Legislature(2001 - 2002)
04/22/2002 03:25 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 520 - BUSINESS LICENSE FEES/BUS DEVELOPMNT FUND CHAIR MURKOWSKI announced that the final order of business would be HOUSE BILL, "An Act relating to business licenses, business license endorsements, and business license and license endorsement fees, to a trade and business development fund, and to the international trade and business endowment; and providing for an effective date." Number 2061 AMY ERICKSON, Staff to Representative Lisa Murkowski, Alaska State Legislature, informed the committee that HB 520 was actually brought to [the committee] by Representative Lancaster, the Finance subcommittee chair for the Department of Community & Economic Development. This legislation seeks to implement a secure funding mechanism to pay for the administrative costs of the business licensing program and the international, trade, and economic development activities, including tourism development. This legislation doubles the business licensing fees from $25 to $50 per year, which will generate approximately $3.6 million each year. She noted that the fees haven't been changed since 1949. This legislation also creates a new Trade and Business Development Fund into which all the business licensing fees will be deposited and from which the legislature can appropriate to fund the administrative expenses of the business licensing programs and operating the department's business development and international trade activities. Ms. Erickson pointed out that the fund would also allow the division to continue the Alaska Economic Information System, which is a digital system that brings together state, federal, and private data about the state's economy, resources, and committees in order to promote economic development by both public and private entities. MR. ERICKSON highlighted that HB 520 repeals the International Trade and Business Endowment Fund because funding for these programs would now come from the new Trade and Business Development Fund created by HB 520. The $5 million balance in the [International Trade and Business Endowment Fund] will be deposited in the general fund and will be available for appropriation by the legislature July 1, 2002. Therefore, [HB 520] will ensure a steady funding source for economic development in the state. Those benefiting from this service will fund the program. CHAIR MURKOWSKI related that Representative Lancaster has been concerned that the licensing fees have remained unchanged since pre-statehood days, which she indicated was probably the initial [impetus] for HB 520. Number 1933 JEFF BUSH, Deputy Commissioner, Office of the Commissioner, Department of Community & Economic Development, informed the committee that the department is supportive of HB 520 because it would stabilize the funding source for the department's economic development and trade activities. Several year's ago the International Trade and Business Endowment was set up with a $5 million endowment from the "University Endowment," which was supposed to fund some of the department's economic development and trade activities. However, the difficulties with the stock market and investments has left the Division of International Trade with a huge hole in its funding. Although there was an authorization for almost $500,000 from the [International Trade and Business Endowment], the reality is that the amount available for expenditures is much less. Therefore, the fiscal note for HB 520 realizes that the $500,000 was never a realistic number for the [International Trade and Business Endowment] and thus the endowment earnings are replaced with $300,000 of constant and predictable income through the business licensing program. Mr. Bush said that HB 520 is particularly appealing because it recognizes that businesses in the state can pay for business support services. Furthermore, the amount paid for the business license would support business support activities such as for economic development and trade. MR. BUSH turned to the fiscal notes. The fiscal note with the BRU (Budget Reserve Unit) of the Division of Occupational Licensing shows a change in revenue of $1.7 million, which would be the additional funds that would be received by the increase in the business license fee. Furthermore, the fiscal note shows a reduction of general fund (GF) program receipts (PR) in the amount of $554.7, which is replaced with the [International] Trade and Business Endowment Fund; these are the funds necessary to administer the business license program. MR. BUSH moved on to the fiscal note with the Community & Business Development component. This fiscal note shows operating expenditures of $270,000 in contractual funds, which is the amount necessary to run the Economic Information System program discussed by Ms. Erickson. Furthermore, this fiscal note shows that [the Economic Information System program] reduces the GF by $1.275 and substitutes the funding for both of the $270 of contractual and the $1.275 GF with the [International] Trade and Business Endowment Fund. MR. BUSH then addressed the fiscal note with the International Trade & Market Development component. This fiscal note shows a reduction in the contractual line in the amount of $196.4, which is the difference between what is in the Trade Endowment down to a $300,000 amount if HB 520 is passed. Furthermore, $1.2 million in GF is substituted plus a loss of $496.4 in the [International] Trade and Business Endowment, and therefore that endowment would go away. "And substitutes all of that with $1.5 million in the Trade and Business Development Fund," he pointed out. Mr. Bush echoed Ms. Erickson's testimony that the $5 million [International] Trade [and Business] Endowment disappears and is immediately deposited in the GF, which isn't illustrated in any fiscal note. Number 1648 CHAIR MURKOWSKI asked whether the business community is going to cry out due to an increase in the business fees. MR. BUSH answered that he didn't believe so. He informed the committee that the department anticipates some loss of business licenses because those people who have carried business licenses for many years but have not used them may view [this increase in fee] as a reason not to apply for a new business license. Mr. Bush related his belief that there are witnesses via teleconference that believe the increase in fee is quite reasonable given the services one receives. REPRESENTATIVE ROKEBERG asked if, when [proposing] eliminating the [International Trade and Business] Endowment Fund, any thought was given to returning the money to the businesses. MR. BUSH replied no. Mr. Bush said, "We would be happy to find a place to spend that money, but we didn't think that that was really our place to do." Number 1569 REPRESENTATIVE ROKEBERG inquired as to the original idea that gave way to the Alaska business license fee. MR. BUSH informed the committee that the Alaska business license fee was created as part of the gross receipts tax program, which was repealed in 1979 or 1980. He related his understanding that the fee was essentially a registration for the gross receipts tax that was used as an assessment/auditing tool by the Department of Revenue in order that the department would know which businesses should file [gross receipts] returns. Other services were associated with the fee, which is still the case today. REPRESENTATIVE ROKEBERG pointed out that the business registration is used in various ways. For example, this registration is a way that the Department of Labor & Workforce Development can track tax receipts for unemployment taxes through business registration. Furthermore, entities such as the Municipality of Anchorage use the business registration in order to track down businesses that need to file for personal and real property taxes. Representative Rokeberg inquired as to the cost to administer and collect the license fee. MR. BUSH answered about $550,000 annually. He confirmed that the state would take about $3.6 million. REPRESENTATIVE ROKEBERG recalled that the testimony before the House Labor and Commerce Standing Committee in the past has been that there is no known use of the funds, which go directly to the GF. Therefore, this is really a GF tax. MR. BUSH said that this is clearly a fee. REPRESENTATIVE ROKEBERG asked whether, from an economic definition, increasing the fee wouldn't be [considered] a tax. He surmised that the department is trying to use an unconstitutional semi-dedicated fund to finance a portion of the department, although this activity is generally funded by the GF. MR. BUSH agreed that most of the [business licensing] functions are paid for by the GF. Furthermore, the business license receipts are all placed directly in the GF. Although some of the receipts are accounted for as GF program receipts, the remainder is deposited as GF revenue. REPRESENTATIVE ROKEBERG surmised that would change under HB 520. MR. BUSH clarified, "It would be deposited into this account within the general fund, and accounted for separately within the general fund." REPRESENTATIVE MEYER explained that in his job outside the legislature, he was assigned the task of obtaining a list of all the businesses owned by minorities and women in the state. He thought that would be an easy task because he thought business owners probably marked whether they were owned by a minority. However, it doesn't seem as if such information is solicited. MR. BUSH responded that he didn't believe such information is tracked. Number 1326 CATHERINE REARDON, Director, Division of Occupational Licensing, Department of Community & Economic Development (DCED), explained that businesses are tracked by a description of their activity that's pulled from the North American Industrial Classification System (NAICS). She related her belief that DOT [Department of Transportation & Public Facilities] maintains the minority business activity [list]. REPRESENTATIVE MEYER noted that the information from DOT was very limited. He also noted that the federal government, through the small business association, kept track when it was provided with the information. He inquired as to why such information couldn't be asked when a business applies for a business license. MS. REARDON answered that additional questions can be asked at the time of licensure or renewal, if the legislature so specifies. She said that she would want to know what meets the definition. Furthermore, there is a limit to how many questions she would advocate adding to this form because the [division] likes the form to be simple for people to do. REPRESENTATIVE MEYER asked if the passage of the minimum wage, the unemployment compensation tax, and now an increase in the business license, is too hard on commerce. MR. BUSH responded that he didn't believe so. Furthermore, he didn't believe that the current administration would feel that any of the aforementioned is too harsh on commerce in Alaska. However, he acknowledged that there is quite a bit of debate regarding the minimum wage, which is probably the item with the strongest impact. He said he didn't believe that $25 a year is a significant amount of money for most businesses. REPRESENTATIVE HAYES asked if, last year, legislation was passed that increased the license [fee] for those folks who sell cigarettes. He inquired as to how HB 520 will impact that [increase in the license fee for those who sell cigarettes]. MR. BUSH explained that the tobacco endorsement is a program that's operated by DCED and associated with the Business Licensing Program. He said that businesses engaged in tobacco activities will be required to pay more. However, that's not impacted by HB 520. In fact, those fees charged for tobacco are accounted for separately and dealt with as a completely independent program. REPRESENTATIVE HAYES recalled that with the increase in the fee for a tobacco endorsement there was discussion that some people would drop [the tobacco endorsement because of the increase]. Therefore, he questioned whether these people would now be impacted by HB 520 as well. CHAIR MURKOWSKI recalled that the endorsement procedure is different than the business license procedure. Therefore, although a business may have various endorsements for its outlets, only one business license would be required per business. Number 1012 MS. REARDON, in response to Representative Rokeberg, confirmed that the business licenses are biennial licenses, per AS 08.01. Therefore, the $25 annual increase under HB 520 will mean that for a two-year license one will pay $50 and when the increase to $50 a year occurs, one will pay $100 for the two-year license. REPRESENTATIVE ROKEBERG inquired as to why this statute isn't fixed [to parallel the biennial licenses under AS 08.01]. Number 0930 BARBARA PROPES, Scan Home, testified via teleconference. Ms. Propes related her belief that this is a reasonable increase. She noted her intrigue with the notion of the fee going into a Trade and Business Development Fund. She said she believes that it's the state's responsibility to try to attract trade and development in the state. Much of [the state's] revenue is derived from international trade. She said she believes that most businesses would be willing to pay this fee knowing the need to continue to increase their client base. The state's current office does fulfill an essential need and it's frustrating to wait and see how much the office will be funded each year. Ms. Propes viewed this as having a ripple affect with regard to the job opportunities in the state. REPRESENTATIVE ROKEBERG noted his concern with regard to the constitutional prohibition against dedicated funds, which is what this legislation is basically. Number 0756 SCOTT McMURREN, McMurren & Goodman, testified via teleconference. Mr. McMurren announced his support of HB 520. He informed the committee that he has witnessed first hand what DCED has done for seafood marketing, film development, tourism development, and international trade. The consistent battle to fund [the business license program] impedes his ability to do business with [DCED] for about four months out of the year, he noted. Mr. McMurren explained that [this program and the department] is building incremental business and money for Alaska. REPRESENTATIVE ROKEBERG requested explanation as to why the endowment fund was established. Number 0519 MR. BUSH explained that Senator Drue Pearce was frustrated with the endowment and the activities of the Center for International Business at the university and wanted to see more business advocacy with the aforementioned fund. Therefore, a portion of the fund was taken to create an endowment, the proceeds from which were used to partially fund international trade activities by the department. REPRESENTATIVE ROKEBERG inquired as to why the endowment is going to be destroyed, although the returns are down. MR. BUSH said, "We don't really view it as a destruction of the endowment as much as we see it as a method of creating a more consistent funding source." REPRESENTATIVE ROKEBERG pointed out that there is no connection because the money is placed in the GF, where he was sure someone would find a use for it. Representative Rokeberg turned to the Alaska Economic Association, which he didn't recall being funded in the budget. He asked if the Alaska Economic Association is related to HB 520. MR. BUSH answered that one of Representative Lancaster's motivations with this bill was to find a way to fund the program and Legislative Finance advised him that the business license may be a method of funding for this program. Mr. Bush said that this program was created through a lot of work of the past several years and it still isn't operational on a statewide basis. Although everyone who has viewed demos of the program or has worked with program have received it well, it's impossible to maintain without an ongoing funding source. REPRESENTATIVE ROKEBERG surmised then that the endowment would [generate] about $250,000 a year. MR. BUSH confirmed that would be the case at 5 percent. In further response to Representative Rokeberg, Mr. Bush said that the program's budget was to be $496[,000]. Number 0255 REPRESENTATIVE HAYES recalled that the Senate proposed using the $5 million currently in the endowment for tourism. Therefore, this endowment isn't really protected. MR. BUSH acknowledged that there is a proposal to use the endowment's funds to pay for the emergency funding that the tourism industry requested after the events of September 11, 2001. CHAIR MURKOWSKI, upon determining there was no one else to testify, closed public testimony. REPRESENTATIVE HAYES remarked that it's sad when entities with no vision take money and fill a void elsewhere rather than where the money is necessary. He expressed the need [for legislators] to be truthful with constituents with regard to the state of Alaska's budget. He indicated his dislike of the "shell game" with the budget. Therefore, he recommended that if the money in the endowment is going to be used for something else, then it should be laid on the table. Furthermore, in such a case the endowment should be eliminated and a steady stream of money should be created for the [programs] desired. Number 0110 REPRESENTATIVE HAYES moved to report HB 520 out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE ROKEBERG objected. TAPE 02-63, SIDE A REPRESENTATIVE ROKEBERG commented that many [business owners] don't like the business tax, although they know it's necessary and serves a purpose. Therefore, the fees should reflect the cost rather than be a source of revenue, he said. He expressed the need to classify this for what it is. He related his belief that [HB 520] sets up a bogus designated fund for designated receipts, which is unconstitutional. He then noted his support of the Alaska Economic Information System. Number 0189 CHAIR MURKOWSKI remarked that she wasn't sure whether Representative Rokeberg supported or opposed the HB 520. REPRESENTATIVE ROKEBERG said that these things should just be funded in the budget. "If you want to have a bill to raise the license fee, let's talk about that but it shouldn't be hooked something else," he stressed. He announced that he was opposed to HB 520. REPRESENTATIVE MEYER said he didn't think business is overwhelmingly opposed to increasing the license fee or there would have been testimony to indicate so. Furthermore, the [Alaska Chamber of Commerce] usually puts out something for the businesses. REPRESENTATIVE ROKEBERG interjected that he had not heard of HB 520 until the folks from the department came to his office. He related his belief that no one in the state knows this is happening; small businesses are working. REPRESENTATIVE MEYER indicated that businesses join the [Alaska Chamber of Commerce] so that someone watches out for things such as this. Number 0336 REPRESENTATIVE HALCRO agreed that folks are tired of piece meal approaches. "The fact is until such time as we get some leadership in this building to ... chart a course for the future and determine how we're going to pay for some of these programs like the information services, we're left with this as our only device," he charged. He pointed out that the prior legislation, SSHB 315, that was reported from this committee had a $132,000 fiscal note. Therefore, he saw two options. One of which would be to start asking people to pay their fair share now or stop trying to solve the world's problems for nothing. REPRESENTATIVE CRAWFORD noted his agreement with Representative Rokeberg in that HB 520 is a tax. He pointed out that he voted against HB 3 and would vote against HB 225 and anything else that doesn't come as part of a [long-term fiscal] plan. REPRESENTATIVE ROKEBERG, with regard to SSHB 315, assured Representative Halcro that he is having discussions with AMTAR (ph) and hopefully [the fiscal impact] will be addressed. Furthermore, HB 4 has been stripped in order to have a zero fiscal note. Number 0569 REPRESENTATIVE HAYES restated his motion to report HB 520 out of committee with individual recommendations and the accompanying fiscal note(s). REPRESENTATIVE ROKEBERG withdrew his objection. There being no objection, HB 520 was reported from House Labor and Commerce Standing Committee.
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