Legislature(2015 - 2016)CAPITOL 17
02/04/2016 01:00 PM House TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| HB249 | |
| HCR17 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 249 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HCR 17 | TELECONFERENCED | |
HB 249-ELECTRONIC TAX RETURNS & MOTOR FUEL TAX
1:08:54 PM
CO-CHAIR HUGHES announced that the first order of business would
be HOUSE BILL NO. 249, "An Act requiring the electronic
submission of a tax return or report with the Department of
Revenue; relating to the motor fuel tax; and providing for an
effective date."
1:08:56 PM
RANDALL HOFFBECK, Commissioner, Department of Revenue (DOR),
began a review of the sectional analysis for HB 249 and stated
that Section 1 would add a $25 or 1 percent tax penalty for
failure to file electronically unless an exemption is received
by the taxpayer. He explained that all of the tax bills that
[the administration] proposed this year include a requirement
for electronic filing in order to increase efficiency and
improve audit capabilities. He stated that Section 2 contains
the language which requires the electronic submission of tax
returns, license applications, and other documents to the
Department of Revenue, and explained that the section also
outlines the process to request an exemption if the taxpayer is
unable to file electronically.
COMMISSIONER HOFFBECK explained that Section 3 effectively
changes the per gallon tax rate for dealers for all categories
of motor fuel as follows: highway fuel and gasohol from $0.08
to $0.16; marine fuel from $0.05 to $0.10; aviation gasoline
from $0.047 to $0.10; and jet fuel from $0.032 to $0.10.
Section 4 language changes the per gallon tax rates for users of
all categories of motor fuel by the same rates outlined in
Section 3.
1:11:08 PM
The committee took an at-ease from 1:11 p.m. to 1:14 p.m.
1:14:06 PM
COMMISSIONER HOFFBECK continued his discussion of the sectional
analysis and clarified that Section 3 and Section 4 provide the
implementation language for the rates in two statutes. He
explained that Section 5 language will allow the increase of the
motor fuel refund rate for "off-road use" from $0.06 to $0.12,
and Section 6 provides language clarifying that the tax
increases would apply to motor fuel sold after the effective
date, and that the filing requirement applies to returns
submitted after the effective date. He specified that Section 7
includes transitional language allowing for regulations to
implement the changes; Section 8 language details the immediate
effective date for the transitional regulatory language; and
language in Section 9 sets the effective date of July 1, 2016,
throughout the bill.
1:15:30 PM
CO-CHAIR HUGHES inquired as to how the rates were determined,
and whether $49 million was used as a target goal. Further, she
asked if an economic analysis of the proposed rates had been
conducted with consideration given toward the impacts of marine
fuel increases on coastal communities or highway fuel increases
on rural locales.
COMMISSIONER HOFFBECK stated that the rates initially discussed
were significantly higher and closer to the national average, as
the Alaska motor fuel taxes are substantially lower. He
specified that as the governor began to assess the amount of
impact the taxes would have on various entities, the rates were
altered to distribute the burden across a larger base of the
economy, with the idea that everyone should contribute. The
resulting agreement was to double the tax; to meet the national
average it would need to be quadrupled. He said there wasn't a
lot of science behind the proposed increase, given that it would
still be one of the lowest motor fuel tax rates in the country.
The administration has commissioned the Institute of Social and
Economic Research (ISER) to conduct a study on the economic
impacts of the governor's plan, which will be available soon.
The study was not necessarily designed to analyze the impacts on
a specific user group or community, but rather, to describe the
potential impacts of a tax increase in general. He noted that
with a $4.7 billion dollar deficit, everything [lawmakers] do
will have some impact.
1:18:07 PM
CO-CHAIR HUGHES related her understanding that the proposed tax
rates were developed using a gut sense rather than a true
analysis, and she expressed appreciation for Commissioner
Hoffbeck's forthrightness in that regard. She stated that the
tax increase proposals taken as a whole - the motor fuel tax
increases, implementation of an income tax, and a reduction in
permanent fund dividends - would disproportionately impact some
communities. She mentioned that she is looking forward to
reviewing the ISER study.
1:18:41 PM
REPRESENTATIVE CLAMAN asked whether the national average for
fuel tax is $0.32 or $0.25.
COMMISSIONER HOFFBECK stated his understanding that the national
average is $0.32.
REPRESENTATIVE CLAMAN relayed that the committee had received a
letter from Deputy Commissioner Jerry Burnett of the Department
of Revenue (DOR), describing the federal requirement to
exclusively spend aviation fuel tax revenue on airports.
However, the committee also received a letter from Alaska
Airlines, Inc., basing its opposition to the tax increase on the
fact that the revenue would not be spent on airports; he
requested clarification on this discrepancy.
COMMISIONER HOFFBECK deferred the question and confirmed that
the national average for fuel tax is $0.25 per gallon.
1:20:33 PM
KEN ALPER, Director, Tax Division, Department of Revenue (DOR),
stated that he was unfamiliar with Mr. Burnett's letter;
however, the federal transportation administration does have
rules stating that aviation fuel taxes should be spent at
airports. It is the understanding at DOR that the rules have
been strictly enforced in recent years, and he recalled that the
issue had been brought before the body when a bill regarding the
refined fuel surcharge was passed. He related that the rules
regarding airport spending were part of the rationale for
excluding aviation fuel from that piece of legislation. The
state provides a significant amount of support to airports from
the general fund, and the amount of additional funding from the
increased aviation fuel tax, as proposed under HB 249, would be
less than the state contributions to airports from the general
fund; therefore, part of the proposed legislation was designed
as a backfill for state spending. He explained that
approximately $200,000 would be shared with certain municipally
owned airports, and the remaining state funds would be used for
various, related support projects.
1:21:51 PM
REPRESENTATIVE CLAMAN requested confirmation that aviation taxes
are not currently directed to a dedicated fund, that the federal
government tracks how much revenue the state receives from
aviation fuel taxes, and expects that money to be spent
specifically on airport projects.
MR. ALPER stated his understanding that one of the exemptions to
the rule on dedicated funds is an instance where there is a
federal requirement. He explained that in the case of this
specific federal requirement, Alaska's aviation funding is tied
to compliance, and the state does not want to put the
substantial amount of federal funding at risk.
REPRESENTATIVE CLAMAN asked whether the intention is to
designate aviation tax revenues as dedicated funds, thus
allowing the federal government to track the expenditures.
MR. ALPER responded that the administration does not anticipate
having a dedicated fund, per se, but, in terms of accounting,
the funds can be tracked to airport expenditures.
1:23:18 PM
REPRESENTATIVE NAGEAK opined that applying changes in the tax
structure to every type of motor fuel will have a tremendous
impact on rural communities, as fuel prices are based on what is
paid at the time the fuel is ordered. He expressed concern
regarding the disproportionate impact a $0.16 per gallon tax
could have on people in rural Alaska where gas prices can be as
high as $20 per gallon. He related that in many instances in
the Bush, people don't make an income that can be taxed, but
this proposal would effectively tax the non-existent incomes of
rural Alaskans every time they buy fuel. He noted that the cost
of doing business is increasing, especially for businesses that
provide support services to rural Alaskan villages. He related
that when the cost of doing business goes up, the increased cost
is passed on to the consumer; the increases are visited on rural
Alaskans, who may be forced to choose between buying a gallon of
milk and going without. He explained that the price of the
commodity is set when it is delivered by barge, which could be a
month prior to a price change. He re-emphasized his stance that
the tax increase would fall disproportionately on people with
fixed incomes or no income at all.
COMMISSIONER HOFFBECK replied that having lived in Barrow for
eight years, he understands the concerns regarding the price of
fuel. He stated that some components of the motor fuel tax
proposal have been designed to buffer the impact on rural
Alaskans. He further explained that because the tax increase is
not percentage-based, but is instead based on how much fuel a
consumer purchases, it is not a flat tax. He explained that the
other component aimed at diminishing the impact on rural
Alaskans is the increase in the "off-road use" refund, which is
available for people who primarily drive off the road system,
with four wheelers, for example. He stated that the largest
share of the motor fuel tax would be paid by urban consumers who
travel significantly more miles and burn more gas.
REPRESENTATIVE NAGEAK asked whether the requirement to submit
tax returns electronically would apply to everyone. He pointed
out that there are many people in rural Alaska who do not have
access to computers or have not had the experience and
opportunities necessary to gain computing skills. He noted that
if HB 249 passes, it would implement a $25 or 1 percent tax
penalty for failure to file electronically unless an exemption
is received by the tax payer. He asked who would qualify for an
exemption.
COMMISSIONER HOFFBECK responded that the taxes are paid at the
distributor level, thus individuals would not have to meet the
requirement.
REPRESENTATIVE NAGEAK stressed that the tax will be passed on to
the consumer.
COMMISSIONER HOFFBECK agreed and said that there is a provision
allowing any taxpayer to file on paper if they do not have the
ability to file electronically.
1:30:07 PM
CO-CHAIR FOSTER noted that the issue of equity was raised
previously and stated that comparing highway and marine fuel
taxes is an "apples to oranges" comparison. He observed that
the increases outlined in HB 249 are $0.08 for highway fuel and
$0.05 for marine, and noted that the aviation tax increases are
$0.047 to $0.10 and $0.032 to $0.10 for gasoline and jet fuel,
respectively. He noted the two rates for aviation fuel, and
stated his understanding that aviation gas tends to be used more
by private pilots of smaller aircraft and that jet fuel is used
for airplanes with jet or turbine engines, thus, for more
commercial applications. The recommendation was made by the
Aviation Advisory Board, and he asked for the rationale behind
setting the different aviation fuel tax rates.
MR. ALPER answered that the tax rates for aviation and jet fuel
have been on the books for decades, but he said he was uncertain
as to the exact history. He stated that the [Aviation Advisory
Board] favored a tax increase over a landing fee increase; there
is an authentic need for funding to support [airport]
operations, and the administration is hoping to avoid landing
fee increases.
CO-CHAIR FOSTER noted that historically, jet fuel has been taxed
at a lower rate than aviation gas, and he speculated that it was
perhaps during a time period when significantly less jet fuel
was being used. He asked whether this rate was set in the
1970s.
MR. ALPER stated that he believed it was the 1970s and, to put
the scale of the changes in perspective, said the State of
Alaska has taxed an average of 625 million gallons of fuel per
year through the four taxes effected in HB 249. He stated that
jet fuel has accounted for 125 million gallons of the total
taxed, and general aviation fuel has only accounted for about 10
million gallons; general aviation fuel is a much smaller volume
of consumption and is used by private pilots and small planes.
He stated that it is important to be aware that there are
actually 400 million gallons of jet fuel purchased in Alaska
every year, but the vast majority is exempted from tax because
it is connected to international flights, largely through the
Anchorage freight hub.
1:33:16 PM
CO-CHAIR FOSTER noted that under the proposed legislation the
aviation gas would experience an increase of $0.053, and jet
fuel $0.068. He asked whether much of the jet fuel is exempt
from taxation because it's purchased by companies such as Korean
Airlines, and others not based in Alaska.
COMMISSIONER HOFFBECK clarified that the way the current federal
law is interpreted by the State of Alaska is that flights coming
from, as well as traveling to, foreign destinations are tax
exempt. He confirmed that a portion of the Alaska Airlines fuel
purchases are tax exempt.
1:34:29 PM
REPRESENTATIVE ORTIZ stated that he shares Representative
Nageak's concern about the impact of a fuel tax on rural Alaska.
Many of his constituents also reside in rural locales and there
is no question about the tax impact being greater in the Bush;
however, the alternative is to reduce services in lieu of
increasing revenue, and reductions in services - whether in
education, broadband, or similar - also have a disproportionate
impact on rural Alaska. He stated that the problem that both
the administration and the legislature face is that any changes
will have a negative impact. It's worth remembering that the
legislature is discussing the impacts of revenue increases on
constituents, but reduction in services will also have negative
impacts. He asked for confirmation that the revenue of rural
airports is subsidized from the general fund, at the 80 percent
level.
1:37:15 PM
STEVE HATTER, Deputy Commissioner, Office of the Commissioner,
Department of Transportation & Public Facilities (DOTPF),
clarified that the representative's reference is to the funding
gap between revenue and expenses relating to the operation of
rural aviation systems; a gap of approximately $34 million per
year. The systems requires approximately $35 million to
maintain and operate, with an additional $5 million in
administrative costs. He stated that [DOTPF] collects
approximately $5.8 million in revenue, primarily through lease
rates, and the remainder comes out of the general fund.
REPRESENTATIVE ORTIZ stated his belief that the calculated gap
equates to a subsidy of approximately 80 percent, supporting the
idea that much of the DOTPF airport revenues, from fuel taxes or
other sources, are directed back to the aviation support system.
MR. HATTER replied that is correct. He stated that, at the
current fuel tax rate, state airport expenses far exceed the
revenue from aviation fuel taxes. The large gap provides the
means for the state to meet the Federal Aviation
Administration's (FAA's) grant assurance requirements.
1:38:49 PM
CO-CHAIR FOSTER asked for figures describing the funding gaps
for the road system and the Alaska Marine Highway System (AMHS).
MR. HATTER replied that he did not know the figures off the top
of his head for the amount of those two gaps, but ventured that
the AMHS funding gap is a considerable amount as well. He
stated that increasing revenue from all sections of the motor
fuel tax plan would definitely help close the gap, but would
ultimately come nowhere near covering operating costs.
1:39:45 PM
REPRESENTATIVE CLAMAN stated that over the last several days he
has received communications from the Alaska Trucking Association
(ATA), heavy users of diesel fuel, stating support for HB 249
and the proposed increase in the motor fuel tax. The
Association of General Contractors, also major users of diesel
fuel, has also offered its opinion. Further, he reported that
he has spoken with a tour operator, whose company consumes 5,600
gallons of diesel on a weekly basis. In rough calculation, the
tour operator would experience a $450 to $500 per week increase
under HB 249. He stated that all of the aforementioned groups
and individuals support this tax increase. He asked if there
are any statistics available comparing diesel versus gas
consumption. The conversation is frequently geared toward the
impacts on consumers, he noted, and offered that consumers would
see an approximate $80 per year increase in motor fuel taxes
assuming two cars and a driving range of about 20,000 miles per
year. He asked whether more of the tax would be paid by the
major users of diesel fuel or the average consumers who use less
in general, and whether the difference is similar to private
aircraft and commercial aircraft users: commercial aircraft
users purchase more jet fuel than private aviation users do
aviation gas.
1:41:24 PM
MR. ALPER offered to provide further information to the
committee, regarding the number of gallons of gasoline versus
diesel fuel taxed [annually]. However, specifying diesel fuel
use, with regard to application for industrial purposes versus
what is consumed by the average diesel automobile owner, may be
beyond the scope of the division, he explained.
1:41:45 PM
CO-CHAIR HUGHES asked if the economic analysis being conducted
by ISER is going to describe impacts by region.
1:43:00 PM
COMMISSIONER HOFFBECK stated his uncertainty whether the ISER
report would include regional analysis, and indicated that the
administration contracted ISER to do an impact study of the
various issues pertinent to this legislative session. The task
of determining methodology has been left up to ISER, allowing
the study to be conducted from a totally independent
perspective. Responding to a follow-up question, he projected
that the report would be complete within two weeks and an
executive summary available early next week.
1:43:59 PM
CO-CHAIR HUGHES, returning to the foreign jet fuel tax exemption
as it applies to international flights, expressed her
understanding that Alaska statute exempts the flights; however
the statutes are based on federal law which has been
successfully challenged in Florida. She said a question exists
regarding the free-trade zone, near the Anchorage airport, and
she asked for information on the flexibility of the foreign
exemption. If foreign flights comprise 80 percent of the jet
fuel sold in the state, she conjectured that, even without
changing the aviation fuel price, simply eliminating the
exemption would provide a considerable amount of revenue. She
asked whether DOR had statistical information for that scenario.
1:45:10 PM
MR. ALPER replied that DOR had run some similar analyses
regarding numbers and the order of magnitude, at the time the
legislature was considering the fuel surcharge bill introduced
last session, and he offered to rework the numbers to provide
updated information to the committee. He said he was not
familiar with the specifics of the Florida case, but there are
some federal constitutional issues related to the commerce
clause. He stated his awareness of differences between outbound
and inbound foreign flights, which include a rule regarding
flights continuing on locally. He suggested that when it comes
time for public testimony, Alaska Airlines would have a strong
opinion on the issue.
1:45:43 PM
CO-CHAIR HUGHES opined that the foreign exemption is pertinent
to the conversation. Despite considerable fuel price
fluctuations over the years, carriers have continued to provide
service to Anchorage. A break-even point exists where it would
no longer make sense for an airline to provide service to
Alaska, and that is something the committee needs to understand.
She noted that of the $49 million anticipated revenue,
businesses and residents would each pay a portion, and although
the business - not just transporters, but all types of
businesses including retail and service providers - would pay
the tax initially, ultimately the cost would be passed on to
consumers. She posited that a tax increase will affect all
Alaskans and individuals would ultimately pay, which, she
stressed is her primary concern.
CO-CHAIR HUGHES compared the governor's tax proposal strategy to
throwing proposals against a wall to see what sticks, peeling
off those that do, adding them up, and reassessing the bottom
line afterward. She noted that Alaska's high cost of government
is among the highest in the nation and held that the proposed
budget maintains that status. She opined that further
reductions in costs must be made, and expressed concern over the
combination of maintaining the high cost of government and the
prospect of collecting $49 million with the proposed tax. She
said every dollar that is not reduced from the budget will come
out of residents' pockets and suggested that a dollar in the
pocket of the private sector in Alaska has a larger multiplier
effect than a dollar held by government.
CO-CHAIR HUGHES restated her concern about the proposal, and
emphasized that it may affect some communities more heavily than
others. She said the tax may be low relative to other states,
but Alaskans pay more at the pump; California and Hawaii may pay
more, but it can be offset by lower food costs. She remarked
that the average amount of fuel used in some Alaskan locales far
exceeds that of others and offered an example from her region:
one parent has a daily commute while the other drives the
children throughout the Matanuska-Susitna Borough.
Additionally, for some people, at trip to the store may mean a
20-mile round trip. The proposed tax would impact her area
significantly, she predicted and said that she would feel more
comfortable reducing the budget to essential services; however,
if circumstance arose where an area would lose an Alaska State
Trooper or close a section of road, then she might support a tax
increase. Knowing that the $49 million would be going back into
transportation infrastructure and maintenance, rather than to
the general fund, would also provide some piece of mind, she
shared.
1:50:58 PM
REPRESENTATIVE NAGEAK stated that Alaska's primary
transportation modes are marine and aviation, and he pointed out
that marine transportation is seasonal for South Central,
Southwestern, and Northern coastal regions due to ice
conditions. These methods are the only travel options for
residents who do not live on the road or rail system, which is a
circumstance that will not change. He indicated that connecting
all areas of the state by road remains cost prohibitive and,
given the transportation challenges, leaves communities
isolated. As an aside, he noted that some of that isolation is
countered by modern communication technology, which allows
events to be transmitted instantaneously. He explained that due
to the seasonality of transportation to some regions, if the
cost of fuel was high, at the time of purchase and delivery, it
would remain high until the next buying season; between February
and June of the following year. Fuel costs are significantly
higher in rural Alaska than elsewhere in the state, he
maintained, and expressed uncertainly as to how rural Alaskans
would get through the fiscal challenge.
1:54:04 PM
REPRESENTATIVE CLAMAN requested that Mr. Alper be directed to
provide the committee with figures comparing expenses and
revenue for both the rural and international airports for the
purpose of drawing a complete picture of the funding gap.
1:54:38 PM
CO-CHAIR HUGHES stated that the United Parcel Service of
America, Inc., Delta Air Lines, Inc., and Checker Dispatch,
LLC., have each submitted a testimonial letter included in the
committee packet.
1:55:35 PM
JOE SPRAGUE, Senior Vice President, Communications and External
Relations, Alaska Airlines, Inc., introduced the team members in
attendance and pointed out the written testimony available in
the committee packet. He said Alaska Airlines has operated in
Alaska for 84 years, and currently provides service to 19
cities. He explained that only 3 of these cities are connected
to the road system and, from that standpoint, Alaska Airlines
views its services as a critical component of the state's
infrastructure. He held that this is further evidenced by the
fact that the company build the terminal facilities for 11 of
the communities served. In other words, these facilities, which
would be funded by municipal and state governments anywhere else
in the country, are provided by Alaska Airlines at no cost to
the state. Alaska Airlines has maintained these facilities over
the years, and is about to invest in them again; the
infrastructure directly provided to the airports is a large part
of Alaska Airlines' service to the state. He reported that
Alaska Airlines has 1,820 employees in Alaska and is privileged
to count the vast majority of the residents of Alaska as
customers.
MR. SPRAGUE stated that due to the company's extensive presence
in the state, it is very concerned with HB 249, as it would
raise the tax on jet fuel by over 200 percent. In addition to
the jet fuel tax increase being exceedingly large, internal
calculations suggest that Alaska Airlines would pay over 30
percent of the increase. He stated his concern regarding how
the taxes would be utilized, with the revenue initially
transferred to the general fund, and eventually allocated to the
aviation system. He pointed out that the FAA stipulates use of
state tax revenue for aviation purposes when those funds are
collected from aviation entities. He emphasized that, due to
the company's awareness of the fiscal challenges facing the
state, it's not saying "heck no" to any sort of tax increase,
recognizing that all businesses and residents need to be
involved in the necessary solutions. He warned that the fuel
tax increase will impact much needed commerce in the state, as
well as basic needs. In many cases Alaska Airlines is the
primary means of transporting basic commodities to a town, and
as well as providing the means for residents to access larger
urban areas for basic needs such as medical care and other
services. He announced that Alaska Airlines intends to begin a
multi-pronged investment in the state, estimated to total tens
of millions of dollars, on three to four year projects, which
include: improvements to the 11 rural terminal facilities, the
development of a new hangar and aircraft maintenance facility at
the Ted Stevens Anchorage International Airport, and the
conversion of three modern 737 aircraft for use as freighters to
support the cargo and airfreight needs of the state. Although
new revenue may be needed, Alaska Airlines urges careful
consideration of the impact of such a large tax increase on a
single, critical component of the state's infrastructure. He
concluded by reviewing the economic contributions being made by
Alaska Airlines in a variety of ways including a corporate
income tax for 2015 of $10 million and paid approximately $2
million in state fuel tax.
2:01:27 PM
CO-CHAIR FOSTER asked the administration to comment regarding
the FAA's requirement for expenditures of aviation revenue.
COMMISSIONER HOFFBECK replied that the state is spending more in
the maintenance and operation of airports than it collects in
aviation taxes; which can be easily demonstrated. If the state
were to collect more from aviation than they spend, there would
be an issue. He noted that there is also an issue related to
dedicated funds within the constitution. It requires DOR to
track the funds and ensure that what is spent is at least equal
to, or greater than, the amount received in the aviation tax.
2:04:08 PM
REPRESENTATIVE CLAMAN asked whether the fact that more state
money goes into the airports than comes in from aviation taxes
sufficiently addresses Alaska Airlines' concern about the lack
of a dedicated aviation fund.
MR. SPRAGUE replied affirmatively, and said that of more concern
is the added cost of several million dollars that Alaska
Airlines would incur, specific to intra-Alaska operations. He
stated that high fares are the norm on intra-Alaska routes, as
it is very expensive to operate in-state. Alaska Airlines
continues to seek ways to lower operating costs and the tax
increase would serve to increase expenses, potentially for many
years to come.
REPRESENTATIVE CLAMAN offered his assumption that if the fuel
tax increases by $0.068 per gallon, the company will recalculate
its rates, resulting in consumers paying more for air travel.
MR. SPRAGUE concurred, and said that, like any business, Alaska
Airlines must cover its costs and when expenses rise, pricing is
adjusted to cover the increase. He added that, as Alaska
Airlines is considering a very large capital investment in the
state, the addition of a recurring cost, while not necessarily
causing the company to cancel plans, does curb its enthusiasm.
2:07:05 PM
REPRESENTATIVE ORTIZ stated his assumption that with oil down to
$30 per barrel, Alaska Airlines' fuel costs have been reduced
significantly. He asked if it is accurate to say that Alaska
Airlines has benefitted from the lower fuel costs, and that,
even with the additional tax, the price of fuel remains lower
than it was two years ago.
MR. SPRAGUE agreed that lower fuel prices have been a benefit,
and fares are down because the company is able to pass the
savings on to its customers. The lower cost has also helped
Alaska Airlines' financial position, allowing it to consider
capital investments in the state. He pointed out that fuel
prices fluctuate significantly and - while experts may suggest
that prices are going to be "lower, longer" in the present - if
a fuel tax increase is enacted, it could remain in place
indefinitely. He related that the belief held by the airline
industry is that oil prices are going to rebound and companies
will pay higher prices over time.
REPRESENTATIVE ORTIZ asked whether the lack of significant
progress by the state, regarding its fiscal situation, increases
the risks associated with Alaska Airlines' intended capital
investments.
MR. SPRAGUE replied that Alaska Airlines has certain needs in
the state of Alaska with respect to operations. The rural
terminals are in need of improvements as the newest is 15 years
old, the facilities are exposed to harsh environmental
conditions much of the year, and none have been adjusted to meet
the (Transportation Security Administration) TSA requirements
imposed after [the terrorist attacks of September 11, 2001].
The changes need to take place regardless of what the state does
to address the fiscal situation; this holds true for both the
maintenance facility in Anchorage and the company's commitment
to serving cargo needs. He suggested that Alaska Airlines will
likely proceed with the investments, but will do so with some
level of trepidation given an economic environment that is
cloudy at best and, absent legislative action, could get
cloudier. He emphasized, yes, there is concern.
2:10:48 PM
CO-CHAIR FOSTER asked if Alaska Airlines is a member of, or has
input into, the Aviation Advisory Board, which made the
recommendations for the proposed tax increases.
MR. SPRAGUE confirmed the company's awareness of the proceedings
with the Aviation Advisory Board, and has an executive who
represents the airlines as a member. However, Alaska Airlines
did not have a participating member when the recommendation for
the tax increase was made. He stated his appreciation for the
question, because it is an important distinction. Mr. Sprague
offered assurance that Alaska Airlines' is supportive of its
aviation colleagues in Alaska, and works closely with other
aviation operators, whether in regard to safety or commercial
issues. It's unusual for Alaska Airlines to have a different
position from the rest of the aviation operators in the state,
but what makes it unique is the level of investment the company
has made in the state's aviation infrastructure. He remarked
that some other airlines have their own terminal facilities, but
none of them have eleven, large, TSA-equipped, cargo-equipped,
terminal facilities.
2:12:38 PM
REPRESENTATIVE CLAMAN stated that he has heard many business
leaders express the urgent importance of addressing the fiscal
gap this session and not postponing action to another session.
He asked which would be the greater risk to Alaska Airlines'
confidence in continued investment in Alaska: the fuel tax
increasing to $0.10 or the legislature not making real progress
toward closing the fiscal gap.
MR. SPRAGUE stated that Alaska Airlines' understanding is that
the amount of revenue that would be raised by increasing the
motor fuel taxes would not sufficiently address the state's
fiscal challenges.
REPRESENTATIVE CLAMAN clarified that he was referencing the
larger fiscal situation, not just the fuel tax, with his
previous question.
MR. SPRAGUE stated that Alaska Airlines' view is that action is
going to have to be taken across the various levers that are
available to the legislature to address the issue.
2:14:08 PM
GREG LOUDON, member, Alaska Chamber, stated that the chamber's
legislative affairs committee members were asked to clarify
priorities for the upcoming legislative session. He pointed out
that written testimony was submitted on August 24, 2015, to
Governor Walker and the Alaska State Legislature. For answering
the fiscal situation, the Alaska Chamber's number one priority
is the reduction of state spending to a sustainable level, which
the chamber defines as $4.5 billion, or less, of unrestricted
general fund expenditures by fiscal year 2018 (FY18). The
second priority is to use permanent fund earnings, and the last
priority is to invoke broad-based taxes. He informed the
committee that the important message from the Alaska Chamber is
that it supports closing the fiscal gap and encourages the
legislature to take strong action this session to accomplish
that, but it wants the focus to be on cutting state expenses
before looking to other sources of revenue.
2:15:35 PM
CO-CHAIR FOSTER noted that, if the legislature were to use the
permanent fund earnings, after subtracting what is needed to pay
a dividend and inflation proofing, approximately $5 billion
would be available. At the current oil price of $20 to $30 per
barrel that sum would be gone in as little as 18 months. He
asked whether Alaska Chamber has a long-term strategy.
MR. LOUDON stated that the Alaska Chamber has not taken a
specific position on the governor's proposed bill or related
legislation, as introduced. The Alaska Chamber knows that some
form of legislation is necessary, and it is not advocating that
the state spend all of the permanent fund earnings. The chamber
is emphasizing the importance for the legislature to reduce
state spending before considering other sources of revenue.
2:17:27 PM
CO-CHAIR HUGHES asked for clarification that the Alaska
Chamber's stance is that there is a preferred order to the
actions taken to close the gap: reduce government spending, use
the permanent fund in some way, and, as a last resort, increase
taxes.
MR. LOUDON replied that is correct.
CO-CHAIR HUGHES commented that Alaska's budget from ten years
ago, adjusted for inflation, was approximately $4.1 billion.
She granted that there are differences now such as pension
obligations and health care. A $4.5 billion unrestricted
general fund budget sounds like a realistic target, and she said
she personally does not recall any public outcry about a lack of
government services 10 years ago.
2:18:32 PM
REPRESENTATIVE STUTES asked if the Alaska Chamber has any ideas
regarding ways to cut state spending.
MR. LOUDON responded that the chamber has developed a framework
for how it would suggest making reductions in government
spending; however, the framework does not involve isolated cuts,
but offers department by department recommendations.
2:19:09 PM
REPRESENTATIVE ORTIZ asked if the Alaska Chamber has been
provided with any information on the economic impacts of the
recommended reductions. He gave the example of a significant
reduction in spending for the Alaska Department of Fish & Game
(ADFG) resulting in a lack of positions necessary to accomplish
their projects, which may result in more conservative management
decisions, which would in turn result in fewer fish caught, and
ultimately less income earned in the fisheries. He stated that
the legislature needs to reduce the budget and will, but the
question is how that is accomplished with a minimal impact on
the overall economy. He asked if there has been any analysis on
the impact of a $4.5 billion budget.
MR. LOUDON answered that the Alaska Chamber worked with ISER,
and other state resources, to analyze the potential economic
impacts of budget reductions. The $4.5 billion dollar number is
a summary of the expenditures that the Alaska Chamber believes
is reasonable.
2:20:56 PM
RON WILLE, General Manager, Kenai Fjords Tours, stated that the
implementation of a $0.05 increase in marine fuel tax rates
would double the current rate and substantially increase costs
to his company. He stated that in recent years back-to-back,
double-digit minimum wage increases for some of the seasonal
entry level jobs that Kenai Fjord Tours hires have also
increased costs. He said coupling these increases has had an
impact on the business and the company's bottom line. The
marine fuel taxes made more sense, he said, when the state owned
and operated many of the harbors throughout the state. Seward
now owns and maintains its own harbor, and the revenue from
marine fuel taxes do not seem to directly transfer from the
state to the local coffers. He asked whether funds generated by
the marine fuel tax would be dedicated to locally owned ports
and harbors. Another area of concern, similar to that held by
people in rural Alaska, is that the company only has one marine
fuel supplier, which causes less competition in the market and
can lead to higher prices. He concluded by stating that large
increases over such a short time period does not allow a company
to make adjustments to its pricing structure and compensate for
the increased costs.
2:23:28 PM
CO-CHAIR HUGHES asked what the projected, additional costs would
be for his business, under HB 249.
MR. WILLE replied that fuel costs would increase by tens of
thousands of dollars.
2:23:50 PM
CO-CHAIR HUGHES opened public testimony on HB 249.
2:24:02 PM
CLARK MILNE stated support for HB 249 and SB 132 and said he
believes that the revenue would be allocated to current road,
harbor, and airport maintenance expenditures. He stated his
understanding that Alaska's highway fuel tax is the lowest in
the country, at $0.08, and would remain the lowest even if
increased to the proposed $0.16. He stated that implementation
of the tax would put Alaska in better stead with the Federal
Highway Administration and given that the overall cost of fuel
has dropped by 50 percent, the addition of $0.08 is not a
significant burden. The proposed tax increase, as structured by
the Aviation Advisory Board, would not result in any new
collection costs and would be visited upon people who use the
associated infrastructure. Also, the impacts of a fuel tax
would be greater for fuel-based businesses such as taxis,
airlines, mining, and construction. It is imperative for Alaska
to continue using the subaccounts within the general fund, he
said, as mandated by AS 43.40.010 (g), which reads as follows:
"The proceeds of the revenue from the tax on all motor fuels,
except as provided in (e), (f) and (j) of this section, shall be
deposited in a special highway fuel tax account in the state
general fund." He opined that because of this statute, the
state does not need a dedicated fund. He said he is not certain
that the subaccount is a designated fund, but it is handled and
accounted for in such a way that the legislature or a private
citizen can track revenues and expenses. The entire $49 million
tax increase divided by 700,000 citizens would result in a per-
capita increase of about $70 per person, per year, which, he
predicted, would help meet the needs of the state.
2:27:31 PM
CO-CHAIR HUGHES clarified that, even though the subaccounts are
written in statute, the legislature has the ability to move the
funds and use them in whatever way is deemed necessary.
2:28:13 PM
AVES THOMPSON, Executive Director, Alaska Trucking Association,
stated support for HB 249, and said that one of the ATA
legislative priorities in 2016 is the development of a balanced,
durable, long-term fiscal plan utilizing cuts to state
government, permanent fund earnings, and taxes, if required. He
stated that the fuel tax increase, as proposed in HB 249, is
acceptable to ATA, within the framework of a long-term fiscal
plan. He stated that ATA believes action is critical this
legislative session and has long-supported a fuel tax increase
if the funds can be dedicated to transportation needs. He
relayed that it is ATA's understanding that the funds would not
be dedicated in HB 249, but ATA's members feel strongly that
they need to help resolve the fiscal issues by doing their part.
2:29:47 PM
CO-CHAIR HUGHES asked whether ATA agrees with the governor's
proposed budget or if the association is more inclined to
support the Alaska Chamber's proposal of a $4.5 billion budget.
MR. THOMPSON responded that ATA want to see further reduction in
state spending, consideration of use of the permanent fund
earnings, and an increase in taxes - all part of a longer-term
plan. He stated that action needs to take place now, and that
there is a lot of uncertainty in the credit markets, in
construction, in transportation, and in other industries; people
are wondering what will happen next. He urged the committee to
consider the whole package and said the motor fuel tax increase
is acceptable within the framework of a larger plan.
2:31:32 PM
FRED STURMAN stated opposition to HB 249, and said that he has
been testifying regularly over the past ten years in an effort
to persuade the legislature to reduce government spending. He
expressed opposition to any new taxes until the state cuts at
least 30 percent of its spending. When it comes time to discuss
taxes, the state should start with an income tax, followed by a
sales tax, followed by accessing the permanent fund, he opined,
and concluded that by accessing the permanent fund, implementing
a sales tax, increasing motor fuel tax rates, and some of the
other proposed taxes the state would effectively eliminate any
discretionary money held by the public, and there would no
longer be an economy. As an owner of a couple of small
businesses, he reported that business has been down by 15 to 20
percent in the last two years and is getting worse. He related
that he recently spoke with people who are selling everything
they have and moving out of state. The economy in the near
future is going to be worse than it was in the 1980s unless
there are major cuts to government spending. Based on a $4
billion fiscal gap, the state is short $5,714 per capita. He
stated his hope that the legislature would stop discussing
implementation of new taxes and start focusing on cuts to the
government. Additionally, he suggested that the Division of
Motor Vehicles (DMV) and the Kodiak rocket launch facility be
cut and that road maintenance be contracted. He suggested that
the State of Alaska should purchase products and services in
support of the government from locally owned businesses as much
as possible, and opined that the legislature for the past 10 to
20 years has been spending more than it can afford.
2:35:41 PM
JAMES SQUYRES stated opposition to HB 249 and opined that the
legislature should further reduce the size of government rather
than entertain the governor's plan to increase revenue at the
expense of the private economy. The state should be continuing
to cut, not "run from one side of the boat to the other." He
encouraged members to endorse the judicious use of the earnings
reserve and the power of the majority to lower the overall
budget to $4.5 billion. He stated that a 100 percent increase
in the fuel tax is one of several proposals that would
inordinately place the burden of the fiscal crisis on the backs
of the people. He related that he lives in rural Alaska, drives
80 miles round trip to get to town, plows one mile of
unmaintained state road to get to his driveway, and must
maintain two plow trucks to ensure access to his property. He
stated that gasoline is used for energy, plowing, cutting,
splitting, and transport to and from town. He related that fuel
costs have finally come down for the interior, and posed the
question, "Will the fuel tax be dropped if the price of oil goes
back up?" He restated his opposition to HB 249, because of the
budget.
2:37:45 PM
PAM GOODE stated opposition to HB 249, and opined that the
proposed bill is unnecessary and a total waste of time. She
said the legislature should focus entirely on cutting the size
of government, not on raising revenue. She stated her
understanding that DOTPF has increased in size by 109 percent in
the last 10 years, and this increase was not used for services,
but instead to "hold up the size of government." The economic
challenge is faced by all Alaskans and the rural sector is going
to be hit very hard. She posited that the bigger insult to
rural Alaskans is the removal of money from the private sector
and its placement in the hands of government, which is normally
located in the larger cities; therefore, the state would be
taking money out of the rural communities and placing it in
cities. She commented on the argument that an increase in
motor fuel tax is positive because it captures tourism dollars,
stating that the summer is not just the tourism season, but is
also the time of year that all Alaskans travel. She indicated
that she was offended by the claim that, when compared to other
states, Alaska does not tax enough. The cost of living in
Alaska is already high she said, and stressed that she doesn't
want Alaska to be like other states. Alaska has more liberty
and more freedom, she opined, and it needs to stay that way.
The only way to ensure that happens is to keep the size of
government down. She restated her opposition to HB 249, because
she said it would not address the root cause of the fiscal
problem: government spending.
2:40:14 PM
LARRY DEVILBISS testified that he is a beef farmer attempting to
compete with cattle farms in the Lower 48. He related that in
the Lower 48, cattle can graze on natural grass for nine months
per year and farmers only have to provide feed for 3 months per
year; however, the opposite is true in Alaska, where farmers
must provide feed 9 months per year. He said the consequence of
this is that in the summer, [his farm] puts up a lot of hay. He
stated that last year's "Schedule F" form for his federal income
tax confirmed that fuel is easily the largest single expense in
the cost of putting up hay in the summer, and is easily 50
percent more than the cost of fertilizer. He explained that
fuel costs are a huge impact, and he is aware of an exemption
that exists for off-road users, but HB 249 would double his farm
tax. He stated his awareness that someday this sort of
provision may be necessary, but he said it bothers him that
state government wants to "reach into his pocket" on July 1, at
the time of first hay cut, before the legislature has determined
a sustainable level of government. The legislature should find
the minimal level of state services, before dipping into the
private side of the economy. He posited that state government
is more concerned with preserving the public economy than the
private economy.
2:43:04 PM
CO-CHAIR HUGHES announced that HB 249 would be held over and
that public testimony would remain open.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB249 Sponsor Statement - Governor's Transmittal Letter.pdf |
HTRA 2/4/2016 1:00:00 PM |
HB 249 |
| HB249 ver A.pdf |
HTRA 2/4/2016 1:00:00 PM |
HB 249 |
| HB249 Fiscal Note-0912-DOR-TAX-01-13-16.pdf |
HTRA 2/4/2016 1:00:00 PM |
HB 249 |
| HB249 Sectional Analysis.pdf |
HTRA 2/4/2016 1:00:00 PM |
HB 249 |
| Tax presentation MOTOR FUEL 1-22-16 with comparison slide.pdf |
HTRA 2/4/2016 1:00:00 PM |
|
| Motor Fuel Tax FAQ.docx |
HTRA 2/4/2016 1:00:00 PM |
|
| HB 249 Opposing Documents - Letter from UPS 2-3-20106.pdf |
HTRA 2/4/2016 1:00:00 PM |
HB 249 |
| HB 249 Opposing Documents - Delta Airlines 2-4-2016.pdf |
HTRA 2/4/2016 1:00:00 PM |
HB 249 |
| HB 249 Opposing Documents - Emals from Public.pdf |
HTRA 2/4/2016 1:00:00 PM |
HB 249 |
| HB 249 Opposing Documents - Letter from Checker Cab 2-4-2016.pdf |
HTRA 2/4/2016 1:00:00 PM |
HB 249 |
| HB 249 Supporting Documents - Emails from Public.pdf |
HTRA 2/4/2016 1:00:00 PM |
HB 249 |