Legislature(1995 - 1996)
03/12/1996 08:10 AM House STA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 443 - INCREASE MOTOR FUEL TAX CHAIR JAMES announced the next order of business before the House State Affairs Committee was HOUSE BILL NO. 443, "An Act relating to the tax on transfers or consumption of motor fuel, and repealing the exemption from that tax for motor fuel which is at least 10 percent alcohol by volume; and providing for an effective date." Chair James introduced Sam Kito, III, to present the bill. Number 2173 SAM S. KITO, III, Legislative Liaison, Department of Transportation and Public Facilities (DOT), State of Alaska, announced he would read a prepared statement in support of HB 443. Mr. Kito read as follows: "The Department of Transportation and Public Facilities supports HB 443. More specifically, the department supports increase in highway and marine motor fuel taxes, if the taxes will be dedicated to the mode from which the taxes were collected. "House Bill 443 was introduced at the request of the Long Range Financial Planning Commission, as a component of an overall long- range fiscal plan. The bill proposes an increase in the highway motor fuel tax, from the current eight cents per gallon to twenty- two cents per gallon, and an increase in the marine motor fuel tax from the current five cents per gallon to eight cents per gallon. The bill also repeals the exemption currently in place for the use of gasohol. The DOT estimates that even without an increase in motor fuel tax, the lost revenue from the use of gasohol will be in excess of six million dollars for FY 97. "The highway fuel tax increase will provide the department with revenue, which will enable the department to increase maintenance on state-owned roads and highways. An increase in maintenance will extend the life of our roads and highways. This will make federal construction funds available for other important highway projects in the state. "There are other factors which make increasing the motor fuel tax an important issue for this legislature to address. In January, the United States General Accounting Office (GAO) released a report entitled `HIGHWAY FUNDING, Alternatives for Distributing Federal Funds.' The report did not make specific recommendations. However, the GAO did lay out seven alternatives for distribution of the nation's federal highway trust funds. In four of the alternatives, Alaska's overall share goes from $231 million, which we received in FY 95, to approximately $40 million. In only one alternative, Alaska's best case in this report, the state's share goes from $231 million to $89 million. "If Congress decided to adopt even the best GAO alternative, Alaska could stand to lose $191 million federal dollars for construction on our highways in the state. For this reason, the department believes it is prudent to indicate to other states and to congress that we are doing all we can to maintain the transportation system we have, and to show a commitment to maintain our transportation system in the future. Fortunately, at this time, the state has a strong advocate in Senator Stevens, who sits on the Senate Appropriations Committee. But, the potential for losing valuable federal highway funds is still there. Even if we do manage to maintain the current level of funding through the next federal highway spending authorization, we can eventually expect a decline in federal highway funds for Alaska. "The marine fuel tax increase, coupled with a dedicated fund, will provide the department with funding for a harbor transfer program. The program would involve funding capital projects for state owned harbors, to upgrade the facilities to the condition where the department could turn over the facilities to a local municipality. The department estimates that all but about 22 of the facilities currently owned by the state could reasonably be transferred in five years. The proposed program would basically get the state out of the harbor business." Mr. Kito then invited questions. Number 2307 CHAIR JAMES noted for the record that the bill before the committee is the House State Affairs Committee substitute. The original bill did not require a dedicated fund in order for the legislation to take effect. She explained that a constitutional amendment to create a dedicated fund is currently in the finance committee. House Bill 443 would be contingent upon the passage of that constitutional amendment. Number 2344 REPRESENTATIVE PORTER moved that the committee adopt working draft CSHB443 (STA), M-3796. There being no objection, the CS was adopted as the working draft. Number 2358 REPRESENTATIVE WILLIS asked Mr. Kito if the administration had a position on the proposed constitutional amendment. MR. KITO replied that the governor does support a constitutional amendment for transportation purposes. The resolution currently in house finance is generally supported by the governor, with several suggested amendments. Number 2381 REPRESENTATIVE IVAN asked for clarification regarding the meaning of marine motor fuels taxes. He wondered if the tax would apply only to fuels used on navigable waters, or if small river boats would also be affected. MR. KITO responded that the tax would be collected at the distribution points throughout the state, not at point of sale. He explained that if the distributor believed that a percentage of the fuel would be used in marine craft, he would file with the department to pay the fuel tax. He added that a representative from the Department of Revenue was present to answer questions. Number 2439 BOB BARTHOLOMEW, Assistant Director, Income & Excise Tax Division, Department of Revenue, State of Alaska, announced he would testify on behalf of the department. He explained he would clarify the content of the fiscal note. The fiscal note was prepared prior to the CS, and shows revenue in FY 97. If the bill was amended according to the CS, to tie the tax increase to a dedicated fund, there would be no new revenues collected in FY 97. The dedicated fund would go into place in FY 98. In the first year, increased revenue from raising the highway motor fuel and marine motor fuels taxes, and removing the gasohol exemption, would amount to $59.5 million. TAPE 96-34, SIDE B Number 0000 MR. BARTHOLOMEW further explained the gasohol exemption was passed in the early 1980's, to help expedite potential sale of Delta barley. The exemption is still on the books, and results in a loss of revenue. In FY 95 the state lost $2.4 million in revenue due to the use of gasohol, and the projection for FY 96 is six million. He stated the fiscal note also contains increased operating costs of $80 thousand, which covers one Revenue Auditor III, to be based in Anchorage. Mr. Bartholomew then invited questions. Number 0087 CHAIR JAMES reiterated Representative Ivan's question, regarding how the types of fuel would be identified. MR. BARTHOLOMEW explained that motor fuel tax is currently paid by a qualified motor fuel dealer, who is normally a wholesaler. When fuel is sold, the distributor must make a determination concerning the ultimate use of the fuel. The distributor then files a tax return with the department of revenue. In some cases, it is possible that fuel sold to a retail dealer, such as a gas station, may wind up in either car or boat engines, yet would be taxed at the highway rate. He stated that, as the tax is raised, additional guidelines may have to be provided for such multiple use situations. Number 0189 REPRESENTATIVE OGAN asked if Mr. Bartholomew could explain section five of the bill. MR. BARTHOLOMEW responded that both the original bill and the CS contain a clause directing the department of revenue to tie the tax to the Consumer Price Index (CPI), and to adjust it every two years. REPRESENTATIVE GREEN then asked if the figures would be rounded off each year. MR. BARTHOLOMEW responded that January, 1997, would be used as the base. Number 0235 CHAIR JAMES announced that the Mayor of Hoonah would be testifying via teleconference. MAYOR ALBERT W. DICK, City of Hoonah, stated the previous testimony had clarified his concerns. Number 0245 CHAIR JAMES announced that Bernie Smith would be testifying via teleconference, from Kenai. BERNIE SMITH announced he would testify on behalf of Tesoro Alaska Petroleum. He stated that the increase contained in the CS amounted to a fourteen cent increase in one year. When tied in with eliminating the gasohol exemption, the total increase amounts to twenty-two cents per year. He commented this would put a burden on the public, especially in Anchorage and Fairbanks. He stated that Tesoro feels the increase is too steep, but would support the constitutional amendment, which would give the voters a chance to decide on the issue. On the marine motor fuel tax, he stated the current tax already affects in-state refineries. Processors coming into Alaskan waters will bring their own fuel aboard their vessels, and park outside the state three-mile water limit, rather than pay the cost difference. He emphasized that adding an additional tax would make it extremely difficult for in-state refineries to compete with Seattle based vessels. He stated Tesoro would support the proposed dedicated fund for the current marine motor fuel tax. Mr. Smith then invited questions from the committee. Number 0384 CHAIR JAMES asked if Tesoro would support phasing in the additional tax. MR. SMITH replied he could not answer the question without consulting with company officials. He speculated that the company would probably not object to an increase of five cents per gallon in the first year, provided the revenue went to a dedicated fund. NUMBER 0417 CHAIR JAMES then asked if the difference between the amount paid for fuel in Seattle and Alaska was so great that increasing the tax would actually cause large users to bring in their own fuel. MR. SMITH replied that this was already occurring. He reiterated this made it extremely difficult for in-state refineries to compete. CHAIR JAMES responded that the oil industry needs to do a better job of explaining to the public why the price of fuel is so high in the state of Alaska. She then announced the committee would hear testimony from Sitka, via teleconference. Number 0487 ALBERT M. SNELLING, an employee of Samson Tug & Barge, explained the company is a line haul freight company operating out of Sitka, with a terminal in Seattle. They haul cargo to Valdez, Kodiak, Sand Point, King Cove, Dutch Harbor, and Adak. He stated that, with the proposed tax increases, the company's total fuel costs for 1996 would exceed one million dollars. He added that the increased fuel costs would result in higher prices to the consumer for items brought into the state, such as groceries. He stated he favored cutting government spending and privatization of some government functions, rather than increasing taxes on industry. CHAIR JAMES announced the committee would hear testimony from Anchorage, via teleconference. FRANK DILLON, Executive Director, Alaska Trucking Association, announced he would testify on behalf of the trucking association. He explained that diesel fuel is the life blood of the trucking industry, and that fuel is 12 to 15 percent of the total cost of a trucking operation. He stated he was pleased to see the committee substitute for HB 443, because of the dedicated fund provision. He further stated he would confine his remarks only to the highway fuel tax. He stated the association has two problems with the current committee substitute. One is the rate of taxation; the association does not believe the rate is justified. Second, the association objects to indexing the price increase to the CPI. He explained the association does advocate a dedicated fund for highway fuel tax revenues. Mr. Dillon then invited questions from the committee. He added that he concurred with Mr. Snelling's testimony, and that the fuel increase would definitely be passed along to consumers. Number 0775 CHAIR JAMES announced the committee would hear testimony from Brad Pierce, Office of Management and Budget. BRAD PIERCE, Senior Policy Analyst, Office of Management and Budget Office of the Governor (State of Alaska,) stated he was on the staff of the Long Range Financial Planning Commission, which had proposed the current bill. He explained that revenues from the bill figured prominently in the commission's long range plan for the state. The commission definitely felt the increase from the increased fuel tax should be tied to a dedicated fund. He further explained the commission's reason for indexing the rate increase to the Consumer Price Index (CPI). The current motor fuel tax rate has not been increased since 1961, which made it the lowest rate in the nation. Tying the rate increase to the CPI would keep the tax in line with the national average. Number 0862 REPRESENTATIVE CAREN ROBINSON asked if twenty-four cents per gallon was the national average. MR. PIERCE replied that the national average is twenty-two cents per gallon. Number 00873 CHAIR JAMES commented that Alaska's base price for fuel is much higher than other places, which makes the tax more problematic. She commended the work of the Long Range Financial Planning Commission, but stated the state needs to determine what level of spending can be sustained over the long term. Not only do we have the lowest rate of tax on gasoline, we also have no income or sales taxes. We continue to receive permanent fund dividends. She emphasized that people need to decide how much state spending they are willing to support. While cutting the budget may have a devastating effect on the economy, imposing new taxes on businesses may have an even more devastating effect. She stated the state needs to be cautious in imposing new taxes, but it must be done in smaller steps. She further stated she did not agree with tying increases to the CPI. Number 1007 CHAIR JAMES announced the committee would not be taking action on HB 443 today. She asked if there were further questions or comments. Number 1015 REPRESENTATIVE PORTER asked what was the effect of section six. CHAIR JAMES replied that it repealed the exemption on gasohol. Number 1032 REPRESENTATIVE OGAN stated that he agreed with Chair James regarding tying the tax increase to the CPI. He asked if it was the appropriate time to move an amendment. Number 1061 CHAIR JAMES responded that an amendment would be considered at the next meeting. REPRESENTATIVE OGAN applauded the concept of allowing the people to vote on the issue, through a constitutional amendment.
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