:24 PM
CHAIR SHOWER said he had some of the same concerns, but the
legislature has recourse when laws are enacted through
initiative.
[SJR 7 was held in committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| 01.19.21 Permanent Fund; Dividend TL - Senate.pdf |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| 01.1921 Permanent Fund; Income; Dividend TL - Senate.pdf |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| SB0053-1-2-012521-GOV-Y.PDF |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| SB0053-2-2-012521-REV-N.PDF |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| SB0053-3-2-012521-REV-Y.PDF |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| SB0053A.PDF |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| 01.19.21 Approp Limit; Budget Reserve TL.pdf |
SSTA 2/4/2021 3:30:00 PM |
SJR 5 |
| SJR005A.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 5 |
| SJR005-1-2-012221-GOV-N.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 5 |
| SJR006-1-2-012221-GOV-N.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 6 |
| SJR006A.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 6 |
| 01.19.21 Taxation Limitation TL - Senate.pdf |
SSTA 2/4/2021 3:30:00 PM |
SJR 7 |
| SJR007-1-2-012221-GOV-N.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 7 |
| SJR007A.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 7 |
| SJR 7 Sectional Analysis.pdf |
SSTA 2/4/2021 3:30:00 PM |
SJR 7 |
| SJR 5 Sectional Analysis.pdf |
SSTA 2/4/2021 3:30:00 PM |
SJR 5 |
| SJR5 and SJR7 - OMB and DOR presentation.pdf |
SSTA 2/4/2021 3:30:00 PM |
SJR 5 SJR 7 |