Legislature(2001 - 2002)
04/26/2001 08:03 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 20 - AID TO MUNICIPALITIES AND OTHERS Number 1888 CHAIR COGHILL announced that the next order of business would be HOUSE BILL NO. 20, "An Act relating to state aid to municipalities and certain other recipients, and for the village public safety officer program; relating to municipal dividends; relating to the public safety foundation program; and providing for an effective date." [Before the committee was CSHB 20(CRA).] CHAIR COGHILL called an at-ease from 9:12 a.m. to 9:13 a.m. Number 1831 REPRESENTATIVE CARL MOSES, Alaska State Legislature, sponsor, explained that he introduced HB 20 in view of the fact that municipal sharing has been drastically cut over the past several years. Because of these cuts, local governments have had to raise taxes in their communities. He opined that a major step towards a long-range [fiscal] plan must include some use of the surplus earnings of the permanent fund. He suggested that HB 20 would free up approximately $50 million in general funds (GF) by eliminating what is left of revenue sharing programs and other municipal assistance programs. He added that HB 20 retains legislative powers of appropriation, enhances community security, helps avoid subjecting the permanent fund to IRS (Internal Revenue Service) taxation, and puts more money in the pockets of Alaskans. He noted that it has been very frustrating, while sitting on the House Finance Committee, to hear that Alaska can't fund education because of a projected [fiscal] gap of more than $600 million. Freeing up this $50 million, he said, would go a long ways towards funding education, both K-12 and the University of Alaska. He requested that the House State Affairs Standing Committee forward HB 20 on to the House Finance committee. REPRESENTATIVE JAMES said she supports HB 20, and noted that they and the municipal league have been working very hard on this concept for the last two years. She added that in talking with people around the state after the advisory vote of 1999 regarding the long-term financial plan, she found that there were a combination of reasons why people voted no, one of which was that they were confused by the advertisements and therefore felt it was better to vote no rather than vote yes for something they didn't understand. Some people voted no because they felt the legislature's long-term financial plan was flawed. Also, she found that some people voted no because they honestly believed that the budget could be cut further instead of taking money from the earnings reserve of the permanent fund and thus jeopardizing their permanent fund dividend (PFD). She noted, however, that the people she talked with favored the concept of a municipal dividend as is proposed in HB 20 because, as municipal assistance and revenue sharing is reduced, local taxes have increased. She opined that the formula in HB 20 is tied directly to the PFD calculation; thus there is a direct relationship between the number of people in a community and the amount of money that community will receive to pay for services. CHAIR COGHILL asked, "Are we entering into the arena of dedicated funds in going this route?" REPRESENTATIVE MOSES said, "Not that I can see." Number 1342 TIM BENINTENDI, Staff to Representative Carl Moses, Alaska State Legislature, sponsor, explained that HB 20 may imply dedication of funds, which is no different than a lot of other programs, but does not do so literally. According to the provisions of HB 20, on June 30th of every year, the number of PFDs paid the prior year would be multiplied by $150. Other provisions of HB 20 would then be used to determine, according to communities' needs and populations, how this pool of money would be distributed. He added that HB 20 provides that if the earnings reserve account does not support that calculated amount, less money would go into the pool. He also noted that the appropriations responsibility of the legislature remains intact, thus providing more flexibility as well. REPRESENTATIVE STEVENS said that as former borough mayor, he was often concerned about the [budget] cuts the legislature imposed. These cuts, he noted, were not to the cost of "doing government," rather, those costs were simply passed on to the local communities, forcing local governments to raise property taxes to pay for basic services. "In a way it was sort of a shell game; the public didn't really see any reduction in the cost of government, in fact, they paid for it one way or the other," and he opined that HB 20 goes a long way towards paying for those basic public services of police, fire, and emergency medical service (EMS). He then asked for an explanation "on the whole issue of the public purposes of the permanent fund," because, he said, he keeps hearing that the state is not paying federal taxes on the permanent fund on the condition that this money is being used for public purposes. But, he added, it appears to him that the state has not been doing that. He suggested that HB 20 would clarify that the money is being used for public purposes, and thus legitimize the permanent fund's federal tax status. REPRESENTATIVE MOSES said that according to his understanding, there has never been a decision made by the IRS regarding the permanent fund's tax status. He said this leaves open the possibility that the IRS could, in the future, consider the permanent fund a taxable fund if it is not being used for any public purpose. He commented that a lot of people don't realize that HB 20 should translate into lower local taxes, or at least reduce the chances of local taxes being increased, either of which is a tax benefit since receiving the PFD often puts people in higher federal tax bracket, whereas people don't receive any tax benefit for having taken money out of their pockets to pay for local property or sales taxes. Number 1001 REPRESENTATIVE JAMES agreed that certainly, PFDs couldn't be considered a public purpose. She opined that the sooner the permanent fund can be used for something that has a public purpose, as is proposed in HB 20, the more likely the IRS can be dissuaded from taxing that fund. She then made the comment that adoption of HB 20 would essentially be adding another $150 worth of benefits to everyone's PFD by contributing that money to local communities to pay for local services, which is perhaps one of the reasons she heard no opposition to this concept. REPRESENTATIVE FATE expressed the concern that to him, it is somewhat like a tax on the general fund (GF) because, he suggested, the GF money comes from the permanent fund earnings reserve account. It would be a tax on everyone who receives a PFD benefit, he added, and that money has to come from somewhere, and in this instance that would be the permanent fund earnings reserve account, some of which goes back into the corpus of the permanent fund, and some of which pays for inflation proofing, the PFD, and government. Although he applauds the efforts of HB 20, he said he worries about the unintended consequences. REPRESENTATIVE JAMES, to clarify, countered that the money that is in the earnings reserve account of the permanent fund does not ever go to the general fund (GF). With regard to money from the earnings reserve being used to pay for government, she also clarified that that would only happen when there is extra money, which, she opined, is not going to happen any time in the near future. CHAIR COGHILL asked if provisions in HB 20 would impact the VPSO program in any way. Number 0610 MR. BENINTENDI said that the VPSO provision in HB 20 authorizes $15 per PFD recipient to go to the VPSO program via the department, which would manage the money and filter it down as appropriate. He calculated, using last year's figures of PFD recipients, that the amount would be approximately $8.6 million for the VPSO program. He said that this is just one of the mechanisms by which this money is put right back on the street. CHAIR COGHILL, referring to page 13, asked if HB 20 would have entities such as Native village councils, which are not necessarily state entities or incorporated entities, working with these matching state grants. MR. BENINTENDI explained that unincorporated communities with only a tribal council are eligible under ongoing departmental programs, so HB 20 creates nothing new in that regard. REPRESENTATIVE WILSON likened what the legislature has been doing to municipalities over the last few years with regard to revenue sharing to a runaway train on a steep slope: "it is going to crash." She opined that HB 20 is going to give municipalities a predictable, reliable source of income, which they sorely need, and it addresses many basic community needs. She added that HB 20 is like a light at the end of a tunnel, and she plans to vote in favor of it. REPRESENTATIVE HAYES said that he agrees with many of the previous comments in favor of HB 20; it is legislation that is needed for a long-range plan. Number 0371 KEVIN RITCHIE, Executive Director, Alaska Municipal League (AML), said that HB 20 is very accountable. "When you go out to the public and they say, 'Well, if you want to use some money, how exactly are going to do it, 'cause we want to know,' ... this bill really lays that out in the sense that the public sees where the money goes and [that] these are, in fact, the highest priorities of the public ...." He also mentioned that Alaskans United, which was the group that worked on the taxicab campaign, is coming back to assist with the creation of a deliberative process in each community to ensure that everyone has the same information that the legislature has. He concluded by noting that according to the Office of Management and Budget (OMB), a 1 percent sales tax in Alaska would bring in $70 million per year, whereas the earnings of the permanent fund is $2.1 billion. He then noted that in order to create something as big as the earnings of the permanent fund, it would take a 30 percent sales tax. CHAIR COGHILL, referring to [pages 3-4], asked whether any of the municipalities have said that the provision regarding taxpayer notification is too onerous. MR. RITCHIE said that no one had, and pointed out that this provision of HB 20 is current law, and simply adds the Public Safety Foundation Program. TAPE 01-50, SIDE A Number 0001 REPRESENTATIVE WILSON moved to report CSHB 20(CRA) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 20(CRA) was reported from the House State Affairs Standing Committee.
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