Legislature(2017 - 2018)BARNES 124

01/31/2017 01:30 PM House TRANSPORTATION

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01:32:33 PM Start
01:33:53 PM HB60
02:41:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Location Change --
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 60-MOTOR FUEL TAX; TRANSPORTATION MAINT. FUND                                                                    
1:33:53 PM                                                                                                                    
CO-CHAIR WOOL announced that the  only order of business would be                                                               
HOUSE  BILL NO.  60,  "An Act  relating to  the  motor fuel  tax;                                                               
relating to the  disposition of revenue from the  motor fuel tax;                                                               
relating to a transportation maintenance  fund; and providing for                                                               
an effective date."                                                                                                             
1:34:30 PM                                                                                                                    
JERRY BURNETT, Deputy Commissioner,  Department of Revenue (DOR),                                                               
stated that HB 60 is designed  to increase the motor fuel tax and                                                               
is  an integral  part of  the  governor's budget  proposal.   Mr.                                                               
Burnett began with  slide three of his PowerPoint  by sharing the                                                               
history of Alaska's motor fuel tax.   He said that Alaska's motor                                                               
fuel tax  has been in place  in Alaska since 1945.   He explained                                                               
that although the  rates have increased over  time, the structure                                                               
has  remained unchanged.   He  noted  that the  last increase  in                                                               
Alaska's highway  fuel tax, which  is currently eight  cents, was                                                               
in 1970.   Mr. Burnett  reminded the  committee that in  1970 the                                                               
nationwide  average gas  price was  36 cents  per gallon  and the                                                               
median Alaskan income was $12,500.   He reported that in 1971 the                                                               
first year of  collections brought in $9.4 million  to the state.                                                               
To  give the  committee some  perspective, Mr.  Burnett disclosed                                                               
that at that time Alaska had  a state general fund (GF) budget of                                                               
about $250 million and a total  state budget of $369 million.  He                                                               
said that  the tax now brings  in $40 million annually,  which is                                                               
more like  $4 billion  in GF  when all the  motor fuel  taxes are                                                               
included.  He  explained that the tax is a  per gallon charge and                                                               
is not based  on a changing value.  Mr.  Burnett reminisced about                                                               
2008, when  Sarah Palin was  governor; oil prices  were extremely                                                               
high,  and the  state temporarily  suspended its  motor fuel  tax                                                               
from September  1, 2008 until  August 31,  2009.  He  offered his                                                               
estimate that just  over $11 billion in oil  revenue were brought                                                               
in that year.   Mr. Burnett reported that in  2015 House Bill 158                                                               
added  almost a  penny surcharge  to  motor fuel  and some  other                                                               
refined fuels.   He  added that revenue  generated by  House Bill                                                               
158  was intended  for  use by  the  Department of  Environmental                                                               
Conservation (DEC) for spill prevention and response funding.                                                                   
1:37:17 PM                                                                                                                    
MR. BURNETT  moved to  slide four and  stated that  Alaska's fuel                                                               
tax is  currently one  of the  lowest in the  United States.   He                                                               
referenced the  Institute on Taxation and  Economic Policy (ITEP)                                                               
report,  included  in the  committee  packet,  for comparison  of                                                               
motor  fuel tax  rates  in other  states.   He  noted that  South                                                               
Carolina is the  next lowest behind Alaska.  He  stated that even                                                               
with  the increases  proposed in  HB  60, Alaska  would still  be                                                               
below the  national average  for highway  fuel and  slightly over                                                               
the  national average  for jet  and aviation  fuel.   Mr. Burnett                                                               
revealed that  because of a  lack of vast coastlines  like Alaska                                                               
has, many states do not have  a separate category for marine fuel                                                               
tax.   He said  that marine  fuel usage  is most  often reflected                                                               
within the highway use tax.                                                                                                     
1:38:20 PM                                                                                                                    
CO-CHAIR STUTES inquired  about the existence of  marine fuel tax                                                               
rates in some of the U.S.  southern coastal states, such as Texas                                                               
and Louisiana, and  queried whether the department  had that data                                                               
for comparison purposes.                                                                                                        
MR.  BURNETT   said  that  he   does  not  currently   have  that                                                               
information but offered his belief  that those states likely have                                                               
marine taxes.   He said  that he would  be happy to  provide that                                                               
information to the committee.                                                                                                   
1:39:06 PM                                                                                                                    
REPRESENTATIVE SULLIVAN-LEONARD  inquired as to what  the current                                                               
per gallon gas prices are in Southcentral and Southeast Alaska.                                                                 
MR. BURNETT  offered his  belief that  average per  gallon prices                                                               
are  close  to  $3  in  Southeast and  in  the  $2.60  range  for                                                               
Southcentral.  He shared his  assumption that $2.89 per gallon is                                                               
currently the lowest available price  in Juneau and that although                                                               
he did not  know the exact dollar amount per  gallon, that Costco                                                               
in Anchorage would probably have the cheapest prices.                                                                           
REPRESENTATIVE   SULLIVAN-LEONARD   inquired   as  to   how   the                                                               
department arrived at the figures listed on slide six.                                                                          
MR.  BURNETT  specified that  those  figures  represent just  the                                                               
motor fuel tax portion of the  per-gallon price and not the total                                                               
amount paid at the pump.                                                                                                        
MR. BURNETT  returned to his  presentation and  brought attention                                                               
to slide five,  showing both current and proposed  prices for the                                                               
various  types of  taxable fuel.   He  explained that  the bottom                                                               
box, labeled "Off-road use credit," is  in regard to a credit for                                                               
fuel bought  specifically for use off  of the road.   Mr. Burnett                                                               
specified  that that  designation usually  applies to  industrial                                                               
users or farmers.                                                                                                               
1:41:05 PM                                                                                                                    
CO-CHAIR WOOL asked whether an owner  of a loader could apply for                                                               
a  credit  for  the  diesel   fuel  consumed  by  that  piece  of                                                               
MR. BURNETT  answered yes.   He elaborated that the  credit would                                                               
still  apply  whether  that  loader  was  used  for  personal  or                                                               
industrial  use.   Mr.  Burnett reported  that  the off-road  use                                                               
credit of six cents equates to only a two-cent tax to be paid.                                                                  
1:41:35 PM                                                                                                                    
REPRESENTATIVE CLAMAN  asked for  clarification whether  the off-                                                               
road  use  credit   would  apply  on  a   personal-use  basis  in                                                               
communities such  as Nome, Kotzebue, and  [Utqiagvik] Barrow that                                                               
all have high snow machine usage.                                                                                               
MR.  BURNETT offered  his assumption  that although  snow machine                                                               
fuel usage would  be eligible for the credit, it  would depend on                                                               
the amount used whether it would  be worth it to file for credits                                                               
on small purchases.                                                                                                             
REPRESENTATIVE CLAMAN  offered his understanding that  the credit                                                               
would  not be  applied directly  at the  pump but  would actually                                                               
involve  collection of  receipts  to weigh  whether  it would  be                                                               
worth it to turn them in for a refund.                                                                                          
MR. BURNETT  said that it is  a requirement to apply  directly to                                                               
DOR for  the credit.   He  explained that is  because the  tax is                                                               
paid  at the  distributor level,  not  by the  retailer, and  not                                                               
added on to the price of gas at the filling station.                                                                            
1:43:16 PM                                                                                                                    
REPRESENTATIVE  NEUMAN  surmised  that  there could  be  tens  of                                                               
thousands of snow  machine and four-wheeler owners  in Alaska who                                                               
could apply for the credit.   He inquired whether each individual                                                               
vehicle would have  to be applied for separately or  if just once                                                               
for the  total amount  of gas.   He  also questioned  whether the                                                               
state  would  need more  employees  to  deal with  the  potential                                                               
influx of all the credit applicants.                                                                                            
MR. BURNETT indicated  that this is not a new  credit and that it                                                               
is already in statute.  He  noted that HB 60 proposes to increase                                                               
the credit.   Mr. Burnett asked Mr. Spanos to  give some examples                                                               
of previous usage of the credit.                                                                                                
1:44:24 PM                                                                                                                    
BRANDON  SPANOS, Deputy  Director,  Tax  Division, Department  of                                                               
Revenue (DOR),  for clarification, asked whether  the question is                                                               
how difficult  is it  to administer a  credit refund  program for                                                               
off-road use?                                                                                                                   
CO-CHAIR WOOL confirmed that to be correct.                                                                                     
MR.  SPANOS reiterated  Mr. Burnett's  previous  answer that  the                                                               
credit  is not  new and  has been  available for  some time.   He                                                               
acknowledged that  the credit has  primarily been used  by mining                                                               
companies for heavy machinery used  off-road.  He said that there                                                               
are  a few  companies who  apply for  the credit  for non-taxable                                                               
uses.   He  explained that  most companies  can buy  heating fuel                                                               
"tax-off," but  that some do  buy it  "tax-on" and then  file for                                                               
the refund.   He revealed  that it  is only occasionally  that an                                                               
individual  applies for  the credit  for fuel  usage from  a snow                                                               
machine  or  a  lawnmower.     He  added  that  the  refunds  are                                                               
insignificant.  In  regard to a previous  comment concerning Bush                                                               
communities,  he  revealed  that  the  department  does  have  an                                                               
exemption allowing  tribes to purchase  fuel tax-off, as  long as                                                               
the tribe owns the tank.   He explained that means anyone in that                                                               
community can then purchase fuel  for their snow machine or four-                                                               
wheeler  and not  have to  pay  the tax.    He noted  that if  an                                                               
individual purchases fuel  for his/her boat from  the tribe, then                                                               
he/she would have to file a return  to pay the tax for the marine                                                               
1:46:33 PM                                                                                                                    
CO-CHAIR  STUTES asked  Mr. Burnett  what  the increased  amounts                                                               
would be for  July 2017 if the taxes were  adjusted simply on the                                                               
inflation rate.                                                                                                                 
MR. BURNETT  replied that he  had not yet done  that calculation.                                                               
He  stated  that  the  department  would  be  happy  to  run  the                                                               
calculations,  but  there  are   a  number  of  possibilities  of                                                               
inflation  rates to  choose.    He offered  his  belief that  the                                                               
general  consumer price  index (CPI)  from the  1970s has  almost                                                               
tripled.   He gave further  examples of inflation by  saying that                                                               
wage  growth in  Alaska  has  quadrupled and  the  CPI for  urban                                                               
consumers has tripled.  He said  that had the inflation rate been                                                               
a percentage  of the fuel cost  in 1970, the tax  would equate to                                                               
roughly  a 33  percent tax.   Mr.  Burnett elaborated  that a  33                                                               
percent tax  on $2.50 per gallon  fuel would equal well  above 24                                                               
cents and would be more like one dollar.                                                                                        
1:48:41 PM                                                                                                                    
CO-CHAIR WOOL offered his understanding  that the off-road credit                                                               
exists because the  motor fuel taxes collected  by the department                                                               
roll back into  services that the state  provides for restoration                                                               
and  maintenance on  roads, airports,  and ports.   He  said that                                                               
off-road  vehicles   should  not   have  to   pay  a   tax  since                                                               
theoretically they  do not contribute  to the depletion  of those                                                               
resources.  He  asked whether there could be  a minimum threshold                                                               
put in  place to help  alleviate any congestion that  might occur                                                               
from the large  number of snow machine and  four-wheeler users in                                                               
the state who might apply for the credit.                                                                                       
MR. BURNETT replied  that he was not aware of  any such proposal.                                                               
He conceded that Mr. Wool's  idea doesn't sound unreasonable.  He                                                               
reiterated what Mr. Wool said  about specific designations of the                                                               
collected  taxes  being  designated for  direct  expenditures  on                                                               
roads, airports, and harbors.   He added that historically it has                                                               
been  that way.   He  commented that  the taxes  may have  been a                                                               
dedicated fund prior  to statehood, but after  statehood it began                                                               
being separately  accounted for  a long time.   Mr.  Burnett said                                                               
that the motor  fuel taxes have always  been separately accounted                                                               
for, but it existed  as an account in the GF.   He added that the                                                               
only exception  is with aviation  fuel tax, which is  currently a                                                               
dedicated  fund.   Mr.  Burnett  returned to  slide  five of  his                                                               
PowerPoint presentation and reviewed  the proposed per gallon tax                                                               
price for both the 2017 and 2018 commencement dates.                                                                            
1:51:41 PM                                                                                                                    
REPRESENTATIVE  NEUMAN   drew  attention   to  Section   10  that                                                               
discusses   tax   proceeds   deposited  into   a   transportation                                                               
maintenance  fund  ("the  fund.")   He  mentioned  that  in  2016                                                               
Governor  Bill  Walker  took $250  thousand  for  the  Snowmobile                                                               
Trails Advisory  Council (SnowTRAC)  fund from dedicated  funds -                                                               
from  fees -  and placed  it in  the GF.   He  asked whether  the                                                               
department has ever  put any money paid by snow  machine and off-                                                               
road vehicle fuel sales into snow machine trails.                                                                               
1:52:31 PM                                                                                                                    
MARC LUIKEN, Commissioner, Department  of Transportation & Public                                                               
Facilities  (DOT&PF),  answered  that   he  did  not  recall  the                                                               
aforementioned situation being a  fund source for the department,                                                               
and therefore  it would not be  a funded service.   He added that                                                               
there may be  other departments that receive funds  for that type                                                               
of  activity, but  that  he  is certain  it  is  not through  the                                                               
REPRESENTATIVE  NEUMAN asked  Commissioner Luiken  whether DOT&PF                                                               
had ever  appropriated any funds  for trail maintenance  for snow                                                               
machines or off-road vehicles.                                                                                                  
COMMISSIONER  LUIKEN answered  that DOT&PF  has not  appropriated                                                               
any  state funds  for trail  maintenance, but  there are  federal                                                               
funds that  have been apportioned  to the  state for trails.   He                                                               
added that the majority of those  funds have been spent for trail                                                               
marking in  Northern Alaska.   Commissioner Luiken added  that he                                                               
is  not aware  of  any fund  source in  the  department for  snow                                                               
machine trails.                                                                                                                 
REPRESENTATIVE NEUMAN clarified that he  is trying to convey that                                                               
funds have been collected from  snow machine operators for years,                                                               
but  none  of  the  fuel   tax  proceeds  have  gone  into  trail                                                               
CO-CHAIR  WOOL  suggested that  the  preceding  issue will  arise                                                               
later in  the discussion.   He extended  his perception  that not                                                               
all fuel tax proceeds go  into road maintenance because currently                                                               
snow machine operators  who buy gas can apply for  a credit.  Co-                                                               
Chair  Wool  noted  that  he  personally  knows  of  four-wheeler                                                               
operators, who  use roads  and areas  along the  road, and  he is                                                               
certain that use is not without wear and tear.                                                                                  
1:54:18 PM                                                                                                                    
REPRESENTATIVE   KOPP   reiterated   Co-Chair   Wool's   previous                                                               
statement that often times recreational  vehicle users will drive                                                               
100  miles before  even using  the  off-road vehicles.   He  then                                                               
asked whether  it would  be easier and  more consistent  with the                                                               
bill  sponsor's intent  if an  off-road  use credit  were set  to                                                               
apply to  anyone in a community  that does not have  the Division                                                               
of Motor  Vehicles (DMV)  regulation of the  road.   He clarified                                                               
that in  communities where the vehicle  count is 499 or  less the                                                               
DMV designates it  as an off the state  road system [off-highway,                                                               
rural] community.  Representative  Kopp added that in off-highway                                                               
communities' recreational vehicles are  often the primary mode of                                                               
transportation.    He asked  whether  it  is the  bill  sponsor's                                                               
intent for  the credit  to cover  individuals in  the off-highway                                                               
communities or just any recreational vehicle user.                                                                              
MR.  BURNETT stated  that  it is  the intent  of  the sponsor  to                                                               
increase  fees.    He  explained  that  the  increases  would  be                                                               
specifically used for direct  maintenance expenditures for roads,                                                               
highways,  public safety,  harbors, and  airport facilities.   He                                                               
said  that  based  on  his previous  statement  one  could  infer                                                               
Representative Kopp to be correct.                                                                                              
1:56:19 PM                                                                                                                    
MR. BURNETT returned to slide  six of his PowerPoint presentation                                                               
and noted  that the example shows  how much tax people  pay under                                                               
the current and the proposed system.   Mr. Burnett stated that in                                                               
this  example   he  uses  a  Matanuska-Susitna   Valley  (Mat-Su)                                                               
commuter that drives  to Anchorage every day, in  a sport utility                                                               
vehicle (SUV), and gets an average  of 15 miles to the gallon, to                                                               
compute an  average of  1,600 gallons  of fuel used  a year.   He                                                               
explained that currently the user  in the example pays about $133                                                               
annually  in taxes  on his/her  fuel.   Under  the proposal  that                                                               
amount would  double in  July 2017  to $266,  then with  the 2018                                                               
increment would  amount to $399  per year.   He noted  that would                                                               
equal roughly  a dollar and change  per day for driving  to work,                                                               
as opposed to currently being under one dollar.                                                                                 
MR.  BURNETT said  that the  next box  is an  example of  freight                                                               
cost.  He  noted that he used figures in  the example for hauling                                                               
30,000  pounds of  freight between  Anchorage and  Fairbanks, one                                                               
way only.   He added that trucking  industry representatives were                                                               
available  in  the  audience  for  more  details.    Mr.  Burnett                                                               
elaborated that for  the example, he assumes that  all 72 gallons                                                               
of  fuel  are  used,  and   all  30,000  pounds  of  freight  are                                                               
transported.  He  said that means that currently  the price would                                                               
be  2 cents  in tax  paid  per 100  pounds of  freight, with  the                                                               
ultimate increase amounting to 6 cents per 100 pounds.                                                                          
MR. BURNETT  moved on  to discuss  the marine  fuel example.   He                                                               
said  that he  got his  rough estimate  of 3,000  gallons from  a                                                               
member of  the committee.   He continued that currently  a marine                                                               
fuel  user of  3,000 gallons  pays $150  in taxes  annually, with                                                               
that  amount   rising  to  $450   by  2018  under   the  proposed                                                               
legislation.    Mr.  Burnett addressed  jet  fuel  by  disclosing                                                               
although some companies  use millions of gallons a  year, he low-                                                               
ball estimated a figure of 100,000  gallons for this example.  He                                                               
said  that  presently  amounts  to  $3,200  in  taxes  but  would                                                               
increase  to  just  under  $10,000  by  2018  under  the  current                                                               
MR. BURNETT finished explaining slide  six by noting the aviation                                                               
estimate of 1,000 gallons would  represent a typical "weekenders"                                                               
fuel  usage.   In  this  example, the  taxes  would  go from  the                                                               
current $47  annually to $141 in  2018.  He emphasized  that some                                                               
users might  use less fuel and  some more fuel, so  the estimates                                                               
could be extended in either direction.                                                                                          
CO-CHAIR STUTES  inquired about the  difference between  jet fuel                                                               
and aviation gas.                                                                                                               
MR.  BURNETT explained  that jet  fuel is  very much  like diesel                                                               
fuel,  in that  it is  a distillate  product, which  is typically                                                               
taxed  at  a  lower  rate.    He  offered  his  belief  that  the                                                               
aforementioned reasoning  is because jet  fuel is used  in larger                                                               
quantities  than  aviation  gas.    Mr.  Burnett  clarified  that                                                               
aviation  gas  is  most typically  used  for  reciprocating  type                                                               
engines in smaller planes, whereas  the turbo props and jets that                                                               
use jet  fuel are usually larger  aircraft.  He noted  that there                                                               
is a long history behind fuel tax rates.                                                                                        
2:00:59 PM                                                                                                                    
CO-CHAIR  STUTES  asked  for  clarification  that  typically  the                                                               
smaller  privately-owned planes  are the  ones that  use aviation                                                               
fuel and the larger commercial aircraft use jet fuel.                                                                           
MR.  BURNETT explained  that  many of  the  commuter and  tourism                                                               
planes are turboprops and, thus, use aviation gas.                                                                              
CO-CHAIR STUTES asked whether the  determining factor is based on                                                               
engine type or seating capacity.                                                                                                
MR. BURNETT answered engine type.                                                                                               
2:01:35 PM                                                                                                                    
REPRESENTATIVE   DRUMMOND   inquired  whether   both   commercial                                                               
passenger and cargo planes would pay the jet fuel tax.                                                                          
MR. BURNETT  responded that both  commercial passenger  and cargo                                                               
planes would pay  the jet fuel tax, but there  are exemptions for                                                               
foreign flights  originating or  ending in  another country.   He                                                               
said  that   Ted  Stevens  Anchorage  International   Airport  is                                                               
primarily a cargo airport and is  one of the top 10 largest cargo                                                               
airports in the world.  He  explained that although a fair amount                                                               
of the fuel  cargo plane use is exempt, the  exemption is made up                                                               
for  through landing  fees.    Mr. Burnett  added  that all  fees                                                               
collected  must be  used  at  the airport  from  which they  were                                                               
REPRESENTATIVE DRUMMOND offered her  understanding that any taxes                                                               
collected on cargo  fuel would be used only at  the airport where                                                               
collected and  that it is  at the  discretion of each  airport to                                                               
determine  whether or  not additional  revenue  is needed  beyond                                                               
what is collected through landing fees.                                                                                         
MR.  BURNETT said  that  he would  not say  it  in exactly  those                                                               
words, but  one of  the balances of  having exemptions  for cargo                                                               
planes  is that  they pay  a lot  of other  fees and  provide for                                                               
other economic activity.                                                                                                        
2:03:36 PM                                                                                                                    
CO-CHAIR  WOOL asked  Mr. Burnett  to explain  whether the  state                                                               
decided not to tax cargo freight  lines at the airport or is that                                                               
dependent on the aircraft's country of origin.                                                                                  
MR. BURNETT  offered his understanding  that the  state exemption                                                               
is  not   specifically  for  cargo   flights,  but   for  flights                                                               
originating in a foreign country.                                                                                               
CO-CHAIR WOOL asked whether it  is similar to Alaskans not paying                                                               
sales tax in another state.                                                                                                     
MR. BURNETT  answered that it is  similar.  He repeated  that the                                                               
exemption  isn't cargo  flight specific  but  is based  off of  a                                                               
flight originating  from a  foreign country.   Mr.  Burnett added                                                               
that although a  state exemption is available,  aircraft have the                                                               
ability to bring in fuel bought elsewhere and use it tax free.                                                                  
CO-CHAIR WOOL  inquired whether it  is similar to purchases  at a                                                               
duty-free shop.                                                                                                                 
MR. BURNETT answered yes.                                                                                                       
2:05:19 PM                                                                                                                    
COMMISSIONER  LUIKEN noted  that  a significant  number of  cargo                                                               
aircraft originate  in the  United States.    He  emphasized that                                                               
the  country   of  origin  for   each  specific  flight   is  the                                                               
determining  factor.     He  gave  examples  of   a  flight  that                                                               
originated  in   an  international   location  and   an  aircraft                                                               
departing  Anchorage for  an international  destination and  said                                                               
that those flights would be exempt from the tax.                                                                                
REPRESENTATIVE  SULLIVAN-LEONARD brought  attention  back to  the                                                               
slide  discussing highway  fuel estimates  and asked  whether Mr.                                                               
Burnett  looked  at  numbers  from anywhere  else  in  the  state                                                               
besides Mat-Su.                                                                                                                 
MR. BURNETT  answered no and  stated that  he wanted to  just use                                                               
one example, instead  of multiple.  He said that  the location of                                                               
where  someone  lives -for  example,  in  Anchorage or  Juneau  -                                                               
determines  whether he/she  might drive  less than  10,000 miles;                                                               
therefore, he thought  the Mat-Su to Anchorage  commuter would be                                                               
a good example.                                                                                                                 
REPRESENTATIVE SULLIVAN-LEONARD  asked whether Mr.  Burnett could                                                               
provide  the  prospective  annual  cost  for  the  30,000  Mat-Su                                                               
residents that commute daily.                                                                                                   
MR. BURNETT answered yes.                                                                                                       
REPRESENTATIVE SULLIVAN-LEONARD stated that  she had concerns for                                                               
her  Mat-Su  commuter constituents.    She  pointed out  that  an                                                               
increase in fuel tax will be very burdensome on them.                                                                           
2:08:54 PM                                                                                                                    
REPRESENTATIVE  CLAMAN   asked  whether  the  foreign   fuel  tax                                                               
exemption was  only for  fuel pumped into  planes at  Ted Stevens                                                               
Anchorage  International   Airport  or   Fairbanks  International                                                               
MR. BURNETT answered that is correct.                                                                                           
REPRESENTATIVE CLAMAN  offered his  understanding that  no matter                                                               
the company,  a plane  flying from Anchorage  to Hong  Kong would                                                               
not pay  the fuel tax  if it fueled up  in Anchorage; but  if the                                                               
very  same  plane  was  flying   to  Seattle  and  fueled  up  in                                                               
Anchorage, then it would pay the  tax, because it would no longer                                                               
be traveling internationally.                                                                                                   
MR. BURNETT confirmed Representative Claman's understanding.                                                                    
REPRESENTATIVE CLAMAN shared his belief  that not only is there a                                                               
state  exemption for  flights to  foreign airports,  but it  is a                                                               
requirement in federal statute.                                                                                                 
CO-CHAIR WOOL  thanked Representative Claman and  Mr. Burnett for                                                               
clarifying that point.                                                                                                          
2:10:45 PM                                                                                                                    
REPRESENTATIVE CLAMAN offered his  understanding that from both a                                                               
federal and a  state standpoint, theoretically a  fuel tax should                                                               
create  a "cost  user/cost payer  analysis."   He added  that the                                                               
intention  for  the  increased  fuel tax  is  to  more  equitably                                                               
reflect the cost  of maintaining infrastructure with  the cost to                                                               
the  user,  indicative  of  individual   usage.    He  noted  the                                                               
importance  in  having  funds available  to  match  with  federal                                                               
dollars for construction projects.                                                                                              
MR. BURNETT stated that Representative  Claman was exactly right.                                                               
He added that the whole point of  HB 60 is to have users actually                                                               
pay  for  a  portion  of  the  cost  to  maintain  transportation                                                               
2:11:52 PM                                                                                                                    
REPRESENTATIVE DRUMMOND  said she would  like to know  the amount                                                               
of taxes  charged to  cargo and/or  passenger jets,  refueling at                                                               
foreign ports.                                                                                                                  
REPRESENTATIVE NEUMAN  inquired whether  FedEx and  United Parcel                                                               
Service of America, Inc. (UPS) pay fuel taxes.                                                                                  
MR. BURNETT explained that it depends  on where a plane is flying                                                               
to and from and which plane is being used.                                                                                      
MR. BURNETT  continued on  with his presentation.   He  said that                                                               
with the  exception of aviation  fuel tax, all fuel  revenue will                                                               
go directly  into the fund,  which is a  new fund in  the general                                                               
fund.    He  illustrated  that   aviation  fuel  tax  revenue  is                                                               
currently kept  in other  funds required  and, under  current law                                                               
and  the   Alaska  Constitution,  is  dedicated   as  needed  for                                                               
participation  in federal  programs. Mr.  Burnett added  that for                                                               
budgetary purposes, HB  60 moves the taxes on  marine and highway                                                               
fuel from the  unrestricted general fund (UGF)  to the designated                                                               
general fund  (DGF) for  budgetary purposes.   He noted  that the                                                               
purpose of the  move from UGF to DGF is  to instill confidence in                                                               
the public that revenue generated  from motor fuel will indeed be                                                               
used to build and maintain transportation infrastructure.                                                                       
2:13:21 PM                                                                                                                    
MR.  BURNETT  declared  that  the   potential  revenue  from  the                                                               
increase in fuel  tax would generate about $40  million the first                                                               
year, then  $80 million per  year thereafter.  He  mentioned that                                                               
once the increase  is fully implemented, roughly  $400,000 of the                                                               
revenue  would be  shared with  municipally owned  airports.   He                                                               
reiterated that aviation fuel tax  revenue has to stay within the                                                               
system from which  it was generated.  Mr.  Burnett continued that                                                               
the  remainder  of aviation  fuel  revenue  goes into  the  fund,                                                               
special  accounts   for  road,  water  transport,   and  aviation                                                               
facilities.   He explained  that the estimates  are based  off of                                                               
the  fall 2016  revenue forecast  and do  account for  changes in                                                               
fuel demand  or stockpiling.   He said that although  fuel demand                                                               
fluctuates  for this  analysis, the  department assumes  a fairly                                                               
steady fuel  demand in Alaska.   Mr. Burnett  defined stockpiling                                                               
as  where  a  retailer  knows  the price  of  fuel  is  going  to                                                               
increase, so it  goes out and fills up the  tanks to avoid paying                                                               
more in taxes.                                                                                                                  
CO-CHAIR   STUTES  inquired   about  the   definition  of   water                                                               
transport.  She  noted that the majority of harbors  in the state                                                               
have  been  turned  over  to  local  municipalities.    She  also                                                               
inquired  about the  qualifications for  the special  account for                                                               
roads that Mr. Burnett previously mentioned.                                                                                    
MR. BURNETT deferred to Commissioner Luiken.                                                                                    
2:15:44 PM                                                                                                                    
COMMISSIONER  LUIKEN  said that  currently  the  majority of  the                                                               
funds will be  identified for roads and airports, but  there is a                                                               
small  portion  dedicated to  the  Alaska  Marine Highway  System                                                               
CO-CHAIR  STUTES  inquired   whether  the  aforementioned  "small                                                               
portion"  is equivalent  to  what the  marine  fuel tax  increase                                                               
would be.                                                                                                                       
COMMISSIONER  LUIKEN  answered  that  he would  have  to  further                                                               
investigate what the  expectation is for revenue  from the marine                                                               
tax before he could answer  Co-Chair Stutes's question.  He noted                                                               
that the money oriented to  the Alaska Marine Highway System Fund                                                               
is currently $2.5 million.                                                                                                      
2:16:51 PM                                                                                                                    
CO-CHAIR  STUTES   stated  her  interest  in   knowing  what  the                                                               
increased revenue would be, as  opposed to what AMHS might expect                                                               
to receive.                                                                                                                     
MR. BURNETT continued  with his presentation.   He explained that                                                               
HB 60 would change the rate  on an already existing tax and would                                                               
include  a  onetime  implementation  cost  of  $50,000,  with  no                                                               
additional on-going costs.                                                                                                      
2:18:07 PM                                                                                                                    
COMMISSIONER LUIKEN revealed that  his presentation would discuss                                                               
where  the funds  would go  under the  proposed legislation.   He                                                               
said  that the  revenue  generated  by motor  fuel  tax would  be                                                               
placed  into a  transportation  maintenance fund  which would  be                                                               
called  the Alaska  Transportation  Maintenance Fund.   He  noted                                                               
that  the fund  is a  DGF, or  other fund,  and would  replace an                                                               
equal amount of UGF  that would come out of the  budget.  He said                                                               
that  roughly $64.8  million of  UGF would  be replaced  with the                                                               
earnings from  the proposed  tax and would  go into  a designated                                                               
fund.  Commissioner Luiken stated  that $4.5 million of UGF would                                                               
be  swapped with  DGF in  the aviation  account, for  a total  of                                                               
$69.3 million  swapped for the  DOT&PF budget.  He  recalled that                                                               
Mr.  Burnett mentioned  that amount  to be  roughly $80  million.                                                               
Commissioner Luiken noted  that there is a portion  that would go                                                               
to the  Department of Public  Safety (DPS) and the  Department of                                                               
Commerce  and Community  and  Economic  Development (DCCED),  but                                                               
that he did not have the exact figures at this time.                                                                            
COMMISSIONER LUIKEN  drew attention  to two  pie charts  on slide                                                               
three.  He said that the one  to the right is the management plan                                                               
and represents  the fund  sources for the  operating budget.   He                                                               
read from  the chart that  51 percent  is "other," 37  percent is                                                               
UGF, and  roughly 11 percent is  DGF.  He remarked  that the fund                                                               
source  swap  would increase  the  DGF  portion considerably  and                                                               
would replace the UGF portion of the department's budget.                                                                       
CO-CHAIR  WOOL offered  his understanding  that  the total  would                                                               
essentially stay  the same, but  the department would  be getting                                                               
more  from  DGS  and less  from  the  UGF.    He added  that  the                                                               
legislature would  be able  to allocate less  money to  DOT&PF to                                                               
keep its budget at the same amount.                                                                                             
COMMISSIONER LUIKEN affirmed that is correct.                                                                                   
REPRESENTATIVE NEUMAN noted that  there have been extensive talks                                                               
from  both  the  governor  and   the  legislature  about  further                                                               
reductions within the operating budget.   He inquired whether the                                                               
proposal  would  match  cuts   from  the  department's  operating                                                               
COMMISSIONER  LUIKEN  responded  that  there  are  reductions  in                                                               
DOT&PF's  operating budget,  but  he does  not  have last  year's                                                               
total at this  time.  He shared his belief  that the $581,260,000                                                               
total for the  operating budget listed on slide  three is roughly                                                               
$5 million less than the total budget for the previous year.                                                                    
REPRESENTATIVE    NEUMAN   offered    his   understanding    that                                                               
Commissioner Luiken's answer to his question was no.                                                                            
2:21:40 PM                                                                                                                    
COMMISSIONER LUIKEN returned  to his presentation.   He said that                                                               
the bubble chart on slide three  is reflective of the portions of                                                               
the fund  sources for DOT&PF's  2018 budget.   He noted  that the                                                               
tail  of  bubbles  on  the right  starting  with  "CIP  receipts"                                                               
represents  all  of the  funds  that  make  up the  "other"  fund                                                               
portion of  DOT&PF's operating  budget.  He  noted that  the blue                                                               
bubble  showing UGF  is  the 25  percent  portion.   Commissioner                                                               
Luiken   said   that  the   first   bubble   underneath  UGF   is                                                               
representative of  the new  designated fund,  the fund,  and that                                                               
the other, the  Alaska Marine Highway System Fund,  is already in                                                               
existence.   He added  that the  two aforementioned  bubbles also                                                               
reflect the new DGF portion of the budget.                                                                                      
COMMISSIONER  LUIKEN   announced  that   slide  four   shows  the                                                               
department's  reorientation  of  its focus  toward  the  services                                                               
delivered.    He explained  that  the  services provided  can  be                                                               
labeled as  four core services to:  preserve, operate, modernize,                                                               
and provide  transportation services.  Commissioner  Luiken added                                                               
that    other    than     Modernize    Alaska's    Transportation                                                               
Infrastructure, the  state is  primarily responsible  for funding                                                               
the  other  three  services.    He declared  that  he  wanted  to                                                               
primarily focus on  two of those services, because  that is where                                                               
the bulk of "the  fund source swap" - the DGF  - will actually be                                                               
going  in  order to  help  offset  the  cost of  providing  these                                                               
services to Alaskans.                                                                                                           
2:23:40 PM                                                                                                                    
COMMISSIONER LUIKEN  stated that slide five  shows the definition                                                               
of DOT&PF's preserve  service.  He said that  preserve service is                                                               
primarily   to  ensure   and  sustain   the   life  of   Alaska's                                                               
transportation  infrastructure.   Commissioner Luiken  listed the                                                               
direct  services that  support the  preserve service  as: surface                                                               
preservation,  off-surface   preservation,  bridge  preservation,                                                               
vehicle  management, and  vessel/terminal management.   He  noted                                                               
that slide six  shows the entire budget for fiscal  year 2017 (FY                                                               
17) and  is broken down  into what was  spent from UGF,  DGF, and                                                               
"other" for what is spent  on the preserve services. Commissioner                                                               
Luiken said  that the  department identified  what was  spent for                                                               
each of the direct services.                                                                                                    
COMMISSIONER  LUIKEN continued  on to  slide seven  and discussed                                                               
the  next service  offered, off-surface  preservation.   He  said                                                               
that it  primarily includes things like  brush cutting, drainage,                                                               
and ditching.   He  noted that  the FY  17 amount  of $26,225,500                                                               
will directly  be used  to maintain that  service.   He explained                                                               
that the  target for the department  is shown in the  pictures on                                                               
the bottom left of the slide.   In the event the department isn't                                                               
funded correctly,  and is not  able to deliver that  service, the                                                               
result is  more like  what is shown  in the  right-hand pictures.                                                               
Commissioner Luiken said that the  other important pieces to note                                                               
is the department's  measurement of its performance  and how well                                                               
it is  utilizing the  funds.   He offered  his commitment  to the                                                               
department's  holding  itself  accountable to  Alaskans  and  the                                                               
legislature as its investors.                                                                                                   
2:25:33 PM                                                                                                                    
CO-CHAIR   WOOL  inquired   whether  federal   funding  for   new                                                               
construction would pay for resurfacing or repaving of roads.                                                                    
COMMISSIONER LUIKEN stated that  those services were reflected in                                                               
the "other" category of the bar  chart.  He added that DOT&PF has                                                               
worked  with  federal funding  partners  to  help determine  that                                                               
certain activities the department  does are actually eligible for                                                               
federal funds.                                                                                                                  
2:26:15 PM                                                                                                                    
COMMISSIONER LUIKEN continued on to  slide eight and said that it                                                               
shows the  second core service  provided - the operate  service -                                                               
which is  primarily funded with  state funds and includes  all of                                                               
the  things  that help  the  department  move people  and  things                                                               
across the  system.  He  listed the direct services  that support                                                               
the  operate  service as:  illumination;  snow  and ice  removal,                                                               
operate  certificated airports,  striping, signage,  signals, and                                                               
information  transportation services.   Commissioner  Luiken said                                                               
that  slide  nine shows  the  operating  budget for  the  operate                                                               
services.   He  shared that  the vast  majority of  funds in  the                                                               
operate budget  is currently UGF,  but with the fund  source swap                                                               
the UGF  number will decrease  and the DGF amount  will increase.                                                               
Commissioner  Luiken  moved  to  slide  ten  and  said  that  the                                                               
department spends  roughly $74 million  annually on snow  and ice                                                               
removal.   He  reiterated that  the department  is measuring  its                                                               
performance  and ability  to meet  targets.   Commissioner Luiken                                                               
stressed that  snow and ice  removal activities are  exactly what                                                               
the fund will help cover.                                                                                                       
2:27:30 PM                                                                                                                    
REPRESENTATIVE NEUMAN drew attention  back to slide nine, showing                                                               
the operating budget for operate  services, and inquired how much                                                               
of the 71 percent  of UGF money went toward AMHS  and how much to                                                               
COMMISSIONER LUIKEN  revealed that the operate  core services are                                                               
primarily for horizontal systems.   He noted that the AMHS budget                                                               
is reflected under  the provide transportation core  service.  He                                                               
noted that the  provide transportation core service  is where the                                                               
bulk of funds, whether UGF or DGF, reside.                                                                                      
REPRESENTATIVE  NEUMAN  requested  that  the  department  provide                                                               
information on  how much  and which fund  sources are  funded for                                                               
AMHS, airports, and highways.                                                                                                   
2:28:32 PM                                                                                                                    
REPRESENTATIVE  DRUMMOND  offered  her assumption  that  the  $74                                                               
million listed  for snow and  ice removal  is for the  removal of                                                               
snow and ice from roadways as well as from small rural airports.                                                                
COMMISSIONER LUIKEN confirmed that is correct.                                                                                  
2:29:09 PM                                                                                                                    
REPRESENTATIVE  KOPP  stated  that  Representative  Talerico  had                                                               
shared with  him the comments  he had received from  his district                                                               
on  how timely  and swiftly  the snow  and ice  removal was  this                                                               
COMMISSIONER LUIKEN  returned to his presentation  and noted that                                                               
the last  slide is a  summary pointing  out that the  proposal is                                                               
not an increase  in DOT&PF's operating budget but is  a swap from                                                               
UGF to  DGF.  He said  the swap is reflected  through percentages                                                               
of  the budget  that would  be  funded by  UGF  or DGF  if HB  60                                                               
2:30:10 PM                                                                                                                    
CO-CHAIR STUTES shared her desire  to ask Commissioner Luiken the                                                               
same question she had just asked  Mr. Neussl in a previous DOT&PF                                                               
subcommittee meeting.  She shared  her knowledge of the existence                                                               
of  issues surrounding  funding  as it  directly  relates to  the                                                               
scheduling  of  the  AMHS.    Co-Chair  Stutes  inquired  whether                                                               
Commissioner Luiken  believed that it  would be to  the advantage                                                               
of  AMHS and  to the  state if  AMHS was  forward funded  for two                                                               
years.   She offered  her belief that  the forward  funding would                                                               
allow  for a  solid, dependable  schedule to  be released  by the                                                               
department - weather dependent, of course.                                                                                      
COMMISSIONER LUIKEN  stated that it  is definitely not  a benefit                                                               
to have  uncertainty in a  transportation system.  He  added that                                                               
uncertainty  creates potential  downfall, both  for the  user and                                                               
indirect  recipient  of  those  services.    Commissioner  Luiken                                                               
declared that  any time certainty, especially  regarding funding,                                                               
can  be inserted  into a  transportation  system, improvement  to                                                               
services  would be  seen.    He noted  that  there are  potential                                                               
impacts to  local businesses that  either directly  or indirectly                                                               
benefit from a [reliable] AMHS schedule.                                                                                        
CO-CHAIR STUTES, in regard to  her previous question, offered her                                                               
understanding  that Commissioner  Luiken's  answer is  yes.   She                                                               
offered further interpretation of his  comment to mean that there                                                               
could  be significant  improvement to  the dependability  of AMHS                                                               
and that the increased dependability  could potentially equate to                                                               
increased revenue generation.                                                                                                   
COMMISSIONER LUIKEN confirmed that all to be correct.                                                                           
2:32:44 PM                                                                                                                    
REPRESENTATIVE NEUMAN  inquired how  the rates for  the increases                                                               
were decided.                                                                                                                   
MR. BURNETT  resolved that the  ultimate rate was intended  to be                                                               
close  to  the national  average  for  highway fuel,  while  also                                                               
covering a percentage of DOT&PF's  costs.  Mr. Burnett added that                                                               
a 24-cent  highway fuel tax rate  would put the state  just below                                                               
the national average.   He added that rather  than going directly                                                               
from 8 to  24 cents, the decision  was made to step it  from 8 to                                                               
24 over a two-year period.                                                                                                      
REPRESENTATIVE  NEUMAN  queried  whether the  tax  increases  are                                                               
proportionate  to   the  money  that  is   currently  going  into                                                               
management  funds.   He  shared  his  concern that  the  proposed                                                               
changes  might   allow  for  inequitable  distributions   to  the                                                               
management funds for  highway, aviation, and marine,  from FY 17.                                                               
Representative Neuman  asked whether  the department  had checked                                                               
the numbers to ensure there isn't an unequal distribution.                                                                      
MR. BURNETT  shared his belief  that it doesn't work  out exactly                                                               
proportionately, but in each case  the amount of tax generated is                                                               
significantly less than the total expenditures in those areas.                                                                  
REPRESENTATIVE  NEUMAN offered  his opinion  that the  reason for                                                               
the proposed increase  in fuel tax is to supplement  the UGF with                                                               
generated tax  revenue, but  the proposed  tax increases  are not                                                               
proportionate to  the same  amount of  money that  was previously                                                               
2:34:59 PM                                                                                                                    
CO-CHAIR WOOL  requested that Mr.  Burnett clarify  whether under                                                               
the current motor  fuel tax structure none of the  tax revenue is                                                               
actually designated to airports, roads, or ports.                                                                               
MR. BURNETT  explained that aviation  fuel taxes are  100 percent                                                               
dedicated to  use on  airports due to  federal regulations.   The                                                               
[taxes] function just  like a dedicated fund,  which is allowable                                                               
under   the   Alaska   Constitution   for   uses   required   for                                                               
participation in federal programs.                                                                                              
CO-CHAIR WOOL  offered his understanding  that motor  fuel taxes,                                                               
at  8 cents  a gallon  since 1971,  have gone  into the  GF where                                                               
DOT&PF can then access those funds.                                                                                             
MR.  BURNETT interjected  to note  that  each of  those taxes  is                                                               
currently  being separately  accounted  for within  the  GF.   He                                                               
added that it is important  to understand that although the funds                                                               
get  money directly,  it can  be accounted  for how  much of  the                                                               
expenditures that  would have  been paid  for by  that tax.   Mr.                                                               
Burnett explained that during his  tenure with the department the                                                               
marine  fuel taxes,  which go  into a  special fund,  have always                                                               
been used  for those specific  purposes.   He said that  there is                                                               
already a connection but "this  makes that connection tighter and                                                               
takes it out  of ... the unrestricted general  fund for budgetary                                                               
CO-CHAIR WOOL,  in regard to  Representative Neuman,  offered his                                                               
understanding  that  Mr.  Burnett   was  trying  to  convey  that                                                               
although there  is currently a  connection, the  connection isn't                                                               
proportionate.  He  continued that it has  just historically been                                                               
that way and that the  numbers were determined at different times                                                               
and using different  metrics.  He noted that a  tax rate of eight                                                               
cents  in  1971  remaining  stagnant   at  eight  cents  in  2013                                                               
obviously is not  reflective of the current cost to  the state to                                                               
maintain its road systems.                                                                                                      
MR.  BURNETT pointed  out that  in  1971 the  highway motor  fuel                                                               
taxes in the  Department of Highway budget were  $9.4 million and                                                               
$9.8 million in UGF.                                                                                                            
2:37:32 PM                                                                                                                    
REPRESENTATIVE NEUMAN  described a  discrepancy in  the sectional                                                               
analysis in  bullet points two and  three.  The former  calls for                                                               
changes in the per gallon tax  rate for dealers; the latter calls                                                               
for a change in the tax rate for  users.  He inquired why the tax                                                               
rate increase for dealers is different from the one for users.                                                                  
MR. BURNETT answered  that the taxes are paid  at the distributer                                                               
level and that the users simply  pay the retail cost of the fuel.                                                               
He noted that there may be  an error in the sectional analysis or                                                               
possibly in the way it is being interpreted.                                                                                    
CO-CHAIR WOOL offered his understanding  that the retailer is not                                                               
collecting or paying  out taxes and that all of  the taxing takes                                                               
place at the wholesale level.                                                                                                   
REPRESENTATIVE  NEUMAN requested  clarification of  the sectional                                                               
CO-CHAIR WOOL  ensured Representative  Neuman that he  would have                                                               
the department follow up on that question.                                                                                      
2:39:19 PM                                                                                                                    
REPRESENTATIVE KOPP  provided his insight  that HB 60  would, for                                                               
the first time, "create the fund."                                                                                              
MR. BURNETT said that for purposes  of highway motor fuels, HB 60                                                               
would create a fund outside of  the UGF, but still within the GF,                                                               
that  is designated  for use  for this  purpose.   He added  that                                                               
there  is  currently an  existing  account  within the  UGF  that                                                               
identifies the revenues  from the motor fuel taxes.   In response                                                               
to Representative  Kopp's question,  Mr. Burnett stated  that the                                                               
answer is yes.                                                                                                                  
REPRESENTATIVE  KOPP,  in  response  to  Representative  Neuman's                                                               
proportionality question,  asked whether creating the  fund would                                                               
make it easier to track  the money for statistical data gathering                                                               
MR. BURNETT  responded yes.   He  said that HB  60 would  make it                                                               
easier to track and easier  to identify certain monies within the                                                               
budget.  He added that  DOT&PF's budget would otherwise look like                                                               
all UGF,  even though it  was paid  out of a  highway maintenance                                                               
account  within the  GF.   Mr.  Burnett noted  that  HB 60  would                                                               
specify fuel tax revenue as  a different fund source in budgetary                                                               
2:41:13 PM                                                                                                                    
REPRESENTATIVE NEUMAN pointed out that  sections two and three of                                                               
the bill contains different numbers.                                                                                            
CO-CHAIR WOOL said that the committee would seek clarification                                                                  
on that discrepancy.                                                                                                            
2:41:34 PM                                                                                                                    
CO-CHAIR WOOL announced that HB 60 would be held over.                                                                          

Document Name Date/Time Subjects
HB60 ver A 1.18.17.PDF HTRA 1/31/2017 1:30:00 PM
HB 60
HB60 Sponsor Statement 1.17.17.pdf HTRA 1/31/2017 1:30:00 PM
HB 60
HB60 Fiscal Note REV 1.18.17.PDF HTRA 1/31/2017 1:30:00 PM
HB 60
HB60 Fiscal Note DOT 1.18.17.PDF HTRA 1/31/2017 1:30:00 PM
HB 60
HB60 Supporting Document - ITEP Report AK Motor Fuel 1.25.17.pdf HTRA 1/31/2017 1:30:00 PM
HB 60
HB60 Supporting Document - Aviation Advisory Board Resolution.pdf HTRA 1/31/2017 1:30:00 PM
HB 60
HB60 Sectional Analysis ver A 1.30.17.pdf HTRA 1/31/2017 1:30:00 PM
HB 60
HB60 Supporting Document - DOR Presentation 1.31.17.pdf HTRA 1/31/2017 1:30:00 PM
HB 60
HB60 Supporting Document - Motor Fuel Tax Briefing DOT 1.31.17.pdf HTRA 1/31/2017 1:30:00 PM
HB 60