Legislature(2017 - 2018)HOUSE FINANCE 519

04/11/2017 01:30 PM FINANCE

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Audio Topic
01:37:33 PM Start
01:38:34 PM SB26
01:38:40 PM Amendments
02:52:52 PM HB115
03:46:54 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
+= SB 26 APPROP LIMIT & PER FUND:DIVIDEND;EARNINGS TELECONFERENCED
Moved HCS CSSB 26(FIN) Out of Committee
+= HB 115 INCOME TAX; PFD CREDIT; PERM FUND INCOME TELECONFERENCED
Moved CSHB 115(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 115                                                                                                              
                                                                                                                                
"An Act  relating to  the permanent  fund dividend;  relating                                                                   
to  the appropriation  of  certain  amounts of  the  earnings                                                                   
reserve  account;  relating  to  the taxation  of  income  of                                                                   
individuals;  relating to  a payment  against the  individual                                                                   
income  tax from  the permanent  fund dividend  disbursement;                                                                   
repealing   tax   credits   applied  against   the   tax   on                                                                   
individuals  under  the  Alaska   Net  Income  Tax  Act;  and                                                                   
providing for an effective date."                                                                                               
                                                                                                                                
2:52:52 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton  MOVED  to  ADOPT   the  proposed  committee                                                                   
substitute (CS)  for HB 115, Work Draft  30-LS0125\K (Nauman,                                                                   
4/7/17).                                                                                                                        
                                                                                                                                
Representative   Wilson   OBJECTED   for   the   purpose   of                                                                   
discussion.                                                                                                                     
                                                                                                                                
TANEEKA   HANSEN,   STAFF,   REPRESENTATIVE    PAUL   SEATON,                                                                   
explained that  the current version contained  the amendments                                                                   
to  the income  tax  section that  had  been  adopted by  the                                                                   
committee. The sections  referring to the permanent  fund had                                                                   
been  removed. She  said  that  there were  three  additional                                                                   
changes;  the sort  title had  been changed  to reflect  that                                                                   
the  bill  was no  longer  a  combined  act, from  the  State                                                                   
Revenue Restructuring  Act to the Education Funding  Act. She                                                                   
directed  committee  attention to  Page  22, line  12,  which                                                                   
directed   that  the   legislature   could  appropriate   the                                                                   
estimated  amount  collected   for  the  tax  to  the  Public                                                                   
Education  Fund.  She  pointed  to Page  5,  subsection  (g),                                                                   
which was  related to an amendment  that had been  adopted in                                                                   
committee  and  was  conceptually  amended  define  "disabled                                                                   
beneficiary" under AS 18.80.300, (a) and (b) only.                                                                              
2:55:46 PM                                                                                                                    
                                                                                                                                
Representative Wilson  pointed to page  22, line 12.  She had                                                                   
initially thought  a new fund was created, but  she no longer                                                                   
believed that  was the case. She  wondered why the  word "may                                                                   
had been used, and not "shall".                                                                                                 
                                                                                                                                
Ms. Hansen  replied that  a new fund  was not being  created.                                                                   
She said  that the  reason for  the use of  "may" was  due to                                                                   
the Constitution;  there  always had  to be an  appropriation                                                                   
done  by  the  legislature.  She   relayed  that  the  Public                                                                   
Education    Fund    was    distributed    without    further                                                                   
appropriation,  so  the  direction  could  not  be  that  the                                                                   
revenue "shall"  go into  a fund where  there was  no further                                                                   
appropriation,  the   legislature  had  to   appropriate  the                                                                   
revenue.                                                                                                                        
                                                                                                                                
Representative Wilson  stated no matter where  the funds were                                                                   
put outside  of the General Fund,  it was still  General Fund                                                                   
money. She requested further clarity.                                                                                           
                                                                                                                                
Ms.  Hansen answered  that  the bill  could  have no  binding                                                                   
effect on  future legislatures  and did  not address  revenue                                                                   
beyond what was in the bill.                                                                                                    
                                                                                                                                
2:57:57 PM                                                                                                                    
                                                                                                                                
Representative  Wilson felt that  it should  be clear  to the                                                                   
public  that the  money could  be  appropriated for  anything                                                                   
and was not earmarked for education.                                                                                            
                                                                                                                                
Co-Chair  Seaton clarified  that  the Public  Education  Fund                                                                   
was where  the legislature put  money for forward  funding of                                                                   
education; the money  flowed from the fund  automatically and                                                                   
funded the  formula and  pupil transportation.  He said  that                                                                   
an  appropriation  had to  be  made  into  the fund  for  the                                                                   
deposit, but the funds automatically funded only education.                                                                     
                                                                                                                                
3:00:25 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  preferred the use  of the word  "shall", but                                                                   
explained  that the  word  "may"  had to  be  used under  the                                                                   
Constitution.                                                                                                                   
                                                                                                                                
Representative  Pruitt  expressed   his  distaste  for  short                                                                   
titles. He  plugged the use of  iPads in committee  to easily                                                                   
access  information  for  bills   that  were  accompanied  by                                                                   
excessive documents.                                                                                                            
                                                                                                                                
Representative   Guttenberg  remarked   that  the   issue  of                                                                   
electronic  and telecommunications  was  under discussion  in                                                                   
Legislative Council.                                                                                                            
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara,  Grenn, Guttenberg, Kawasaki,  Ortiz, Pruitt,                                                                   
Thompson, Foster, Seaton                                                                                                        
OPPOSED: Wilson, Tilton                                                                                                         
                                                                                                                                
The MOTION PASSED (9/2).                                                                                                        
                                                                                                                                
3:03:22 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  addressed the  two fiscal notes  attached to                                                                   
the bill.                                                                                                                       
                                                                                                                                
Representative  Wilson reiterated her  request that  the bill                                                                   
version  on the  notes be  updated to  reflect the  committee                                                                   
substitute.  She asked  about  the inter-agency  receipts  on                                                                   
FN1, she  had understood that  the hearings would be  done by                                                                   
the administration and not the court system.                                                                                    
                                                                                                                                
3:06:15 PM                                                                                                                    
                                                                                                                                
KEN  ALPER, DIRECTOR,  TAX DIVISION,  DEPARTMENT OF  REVENUE,                                                                   
replied  that the  interagency  receipt meant  DOR would  pay                                                                   
the funds  to DOA. He  said that it  had been estimated  that                                                                   
$200,000  to  $300,000 of  the  $1.2  million listed  on  the                                                                   
services line  of FN2 would  be money  paid to the  Office of                                                                   
Administrative Hearings (OAH) for the purpose of appeals.                                                                       
                                                                                                                                
Representative  Wilson understood  that DOR  would be  paying                                                                   
for the administrative hearings from collected taxes.                                                                           
                                                                                                                                
Mr. Alper replied  that DOR would make the  payments from its                                                                   
general fund budget.                                                                                                            
                                                                                                                                
Representative  Wilson asked  whether  a person  could go  to                                                                   
the courts to appeal the income tax.                                                                                            
                                                                                                                                
Mr. Alper replied  that the first step would  be the internal                                                                   
appeals group, then OAH, and then to superior court.                                                                            
                                                                                                                                
Representative Wilson  asked why there was not  a fiscal note                                                                   
for that process.                                                                                                               
                                                                                                                                
Mr. Alper  responded that  he did not  know that  the process                                                                   
would require revenue  spending. He said that  the Department                                                                   
of  Law would  support  the state's  position  and the  court                                                                   
system would have  costs as well, but forecasting  the number                                                                   
of cases would  be difficult. He added that OAH  had a metric                                                                   
for the percentage of tax items that were appealed.                                                                             
                                                                                                                                
Representative Wilson  hoped that the costs would  be clearly                                                                   
laid out.                                                                                                                       
                                                                                                                                
Co-Chair Foster noted his staff would research the issue.                                                                       
                                                                                                                                
3:09:45 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  addressed that regulations  would have                                                                   
to  be   written.  He   wondered  whether   DOR  would   need                                                                   
additional money to write regulations.                                                                                          
                                                                                                                                
Mr.  Alper replied  there was  a $14  million capital  budget                                                                   
item in the  fiscal note that would partially  go to drafting                                                                   
regulation.                                                                                                                     
                                                                                                                                
Co-Chair  Seaton  MOVED  to  REPORT   CSHB  115(FIN)  out  of                                                                   
committee   with    individual   recommendations    and   the                                                                   
accompanying fiscal notes.                                                                                                      
                                                                                                                                
Representative Wilson spoke to her OBJECTION.                                                                                   
                                                                                                                                
3:12:11 PM                                                                                                                    
                                                                                                                                
Representative  Thompson said  that 80  percent of the  wages                                                                   
paid  to residents  was in  the  Railbelt. He  stated that  a                                                                   
person  working  on  the  North   Slope  that  lived  in  the                                                                   
Railbelt was  not included  in that  80 percent because  they                                                                   
would  be  considered  a  North  Slope  employee  and  not  a                                                                   
Railbelt resident.  He thought  that the bill  needed further                                                                   
vetting.                                                                                                                        
                                                                                                                                
Vice-Chair  Gara  thought  that  the  only way  to  tax  more                                                                   
people was  to tax those at  lower incomes. He  was satisfied                                                                   
that  the  legislation  would   not  impose  taxes  at  lower                                                                   
incomes, which  he felt  would disproportionately  hurt rural                                                                   
and poor  areas of  the state.  He stressed  that he  did not                                                                   
want to  tax more Alaskans. He  noted that no taxes  would be                                                                   
imposed  on the  first  $15,500 of  earned  income; for  each                                                                   
$1,000  above  $15,500,  a  $25  tax  would  be  imposed.  He                                                                   
expressed  discomfort  with  the  idea of  taxing  people  at                                                                   
lower incomes  than $15,500.  He lamented  that areas  in the                                                                   
budget that  could withstand further  cuts were  limited, and                                                                   
he expressed  concern that  liberty and  dignity for  Alaskan                                                                   
residents could be cut along with funding.                                                                                      
                                                                                                                                
3:16:44 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt offered  a  personal anecdote  related                                                                   
to the possible  impacts of an  income tax. He argued  that a                                                                   
person  making  $42,000  per year  was  not  privileged,  but                                                                   
rather  was a  "regular Joe"  out  working in  the world  who                                                                   
would be taxed $692.50 under the legislation.                                                                                   
                                                                                                                                
Vice-Chair Gara clarified  that he did not  say that everyone                                                                   
who  would pay  taxes under  the bill  came from  a place  of                                                                   
privilege.                                                                                                                      
                                                                                                                                
Representative  Pruitt  returned to  the  $692.50 figure.  He                                                                   
referred  to seniors  on fixed  incomes in  Alaska. He  noted                                                                   
that the  figure would be  spread out  over the course  of 12                                                                   
months, roughly  $58 per month,  would be a burden.  He spoke                                                                   
to seniors  on fixed  incomes of $30,000  per year  who would                                                                   
struggle under  the legislation. He offered  another anecdote                                                                   
related to a  senior's fixed income budget.  He lamented that                                                                   
property  taxes  in  Anchorage  had  recently  increased.  He                                                                   
worried   that  an   income  tax   would  negatively   affect                                                                   
recruiting  people  in certain  professions  to  work in  the                                                                   
state. He  noted that the  Alaska Permanent Fund  Corporation                                                                   
already struggled  with hiring  people from out-of-state.  He                                                                   
queried that  overall effect  that an  income tax  would have                                                                   
on  the state's  economy.  He  expounded  on the  reasons  he                                                                   
believed that an income tax was a bad idea.                                                                                     
                                                                                                                                
3:24:33 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton  stated  that  the  hope  was  to  strike  a                                                                   
balance  between the bill  and the  Permanent Fund  reduction                                                                   
bill. He stated  the money from the tax would  be directed at                                                                   
education.  He was  perplexed  to  hear members  stating  the                                                                   
committee  had  not  heard from  economists.  He  stated  the                                                                   
committee  had heard from  Institute of  Social and  Economic                                                                   
Research  (ISER) and among  other experts.  He remarked  that                                                                   
some  public  testimony  had underscored  that  further  cuts                                                                   
were  one  of the  worst  things  that  could happen  to  the                                                                   
economy. He shared  that the bill represented one  piece of a                                                                   
four-part fiscal  plan. He spoke about services  such as road                                                                   
maintenance, troopers,  the university, and others  that were                                                                   
struggling  under  funding  cuts. He  reminded  members  that                                                                   
individuals earning  under $30,000 would be exempt.  He noted                                                                   
that the tax rate  would be 2.5 percent, $25  per $1,000 over                                                                   
$30,000.  He stressed  that  social security  for  low-income                                                                   
seniors would  be exempt  under federal  law. He stated  that                                                                   
exempting  the  permanent  fund   dividend,  and  the  $4,000                                                                   
personal  exemption,  would help  lower-income  Alaskans.  He                                                                   
responded to the  statement that 80 percent of  the tax would                                                                   
come from  the Railbelt, but pointed  out that 80  percent of                                                                   
the state's  population  lived in the  Railbelt. He  stressed                                                                   
that the bill  was not a geographically  discriminatory piece                                                                   
of legislation.  He believed that Alaskans should  be willing                                                                   
to pay  for services, such as  road maintenance, in  order to                                                                   
protect    roads   from   deterioration.    He   felt    that                                                                   
the bill  represented one  component of a  plan to  solve the                                                                   
fiscal problem.  He stated if  only a portion of  the deficit                                                                   
was  solved it  meant  the legislature  would  be faced  with                                                                   
making further  cuts. He  spoke to  potential impacts  around                                                                   
the state. He stated  it came down to what the  future of the                                                                   
state  should  look   like.  He  believed  that   the  credit                                                                   
legislation that  had passed could  not solve the  problem on                                                                   
its own.                                                                                                                        
                                                                                                                                
3:30:46 PM                                                                                                                    
                                                                                                                                
Representative  Tilton  remarked  the members  had  different                                                                   
philosophies  on how the  fiscal gap  should be handled.  She                                                                   
said  that  state government  could  be  funded  sufficiently                                                                   
with a $400 million  cut. She echoed concern for  hoe the tax                                                                   
could affect  seniors on  a fixed  income. She worried  about                                                                   
how the  tax would  affect the  private sector. She  asserted                                                                   
that she  was supportive of  funding for education,  but that                                                                   
"an income  tax was an  income tax,  no matter what  you call                                                                   
it."                                                                                                                            
                                                                                                                                
3:33:27 PM                                                                                                                    
                                                                                                                                
Representative   Guttenberg    agreed   the   situation   was                                                                   
difficult.  He   shared  that  even  in  time   of  financial                                                                   
security  he  worried  about  not  building  out  sustainable                                                                   
infrastructure.  He  lamented that  people  took  joy in  the                                                                   
building   and   ribbon  cutting   connected   to   increased                                                                   
infrastructure,   but  that   major   maintenance  of   those                                                                   
structures   was  less   attractive.   He   thought  that   a                                                                   
restructuring of  the permanent fund would spread  the burden                                                                   
unfairly across  the population.  He believed that  an income                                                                   
tax  would  level  out  the  financial   burden  to  Alaska's                                                                   
residents. He  noted that many  on his constituents  in rural                                                                   
Alaska,  even during times  of financial  stability,  had not                                                                   
received  the  services  they  had needed.  He  lamented  the                                                                   
historical  inequities  in state  spending.  He stressed  the                                                                   
need  for a  stable  economy. He  hoped  that industry  would                                                                   
commit  to investing  in the  state.  He felt  that the  most                                                                   
important issues  facing the state were controlling  the size                                                                   
of government and  stabilizing the economy. He  believed that                                                                   
the  solution to  the  fiscal  crisis was  multi-faceted.  He                                                                   
felt that the legislature  was running out of time  to act on                                                                   
the  issue.   He  expressed  concern   that  the   state  was                                                                   
currently    unable   to   take    advantage   of    economic                                                                   
opportunities    through   the    University   because    the                                                                   
legislature was making deep cuts to their budget.                                                                               
                                                                                                                                
3:41:26 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:44:45 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Grenn, Guttenberg, Kawasaki, Foster, Seaton                                                                     
OPPOSED: Ortiz, Pruitt, Thompson, Tilton, Wilson                                                                                
                                                                                                                                
The MOTION PASSED (6/5).                                                                                                        
                                                                                                                                
There  being   NO  further   OBJECTION,  CSHB  115(FIN)   was                                                                   
REPORTED  out of committee  with a  "do pass"  recommendation                                                                   
and with  one new fiscal impact  note from the  Department of                                                                   
Revenue and  one new fiscal  impact note from  the Department                                                                   
of Administration.                                                                                                              
                                                                                                                                
Co-Chair  Foster  discussed  housekeeping.  He  recessed  the                                                                   
meeting  to a  call of  the chair  [Note:  the meeting  never                                                                   
reconvened].                                                                                                                    
                                                                                                                                

Document Name Date/Time Subjects
HB 115 CS WORK DRAFT v K_4.7.2017.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
HB 115_Sectional version K_long form_4.11.2017.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
SB 26 v.U Amendments 1-8.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
SB 26 Fiscal Note PKT v.U.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
HB 115 Fiscal Note PKT. v.K.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
SB26_Oppose_041117.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
SB26_Support_041117.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
HB115_Oppose_041117.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
HB115_Support_041117.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
SB 26 Support Letter.pdf HFIN 4/11/2017 1:30:00 PM
SB 26