Legislature(2017 - 2018)SENATE FINANCE 532

03/27/2017 09:00 AM FINANCE

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09:08:15 AM Start
09:11:22 AM Confirmation Hearing: Alaska Gasline Development Corporation Board - David Wight, Hugh Short, and Warren Christian
10:21:37 AM SB25
10:58:48 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation Hearings: TELECONFERENCED
Alaska Gasline Development Corporation
David Wight
Hugh Short
Warren Christian
Heard & Held
<Bill Hearing Canceled>
<Pending Introduction & Referral>
+ Bills Previously Heard/Scheduled TELECONFERENCED
SENATE BILL NO. 25                                                                                                            
     "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."                                                                                          
10:21:37 AM                                                                                                                   
Co-Chair MacKinnon OPENED public testimony.                                                                                     
10:22:10 AM                                                                                                                   
JEFF WAFFORD, UPS, LOUISVILLE, KY (via teleconference),                                                                         
testified in opposition to SB 25. He discussed the impact                                                                       
the bill would have on UPS (copy on file):                                                                                      
     Thank you  for the opportunity to  provide testimony on                                                                    
     the  proposed Motor  Fuel Tax  Bill and  the impact  it                                                                    
     could have  on UPS and  the air cargo industry.  UPS is                                                                    
     one of several in our  industry that oppose an increase                                                                    
     in  the tax  on  jet fuel.  UPS  appreciates the  long-                                                                    
     standing  working   relationship  with  the   State  of                                                                    
     Alaska. We  have more than  1,100 employees  in Alaska,                                                                    
     including 489 pilots who are domiciled here.                                                                               
     Traditionally, Alaska  has played an important  role in                                                                    
     UPS's  global   reach;  not  only  do   we  deliver  to                                                                    
     thousands of  customers daily, but Anchorage  serves as                                                                    
     our gateway to the  Asia-Pacific region. Anchorage also                                                                    
     serves as the training  location for our Representative                                                                    
     Doogan-11 and 747 fleets.                                                                                                  
     UPS located in Alaska  because of the business-friendly                                                                    
     climate created by elected leadership.  We pay close to                                                                    
     $6 million in general and  aviation taxes here, as well                                                                    
     as approximately $7.2 million  in landing fees annually                                                                    
     to cover costs at airports.  We have also invested into                                                                    
     the local area, spending  millions on a flight training                                                                    
     center  that   celebrated  its  tenth   anniversary  in                                                                    
     Anchorage last year.                                                                                                       
     We sympathize  with the situation  you are  faced with.                                                                    
     We also  understand that the  budget outlook  in Alaska                                                                    
     for  future  years in  sunder  a  tremendous amount  of                                                                    
     scrutiny  given the  lower  price of  oil  and what  it                                                                    
     means to the budget of Alaska.                                                                                             
     UPS  is in  a unique  situation  as it  related to  the                                                                    
     proposed  motor fuel  tax bill.  First,  UPS faces  the                                                                    
     risk of  higher taxes on two  different business units;                                                                    
     ground in the  form of the motor fuel  tax increase and                                                                    
     air in the form of  the increased jet fuel tax. Second,                                                                    
     UPS actually  supports the increase  in the  motor fuel                                                                    
     tax as  it is a  pure user fee.  UPS uses most,  if not                                                                    
     all, of  the reads in  Alaska and we believe  we should                                                                    
     pay into maintenance of that infrastructure.                                                                               
     However, we oppose the jet fuel  tax as it's not a user                                                                    
     fee. UPS  and other airlines  already pay user  fees to                                                                    
     airports  in  terms of  landing  fees.  As I  mentioned                                                                    
     earlier, we  pay roughly $7.2  million in  landing fees                                                                    
     to the  Alaska International Airport System  each year.                                                                    
     AIAS  is self-sustaining  and  requires  little if  any                                                                    
     state funding as the  passenger and commercial airlines                                                                    
     pay   for   operational  support   and   infrastructure                                                                    
     In fact, the AIAS is  thriving, and making an important                                                                    
     economic  impact  on  the state.  According  to  a  DOT                                                                    
     study,  the AIAS  accounts for  17,000 jobs,  including                                                                    
     one in  ten jobs  in Anchorage  and one  in 20  jobs in                                                                    
     Increasing  the   jet  fuel  tax  also   increases  the                                                                    
     indirect  subsidy  to  airports   where  there  are  no                                                                    
    landing fees and which UPS does not regularly use.                                                                          
     UPS does contract with carriers  to deliver packages to                                                                    
     airports outside of the AIAS,  but this is on a minimal                                                                    
     basis,  and UPS  is already  paying jet  fuel taxes  on                                                                    
     domestic  flights to  subsidize  those airports,  along                                                                    
     with  fees to  the  contracted carriers  for any  costs                                                                    
     they may incur.                                                                                                            
     In  addition,  UPS, Delta,  and  other  members of  the                                                                    
     aviation   community,  including   those  involved   in                                                                    
     Airlines   for   America   and   the   Cargo   Airlines                                                                    
     Association, are concerned  that targeting the aviation                                                                    
     industry  for   a  budget   shortfall  could   cause  a                                                                    
     reduction on cargo and commercial flights to Alaska.                                                                       
     This  increase could  also  cause  an accelerated  push                                                                    
     toward  dependence on  newer aircraft  that can  bypass                                                                    
     Anchorage, as  at least one  cargo carrier  had started                                                                    
     to do already.                                                                                                             
     A  decrease in  the  number of  flights raises  further                                                                    
     concerns,   including  the   potential  of   diminished                                                                    
     investments in  infrastructure if not as  many airlines                                                                    
     are paying  into the aviation fund  through fuel taxes.                                                                    
     As  it  stands,   cargo-related  revenues  account  for                                                                    
     nearly  two-thirds of  AIAS revenues.  If higher  costs                                                                    
     cause carriers to fly  elsewhere, this could indirectly                                                                    
     lead to either a reduction  on revenues, or lead to the                                                                    
     remaining carriers  having to pay more  into the system                                                                    
     to account for those who bypass Alaska.                                                                                    
     Again, UPS empathizes with the  state of Alaska and its                                                                    
     budget  deficit. We  appreciate  the partnership  we've                                                                    
     had here  and the growth-friendly environment  that has                                                                    
     allowed UPS  to operate here  over many years.  We hope                                                                    
     that  you will  greatly  consider  the consequences  of                                                                    
     what an  increase in the jet  fuel tax can mean  to the                                                                    
     great state of Alaska.                                                                                                     
10:27:29 AM                                                                                                                   
DANA    DEBELL,   DELTA    AIRLINES,   LOS    ANGELES   (via                                                                    
teleconference),  testified  in  opposition to  SB  25.  She                                                                    
relayed that  Delta currently operated 17,  peak day flights                                                                    
to Alaska into Anchorage  and Fairbanks, where they operated                                                                    
year  round,   and  seasonally   into  Juneau,   Sitka,  and                                                                    
Ketchikan. She  expressed concern that the  increased income                                                                    
tax would  make an already  tough environment to  operate in                                                                    
even more  challenging. She expounded  on the  benefits that                                                                    
Delta doing  business in  Alaska brought  to the  state. She                                                                    
asserted that  the tax increase  would compound  the already                                                                    
challenging   competitive  environment.   She  shared   that                                                                    
through  the connection  to Delta  hubs  in various  cities,                                                                    
Alaska was only one-stop away  from over 600 destinations on                                                                    
5  continents. She  reiterated that  it was  a challenge  to                                                                    
operate profitably in Alaska.                                                                                                   
10:30:49 AM                                                                                                                   
FRED   STURMAN,   SELF,   SOLDOTNA   (via   teleconference),                                                                    
testified in  opposition to the  bill. He  expressed concern                                                                    
for the  budget shortfall in his  area of the state  and the                                                                    
subsequent  job  losses.  He did  not  believed  that  taxes                                                                    
should be implemented until further budget cuts were made.                                                                      
10:33:45 AM                                                                                                                   
AVES THOMPSON,  ALASKA TRUCKING ASSOCIATION,  ANCHORAGE (via                                                                    
teleconference), spoke in support  of the bill. He expressed                                                                    
support  the development  of a  balanced, durable,  and long                                                                    
term  fiscal plan  that utilized  cuts to  state government,                                                                    
use of permanent  funds earnings, and taxes  if required. He                                                                    
believed  that  the  tax proposed  in  the  legislation  was                                                                    
acceptable within the framework of  a long term fiscal plan.                                                                    
He  thought  that action  was  critical  during the  current                                                                    
legislative session. He said  that the association supported                                                                    
a  motor  tax  increase  if  the  funds  were  dedicated  to                                                                    
transportation needs.  He stated that the  trucking industry                                                                    
paid 45  percent of the  state motor fuel tax.  He suggested                                                                    
that  intent  language could  be  added  that would  make  a                                                                    
commitment to a highway fuel  tax account that could be used                                                                    
for roads and bridges. He hoped  that the uses of the Public                                                                    
Transportation Fund  could be  reined in  so that  the funds                                                                    
could  be  directed  toward transportation  maintenance.  He                                                                    
relayed that he supported the  change made by the house that                                                                    
extended the  implementation date to  $.08 in 2017,  and the                                                                    
same in 2019.                                                                                                                   
10:37:13 AM                                                                                                                   
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
10:37:45 AM                                                                                                                   
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
discussed the  presentation, "State of Alaska  Department of                                                                    
Revenue: SB  25 - Motor Fuel  Tax," (copy on file).  He said                                                                    
that  the   presentation  contained  information   from  two                                                                    
departments,   revenue  and   transportation,  as   well  as                                                                    
sectional analysis and fiscal note information.                                                                                 
10:38:16 AM                                                                                                                   
Commissioner  Hoffbeck turned  to Slide  2, "Motor  Fuel Tax                                                                    
     "An Act  relating to  the motor  fuel tax;  relating to                                                                    
     the  disposition of  revenue from  the motor  fuel tax;                                                                    
     relating  to the  transportation maintenance  fund; and                                                                    
     providing for an effective date."                                                                                          
10:38:57 AM                                                                                                                   
Commissioner  Hoffbeck  showed  Slide  3,  "Motor  Fuel  Tax                                                                    
     · Began in 1945                                                                                                            
     · Tax rates have increased over time, but structure                                                                        
        · Last increase: highway 1970, marine 1977,                                                                             
          aviation fuel 1994                                                                                                    
     · Tax was suspended from Sept. 1, 2008, to Aug. 31,                                                                        
     · In 2015, HB 158 added $0.0095 surcharge on                                                                               
     · motor fuels and some other refined fuels                                                                                 
        · Intended for spill prevention and response fund                                                                       
10:39:55 AM                                                                                                                   
Commissioner  Hoffbeck discussed  Slide  4, "Relative  Motor                                                                    
Fuel Tax Rate":                                                                                                                 
    · Alaska's fuel taxes are among lowest in U.S. (1)                                                                          
          o Highway fuel: lowest and the longest time since                                                                     
          o Jet fuel: 35thout of 50                                                                                             
          o Aviation gas: 24thout of 50                                                                                         
     · Under this bill, Alaska taxes would be:                                                                                  
          o Below national average for highway fuel                                                                             
          o Above national average for jet/aviation fuel                                                                        
   (1)Per Institute on Taxation and Economic Policy 2017                                                                        
   No comprehensive data for other states' marine fuel                                                                          
   However, we believe that in most states the "marine" rate                                                                    
   is the "highway" rate.                                                                                                       
   Therefore, our "marine" rate is likely also one of the                                                                       
   lowest in the country.                                                                                                       
10:41:51 AM                                                                                                                   
Commissioner  Hoffbeck turned  to Slide  5, "Motor  Fuel Tax                                                                    
Proposal," which  showed a table  that reflected  the change                                                                    
in  rates over  time under  the bill.  The current  price of                                                                    
highway fuel was $.08, and was  expected to go up 50 $.16 on                                                                    
July 1,  2017, and $.24 on  July 1, 2018. The  current price                                                                    
of marine fuel  was $.05, and was expected to  go up to $.10                                                                    
on  July 1,  2017, and  $.24 on  July 1,  2018. The  current                                                                    
price of  jet fuel was $.032,  and was expected to  go up to                                                                    
$.064  on July  1,  2017 and  $.096 on  July  1, 2018.  They                                                                    
current "off road use' credit  was -$.06 and was expected to                                                                    
change to -$.12 in July 2017, and -$.18 in July 2018.                                                                           
10:42:42 AM                                                                                                                   
Commissioner  Hoffbeck displayed  Slide 6,  "Motor Fuel  Tax                                                                    
Impacts  (examples),"  which  showed a  table  that  offered                                                                    
several examples of how the prices would affect Alaskans.                                                                       
10:44:25 AM                                                                                                                   
Commissioner  Hoffbeck moved  to  Slide  7, "Disposition  of                                                                    
     · Creates "Transportation Maintenance Fund" as a new                                                                       
        fund within the General Fund.                                                                                           
          o Aviation fuel taxes are other funds (dedicated                                                                      
             as required for participation in a federal                                                                         
             program) under current law                                                                                         
          o HB 60 moves taxes on highway and marine fuel                                                                        
             from Undesignated General Fund to Designated                                                                       
             General Fund for budgeting                                                                                         
          o Creates confidence that revenues from motor                                                                         
             fuel will be used to build and maintain                                                                            
             transportation infrastructure                                                                                      
Commissioner Hoffbeck said that  people were more willing to                                                                    
pay  a tax  when they  were given  assurances that  the fund                                                                    
would  support  the infrastructure  for  which  the tax  was                                                                    
being collected. He related that  though the funds could not                                                                    
be dedicated,  a designated fund structure  would be created                                                                    
within the  general fund.  [He noted  that the  slide should                                                                    
reflect SB 25, not HB 60.]                                                                                                      
10:45:24 AM                                                                                                                   
Senator Micciche asked how the  funds would be accounted for                                                                    
in the budgetary process.                                                                                                       
Commissioner Hoffbeck stated that the  money would be set in                                                                    
separate  funds:  aviation,  marine, and  highway,  and  the                                                                    
money to  fund the services  for those areas would  be drawn                                                                    
from the fund  first. He said supplemental  funds would come                                                                    
from other general funds sources.                                                                                               
Senator   Micciche  asked   whether  Commissioner   Hoffbeck                                                                    
envisioned earmarking the funds.                                                                                                
Commissioner Hoffbeck answered in the affirmative.                                                                              
10:46:39 AM                                                                                                                   
Senator  von  Imhof  wondered  whether  there  had  been  an                                                                    
analysis done on how the  increase would affect the fees and                                                                    
taxes already paid to the state by large jet airlines.                                                                          
Commissioner Hoffbeck  offered to provide a  report compiled                                                                    
by DOT that examined landing  fees and taxes associated with                                                                    
various airport operations in hub cities.                                                                                       
10:47:50 AM                                                                                                                   
Commissioner Hoffbeck spoke to Slide 8, "Revenue Impact":                                                                       
          o Additional revenue about $40 million first                                                                          
             year, $80 million per year thereafter                                                                              
               ƒ$0.4    million   will   be   shared   with                                                                    
                 municipal-owned airports                                                                                       
               ƒRemainder:    Transportation    maintenance                                                                    
                  fund, special accounts for road, water                                                                        
                  transport, and aviation facilities                                                                            
          o Estimates based on fall 2016 revenue forecast                                                                       
          o Does not account for changes in fuel demand or                                                                      
Commissioner   Hoffbeck  noted   that  approximately   $71.4                                                                    
million  would  come  from marine  and  highway  taxes,  and                                                                    
approximately  $9.3 million  from jet  fuel. He  shared that                                                                    
the  fall 2016  revenue forecast  assumed that  $370 million                                                                    
gallons of highway fuel would  be sold within the state, 120                                                                    
million gallons of  marine fuel, 130 million  gallons of jet                                                                    
fuel,  and 10  million gallons  of aviation  fuel. He  added                                                                    
that of  the 130 gallons  of jet  fuel that was  taxed there                                                                    
was  480 million  gallons that  were exempt  because of  the                                                                    
international flight exemption.                                                                                                 
10:49:05 AM                                                                                                                   
Co-Chair MacKinnon  clarified that  the tax was  proposed to                                                                    
collect $40 million additional dollars.                                                                                         
10:49:25 AM                                                                                                                   
Commissioner  Hoffbeck  addressed Slide  9,  "Implementation                                                                    
          o Dept. of Revenue must update:                                                                                       
               ƒTax Revenue Management System (TRMS)                                                                           
               ƒRevenue Online (ROL) which allows a                                                                            
                  taxpayer to file a return and apply for a                                                                     
                  dealer license online                                                                                         
               ƒTax return forms                                                                                               
          o One-time implementation cost of $50,000 to                                                                          
             recreate tax forms and reprogram and test the                                                                      
             tax system to accommodate the rate changes                                                                         
          o No additional costs to administer the tax                                                                           
Commissioner Hoffbeck qualified that  there was minimal cost                                                                    
associated with implementation of the tax.                                                                                      
10:49:59 AM                                                                                                                   
Co-Chair  Hoffman asked  which  airports in  the state  were                                                                    
municipally owned.                                                                                                              
Commissioner Hoffbeck  agreed to provide the  information at                                                                    
a later date.                                                                                                                   
Co-Chair  Hoffman  wondered  how much  the  average  Alaskan                                                                    
benefitted from the taxes on marine fuel.                                                                                       
Commissioner  Hoffbeck  deferred  the question  to  a  later                                                                    
10:51:09 AM                                                                                                                   
Vice-Chair  Bishop  understood  that   the  taxes  would  be                                                                    
collected at the wholesale level, and not the retail level.                                                                     
Commissioner Hoffbeck answered in the affirmative.                                                                              
Commissioner  Hoffbeck listed  the municipalities  that were                                                                    
receiving payments from the gas tax funds:                                                                                      
Venetie Tribal Government                                                                                                       
Thorne Bay                                                                                                                      
North Slope Borough                                                                                                             
Delta Junction                                                                                                                  
10:52:04 AM                                                                                                                   
Senator  Dunleavy  asked   requested  clarification  of  the                                                                    
definition of "off road use credit".                                                                                            
Commissioner Hoffbeck  explained that there was  a provision                                                                    
within  the   statute  that  allowed  users   to  apply  for                                                                    
reimbursement of  the tax  paid on  motor fuel  purchased in                                                                    
association  with the  highway tax  that was  used for  non-                                                                    
highway related purposes, such as a four-wheeler.                                                                               
Senator Dunleavy  surmised that  Alaskan's who used  the gas                                                                    
for their four wheelers could apply for the credit.                                                                             
Commissioner Hoffbeck answered in the affirmative.                                                                              
10:53:21 AM                                                                                                                   
Senator  Olson  wondered   whether  the  Origin  Destination                                                                    
exemption under  AS 43.40.100 would remain  intact under the                                                                    
Commissioner Hoffbeck  stated that  the bill did  not change                                                                    
the exemption in any way.                                                                                                       
Senator Olson  thought that the exemption  created an unfair                                                                    
advantage for carriers that traveled internationally.                                                                           
Commissioner  Hoffbeck replied  that  the justifiability  of                                                                    
the exemption  had been questioned.  He shared that  part of                                                                    
the  exemption  was  federally mandated;  if  a  flight  was                                                                    
leaving  Anchorage  or  Fairbanks   to  land  in  a  foreign                                                                    
destination it could  not be taxed. The  state had increased                                                                    
the exemption by  saying that if a flight  was arriving from                                                                    
a foreign destination it would  not be taxed, which expanded                                                                    
the  federally  required  exemption. He  admitted  that  the                                                                    
fairness  of  the  exemption  was   in  question,  but  that                                                                    
generating business was also a consideration.                                                                                   
10:55:35 AM                                                                                                                   
Senator  Olson wondered  if the  administration would  be in                                                                    
favor  of abolishing  the exemption,  in order  to create  a                                                                    
more equal playing field.                                                                                                       
Commissioner Hoffbeck said that  the economics of abandoning                                                                    
the   exemption  would   need   to  be   studied  before   a                                                                    
determination could be made.                                                                                                    
10:56:33 AM                                                                                                                   
MARK LUIKEN, COMMISSIONER,  DEPARTMENT OF TRANSPORTATION AND                                                                    
PUBLIC  FACILITIES,  referenced   the  presentation  "Alaska                                                                    
Department of Transportation and  Public Facilities - Senate                                                                    
Bill 25" (copy on file).                                                                                                        
Commissioner Luiken looked at Slide 2, "Scope":                                                                                 
          o This briefing addresses the Department of                                                                           
             Transportation & Public Facilities (DOT&PF)                                                                        
             operating budget.                                                                                                  
          o The funds generated by Alaska's Motor Fuel Tax                                                                      
             that   will   be    placed   in    the   Alaska                                                                    
             Transportation  Maintenance   Fund  (DGF/Other)                                                                    
             replace an equal amount of Unrestricted General                                                                    
             Funds  (UGF)   that  currently   fund  DOT&PF's                                                                    
             operating budget.                                                                                                  
              ƒUGF to DGF fund swap: $64.8M                                                                                    
               ƒUGF to Other fund swap (Aviation): $4.5M                                                                       
               ƒTotal fund swap: $69.3M                                                                                        
          o The budget components that are recipients of                                                                        
             the fuel tax revenue are the regional Highways                                                                     
             & Aviation components and the Alaska Marine                                                                        
             Highway System.                                                                                                    
SB 25 was HEARD and HELD in committee for further                                                                               
Co-Chair MacKinnon discussed housekeeping.                                                                                      

Document Name Date/Time Subjects
SFC 2017 Confirmation Information Packet 2.pdf SFIN 3/27/2017 9:00:00 AM
Confirmations 2017
SB 25 Fuel Tax Letter to Governor Walker (FEB 2017) Asiana Airlines.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 Alaska Fuel Letter Nippon Cargo Airlines.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 Letter AtlasAirANC.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 Supporting Document - DOR Presentation - 3.27.17.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB25 DOT Motor Fuel Tax Briefing - 27 March 2017.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 UPS Alaska Jet Fuel Tax Letter-Senate Finance Committee-March 27.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 DOTPF Response to Questions 3.29.2017.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 CAA Letter on AK Fuel Exemption and Fuel Tax.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 Comparing Jet Fuel Taxes.docx SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 Atlas Air - International Fuel Tax Exemption.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 AIAS AAAC letter to Governor Walker 2-24-17.pdf SFIN 3/27/2017 9:00:00 AM
SB 25