Legislature(2021 - 2022)BUTROVICH 205

02/04/2021 03:30 PM STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 53 PERM FUND; ADVISORY VOTE TELECONFERENCED
Scheduled but Not Heard
*+ SJR 6 CONST. AM: PERM FUND & PFDS TELECONFERENCED
Scheduled but Not Heard
*+ SJR 5 CONST. AM: APPROP LIMIT; BUDGET RESERVE TELECONFERENCED
Heard & Held
*+ SJR 7 CONST. AM: STATE TAX; VOTER APPROVAL TELECONFERENCED
Heard & Held
           SJR 7-CONST. AM: STATE TAX; VOTER APPROVAL                                                                       
                                                                                                                                
4:08:10 PM                                                                                                                    
CHAIR  SHOWER   announced  the  consideration  of   SENATE  JOINT                                                               
RESOLUTION  NO. 7,  Proposing amendments  to the  Constitution of                                                               
the State of Alaska relating  to prohibiting the establishment of                                                               
a state tax without the approval  of the voters of the state; and                                                               
relating to the initiative process.                                                                                             
                                                                                                                                
4:08:13 PM                                                                                                                    
MIKE  BARNHILL,  Deputy   Commissioner,  Department  of  Revenue,                                                               
Juneau,  Alaska,  stated that  SJR  7  amends  Art. IX,  Sec.  1,                                                               
Constitution of  the State  of Alaska  to require  voter approval                                                               
for any  new tax enacted  by the  legislature. It was  similar to                                                               
Senate  Joint Resolution  4 that  this  committee considered  two                                                               
years ago.                                                                                                                      
                                                                                                                                
He reminded members that the  Alaska Constitution already has two                                                               
forms  of  direct democracy.  These  are  the people's  power  to                                                               
initiate  laws  through  initiative  and the  people's  power  to                                                               
repeal laws enacted by the  legislature through referendum. SJR 7                                                               
adds  a  new  form  of  direct  democracy  to  the  constitution,                                                               
functionally authorizing  an automatic  referendum on  new taxes.                                                               
The people  already have  the power to  initiate a  referendum to                                                               
repeal a tax  measure enacted by the legislature and  SJR 7 makes                                                               
it automatic by placing it in the constitution.                                                                                 
                                                                                                                                
MR BARNHILL  said the second  part of  SJR 7 amends  the people's                                                               
constitutional  power  of  initiative  by  requiring  legislative                                                               
approval with  a majority vote  in joint  session of any  new tax                                                               
enacted by initiative.  Functionally, it is a form  of checks and                                                               
balances.  He described  this as  a new  partnership between  the                                                               
people and the legislature.                                                                                                     
                                                                                                                                
4:11:10 PM                                                                                                                    
SENATOR COSTELLO asked if the  majority vote requirement means 31                                                               
votes  regardless of  the votes  in  the individual  bodies or  a                                                               
majority of the votes in each body.                                                                                             
                                                                                                                                
MR. BARNHILL replied  he reads it as  a majority vote of  31 in a                                                               
joint session.                                                                                                                  
                                                                                                                                
4:11:53 PM                                                                                                                    
SENATOR  REINBOLD  pointed  out  that Alaska's  government  is  a                                                               
representative  republic,  which  means  that  the  voters  elect                                                               
people to  make decisions on things  such as taxes. She  said she                                                               
does not  like taxes  but she feels  that this  administration is                                                               
tying the hands and reducing the power of the legislature.                                                                      
                                                                                                                                
CHAIR SHOWER  referred to the  last sentence in the  proposed new                                                               
subsection (c)  and asked if  this would be interpreted  to apply                                                               
to  only  this provision  for  a  tax  increase that  the  voters                                                               
approve by initiative  or if the judiciary could  interpret it to                                                               
apply to any initiative.                                                                                                        
                                                                                                                                
4:13:43 PM                                                                                                                    
MR. BARNHILL directed  attention to the language on  page 2, line                                                               
7   that  confines   the  application   to  an   initiative  that                                                               
establishes a state tax. He  said that triggers the legislature's                                                               
ability to approve the initiated law  by a majority vote in joint                                                               
session.                                                                                                                        
                                                                                                                                
CHAIR  SHOWER  expressed  concern   about  how  the  court  might                                                               
interpret that and said the committee would take a harder look.                                                                 
                                                                                                                                
4:14:50 PM                                                                                                                    
MR. BARNHILL said  that in 1955 the direct  democracy elements of                                                               
initiative  and  referendum  were  added  to  the  representative                                                               
democracy in  the Alaska Constitution.  That is part  of Alaska's                                                               
legal  heritage  and the  governor  is  proposing to  automate  a                                                               
referendum in  the sole  instance of  legislative enactment  of a                                                               
new tax.                                                                                                                        
                                                                                                                                
4:16:22 PM                                                                                                                    
MR.  BARNHILL proceeded  to slide  7 and  described other  states                                                               
that  have  similar  constitutional  provisions  regarding  voter                                                               
approval of new or increased taxes.                                                                                             
                                                                                                                                
Colorado, in 1992,  amended its constitution to  add the Taxpayer                                                               
Bill of  Rights (TABOR).  He noted that  TABOR was  essentially a                                                               
combination of  SJR 5 and  SJR 7.  It requires voter  approval of                                                               
any new tax or increase to  existing taxes at the state and local                                                               
level. Notably, Colorado voters approved  a marijuana tax in 2013                                                               
and certain tobacco tax increases in 2020.                                                                                      
                                                                                                                                
4:17:55 PM                                                                                                                    
SENATOR COSTELLO asked if he had a definition of tax.                                                                           
                                                                                                                                
MR. BARNHILL  said the  Department of Revenue's  view was  that a                                                               
tax includes a  broad-based sales tax, a  broad-based income tax,                                                               
and an excise  tax. It does not include user  fees, such as court                                                               
filings tied  to a specific  service to  defray the cost  of that                                                               
service.                                                                                                                        
                                                                                                                                
4:19:23 PM                                                                                                                    
SENATOR  COSTELLO asked  if  a reduction  in  the permanent  fund                                                               
dividend (PFD) would be considered a tax.                                                                                       
                                                                                                                                
MR. BARNHILL answered no.                                                                                                       
                                                                                                                                
CHAIR SHOWER  asked Mr. Milks  if he had  anything to add  to the                                                               
definition.                                                                                                                     
                                                                                                                                
4:19:51 PM                                                                                                                    
BILL MILKS,  Assistant Attorney General, Labor  and State Affairs                                                               
Section, Civil Division, Department  of Law, Juneau, Alaska, said                                                               
the framers put the term "tax"  in the constitution and the basic                                                               
definition came  from dictionaries  used at that  time. It  was a                                                               
charge  levied by  the government  on persons  or property  for a                                                               
public purpose. He  agreed with Mr. Barnhill that  user fees were                                                               
different and would not be considered a tax.                                                                                    
                                                                                                                                
4:21:27 PM                                                                                                                    
SENATOR KAWASAKI  relayed that years  ago in  Fairbanks, property                                                               
taxes paid  for the  garbage utility.  Then the  assembly changed                                                               
that tax  to a  fee so it  would be outside  of the  revenue cap.                                                               
There was vigorous debate because  residents inside the city were                                                               
required to  get the garbage  utility but apartment  complexes of                                                               
more than  four could contract  with a private vendor.  He asked,                                                               
under that circumstance, if that was a fee or hidden tax.                                                                       
                                                                                                                                
MR. BARNHILL  said it was difficult  to assess but from  a policy                                                               
perspective, it sounded  more like a fee than a  tax. It was tied                                                               
to a specific function and the  purpose was to defray the cost of                                                               
that  specific function.  That is  different from  revenue raised                                                               
broadly for the purpose of  funding public services generally. He                                                               
added  that  he  could  see  the argument  going  both  ways.  He                                                               
deferred further explanation to Mr. Milks.                                                                                      
                                                                                                                                
4:23:29 PM                                                                                                                    
MR. MILKS said  Mr. Barnhill's explanation was  reasonable but it                                                               
was difficult to assess the example.                                                                                            
                                                                                                                                
SENATOR  KAWASAKI posed  the hypothetical  example of  increasing                                                               
the cost  of what  the Division of  Motor Vehicles  (DMV) charges                                                               
far more than the cost to  operate the division. He asked if that                                                               
would be considered a tax.                                                                                                      
                                                                                                                                
MR. BARNHILL said it would  be difficult to say categorically one                                                               
way or the other in that situation.                                                                                             
                                                                                                                                
MR. MILKS agreed with Mr. Barnhill.                                                                                             
                                                                                                                                
4:27:09 PM                                                                                                                    
SENATOR  REINBOLD asked  how  SJR 7  answers to  Art.  IX of  the                                                               
Alaska  Constitution  that says,  "The  power  of taxation  shall                                                               
never  be  surrendered. This  power  shall  not be  suspended  or                                                               
contracted away, except as provided in this article.                                                                            
                                                                                                                                
MR.  BARNHILL  replied  the  resolution  proposes  to  amend  the                                                               
constitution so it  would fall under the  existing words, "except                                                               
as provided in this article."                                                                                                   
                                                                                                                                
CHAIR SHOWER asked if he was  saying that the resolution would be                                                               
constitutional because  it would amend  [Art. IX, Sec. 1]  of the                                                               
Alaska Constitution.                                                                                                            
                                                                                                                                
MR. BARNHILL agreed.                                                                                                            
                                                                                                                                
SENATOR REINBOLD  questioned whether it  made sense to  allow and                                                               
not allow something in the same sentence.                                                                                       
                                                                                                                                
CHAIR  SHOWER  asked Mr.  Milks  to  give  a more  precise  legal                                                               
definition of the process.                                                                                                      
                                                                                                                                
4:29:16 PM                                                                                                                    
MR.  MILKS explained  that the  constitution currently  says that                                                               
the power  of taxation shall  never be surrendered  or contracted                                                               
away except  as provided in [Art  IX, Sec.1]. SJR 7  adds two new                                                               
subsections to  that article that  address the  separate question                                                               
of establishing a state tax.                                                                                                    
                                                                                                                                
SENATOR  REINBOLD asked  him to  read the  constitution with  the                                                               
addition of two new subsections.                                                                                                
                                                                                                                                
MR. MILKS directed attention to page  1, line 9 of the resolution                                                               
and  explained that  the new  subsections would  fall immediately                                                               
after  the  existing  language  in  Art.  IX,  Sec.  1.  The  new                                                               
subsections set the rules regarding establishing a state tax.                                                                   
                                                                                                                                
SENATOR REINBOLD  said it  sounds like "it's  shall not  and then                                                               
we're going to."                                                                                                                
                                                                                                                                
4:31:29 PM                                                                                                                    
MS. SCHULTZ said  an example in the constitution  appears in Art.                                                               
IX,  Sec  7,  the  anti-dedication  fund  clause.  As  originally                                                               
drafted, it  prohibited the dedication  of state funds.  That was                                                               
amended in  1976 to  add "except  as provided  in Sec.  15, which                                                               
allowed the creation of the permanent fund.                                                                                     
                                                                                                                                
SENATOR REINBOLD said  the people voted to  support the permanent                                                               
fund and  the dividend and  now it is  being taken. She  said she                                                               
appreciated Senator Costello's question  about the permanent fund                                                               
because many people feel the reduction  in the dividend is a tax.                                                               
She said  she was not  a fan of  taxes, but this  resolution gave                                                               
her pause.                                                                                                                      
                                                                                                                                
CHAIR  SHOWER asked  if the  Department  of Law  could provide  a                                                               
written  explanation,  with  examples,  about  how  it  was  done                                                               
before.                                                                                                                         
                                                                                                                                
MR. MILKS agreed to do so.                                                                                                      
                                                                                                                                
4:34:14 PM                                                                                                                    
SENATOR  HOLLAND asked  how many  tax  proposals Colorado  voters                                                               
rejected after the passage of TABOR.                                                                                            
                                                                                                                                
MR. BARNHILL  said he  would follow up  with the  information. He                                                               
recalled that a  number of taxes in Colorado failed  from 1992 to                                                               
the present.                                                                                                                    
                                                                                                                                
CHAIR SHOWER  asked him  to provide the  information by  the next                                                               
hearing on the resolution.                                                                                                      
                                                                                                                                
4:35:17 PM                                                                                                                    
MR.  BARNHILL continued  the presentation  on  slide 7  regarding                                                               
states that require voter approval  of new or increased taxes. He                                                               
said he included  Missouri and Washington to  show the variation.                                                               
The constitutional provision in  Missouri requires voter approval                                                               
of tax increases of $50  million or more, adjusted for inflation.                                                               
In  2018,  voters defeated  Proposition  D  to increase  gasoline                                                               
taxes by $400 million.                                                                                                          
                                                                                                                                
He explained  that the state  of Washington has  a constitutional                                                               
provision that  requires voter approval  of certain  increases to                                                               
real  and  personal  property  taxes referred  to  as  "levy  lid                                                               
lifts." In recent  years, voters approved 75  percent of proposed                                                               
levy  lid   lifts.  Further,  California  has   a  constitutional                                                               
provision  that requires  voter approval  of general  local taxes                                                               
and special local taxes.                                                                                                        
                                                                                                                                
CHAIR  SHOWER  asked him  to  provide  information on  any  other                                                               
states that have enacted similar constitutional provisions.                                                                     
                                                                                                                                
MR. BARNHILL  replied that  these four are  the states  that have                                                               
amended their  constitutions; there may  be more examples  at the                                                               
local level.                                                                                                                    
                                                                                                                                
4:37:13 PM                                                                                                                    
MR. BARNHILL displayed slide 8  and highlighted that the National                                                               
Council of  State Legislatures has  summarized the pros  and cons                                                               
of  the experiences  of states  from a  policy perspective.  They                                                               
call  the  amendments proposed  in  SJR  5  and  SJR 7  "tax  and                                                               
expenditure limitations."  He noted that  the link to  the entire                                                               
article was  on slide 10.  It exhaustively lists  and categorizes                                                               
the states, the nature of the tax, and expenditure limitations.                                                                 
                                                                                                                                
A  sample  of  the  pros  of a  tax  and  expenditure  limitation                                                               
includes make  government more accountable and  efficient; foster                                                               
public  prioritization  of  programs   and  services;  and  voter                                                               
consent to  new taxes may  increase tax compliance. He  noted the                                                               
latter was from a study  of Eastern Bloc countries post communism                                                               
and the  use of the referendum  to engage voters and  improve tax                                                               
compliance. The researchers found a positive relationship.                                                                      
                                                                                                                                
A  sample  of  the  cons  of a  tax  and  expenditure  limitation                                                               
includes: more difficulty raising  new revenue; waiting for voter                                                               
consent can  delay implementation and collection  of new revenues                                                               
(which may be  an issue for Alaska that needs  revenue soon); and                                                               
it   shifts   fiscal   decision    making   away   from   elected                                                               
representatives (as Senator Reinbold pointed out).                                                                              
                                                                                                                                
MR. BARNHILL advised that slides 9  and 10 are cut and paste from                                                               
the National Council  of State Legislatures webpage  of more pros                                                               
of  "Tax  and  Expenditure  Limitations"  for  policy  makers  to                                                               
consider.                                                                                                                       
                                                                                                                                
4:40:25 PM                                                                                                                    
SENATOR  KAWASAKI  mentioned  discussions  in  past  years  about                                                               
locking  in the  price  of  natural gas.  He  described  it as  a                                                               
contingency that  the legislature did  over a number of  years so                                                               
oil companies  could figure  out on  the books  how the  gas line                                                               
would  work in  the  future. He  asked  what SJR  7  does to  the                                                               
situation in which the legislature  enacts a longer-term tax that                                                               
the industry  agreed to but  is then subject  to the will  of the                                                               
people.                                                                                                                         
                                                                                                                                
MR. BARNHILL  clarified that Senator  Kawasaki was  talking about                                                               
locking  in the  tax  rate for  a  number of  years  to make  the                                                               
economics of  the gas line  predictable over a longer  period. He                                                               
offered   his   understanding   that  three   attorneys   general                                                               
considered  this at  separate times  and rendered  three opinions                                                               
expressing  different views  on  the  time a  tax  rate could  be                                                               
locked in. He deferred further discussion to Mr. Milks.                                                                         
                                                                                                                                
4:42:04 PM                                                                                                                    
MR.  MILKS  said the  constitutional  provision  on taxing  power                                                               
would still be  there so the question is  whether the legislature                                                               
can  agree to  limit  potential to  adjust a  tax  for a  certain                                                               
period.  He offered  to follow  up with  more information  if the                                                               
chair wished.                                                                                                                   
                                                                                                                                
CHAIR  SHOWER said  he would  rather have  more information  than                                                               
less even if it leads down a bit of a rabbit hole.                                                                              
                                                                                                                                
SENATOR REINBOLD asked if it  would be considered a statewide tax                                                               
if the  legislature applied  the same tax  formula on  all mining                                                               
products;  if SJR  7  would limit  the  legislature's ability  to                                                               
establish such  a tax; and  if such a limitation  would undermine                                                               
the representative republic.                                                                                                    
                                                                                                                                
MR. BARNHILL  opined that a new  tax on mining products  would be                                                               
subject to SJR 7.                                                                                                               
                                                                                                                                
SENATOR REINBOLD asked if SJR  7 would prevent the administration                                                               
from raising fees in  any way or if it was  just another step for                                                               
revenue.                                                                                                                        
                                                                                                                                
MR. BARNHILL replied nothing in  the resolution controls costs or                                                               
reduces the  budget. With respect  to raising fees, he  said that                                                               
state  agencies that  have regulatory  authority  to assess  fees                                                               
would still be able to do so.                                                                                                   
                                                                                                                                
SENATOR REINBOLD asked Mr. Milks  to state for the record whether                                                               
the administration believes Alaska  is a representative democracy                                                               
or a representative republic.                                                                                                   
                                                                                                                                
4:47:52 PM                                                                                                                    
MR. MILKS  explained that the  Alaska Constitution sets  out that                                                               
both the legislature  and the people can enact laws  and both can                                                               
repeal laws  enacted by either one.  The people can repeal  a law                                                               
through referendum  and the legislature  can repeal a  law passed                                                               
through initiative after two years. SJR 7 follows that model.                                                                   
                                                                                                                                
CHAIR  SHOWER   asked  him   to  define   whether  Alaska   is  a                                                               
representative democracy or a representative republic.                                                                          
                                                                                                                                
4:49:37 PM                                                                                                                    
MR.  MILKS  replied that  Alaska  has  a representative  form  of                                                               
government by having a legislative  branch and a direct democracy                                                               
component,  which is  the people's  power to  enact laws  through                                                               
initiative.  Laws  are  made through  a  representative  republic                                                               
model and a  direct democracy model. He advised that  Art. 1, Sec                                                               
2 identifies the source of government.                                                                                          
                                                                                                                                
MR.  BARNHILL added  that the  US  Constitution Art.  IV, Sec.  4                                                               
states that,  "The United States  shall guarantee to  every State                                                               
in this Union a Republican Form  of Government." He said he views                                                               
the  terms representative  democracy and  representative republic                                                               
as  synonymous. Importantly,  multiple states  have added  direct                                                               
democracy  features to  their  constitution  and those  additions                                                               
have  never   been  found  to   violate  the  guarantee   of  the                                                               
constitutionally required republican form of government.                                                                        
                                                                                                                                
4:52:24 PM                                                                                                                    
SENATOR  KAWASAKI asked  if  Section 2  of  the resolution  would                                                               
apply  to  modification of  an  existing  tax. For  example,  the                                                               
mining license tax that was  created in 1959 was modified several                                                               
years ago to change the progressivity in each of the tiers.                                                                     
                                                                                                                                
MR.  BARNHILL  answered  no;  a tax  modification  would  not  be                                                               
covered.                                                                                                                        
                                                                                                                                
SENATOR KAWASAKI  listed the  existing taxes  on fish  and mining                                                               
licenses  and  asked  if  he  was  saying  that  changes  to  the                                                               
percentages on those existing taxes  would not be included in the                                                               
proposed Art. IX, Sec. 1(b).                                                                                                    
                                                                                                                                
MR. BARNHILL said yes.                                                                                                          
                                                                                                                                
CHAIR SHOWER asked if this could  be interpreted to apply to more                                                               
things than intended.                                                                                                           
                                                                                                                                
4:54:42 PM                                                                                                                    
MR. BARNHILL replied, "It clearly just applies to a new tax."                                                                   
                                                                                                                                
SENATOR  REINBOLD said  she had  a  real problem  with Section  2                                                               
based  on  concerns  about a  representative  republic  versus  a                                                               
representative democracy.                                                                                                       
                                                                                                                                
MR. BARNHILL said he believes subsection  (c) in Section 2 of the                                                               
resolution  should  help the  concern  about  a direct  democracy                                                               
taking  away  from the  elements  of  a representative  republic,                                                               
because  it  essentially  restores that  legislative  power  with                                                               
respect to initiated taxes.                                                                                                     
                                                                                                                                
SENATOR  REINBOLD  emphasized  that   this  was  not  transparent                                                               
government and it caused her pause.                                                                                             
                                                                                                                                
4:58:24 PM                                                                                                                    
CHAIR  SHOWER said  he had  some of  the same  concerns, but  the                                                               
legislature   has  recourse   when  laws   are  enacted   through                                                               
initiative.                                                                                                                     
                                                                                                                                
[SJR 7 was held in committee.]                                                                                                  

Document Name Date/Time Subjects
01.19.21 Permanent Fund; Dividend TL - Senate.pdf SSTA 2/4/2021 3:30:00 PM
SB 53
01.1921 Permanent Fund; Income; Dividend TL - Senate.pdf SSTA 2/4/2021 3:30:00 PM
SB 53
SB0053-1-2-012521-GOV-Y.PDF SSTA 2/4/2021 3:30:00 PM
SB 53
SB0053-2-2-012521-REV-N.PDF SSTA 2/4/2021 3:30:00 PM
SB 53
SB0053-3-2-012521-REV-Y.PDF SSTA 2/4/2021 3:30:00 PM
SB 53
SB0053A.PDF SSTA 2/4/2021 3:30:00 PM
SB 53
01.19.21 Approp Limit; Budget Reserve TL.pdf SSTA 2/4/2021 3:30:00 PM
SJR 5
SJR005A.PDF SSTA 2/4/2021 3:30:00 PM
SJR 5
SJR005-1-2-012221-GOV-N.PDF SSTA 2/4/2021 3:30:00 PM
SJR 5
SJR006-1-2-012221-GOV-N.PDF SSTA 2/4/2021 3:30:00 PM
SJR 6
SJR006A.PDF SSTA 2/4/2021 3:30:00 PM
SJR 6
01.19.21 Taxation Limitation TL - Senate.pdf SSTA 2/4/2021 3:30:00 PM
SJR 7
SJR007-1-2-012221-GOV-N.PDF SSTA 2/4/2021 3:30:00 PM
SJR 7
SJR007A.PDF SSTA 2/4/2021 3:30:00 PM
SJR 7
SJR 7 Sectional Analysis.pdf SSTA 2/4/2021 3:30:00 PM
SJR 7
SJR 5 Sectional Analysis.pdf SSTA 2/4/2021 3:30:00 PM
SJR 5
SJR5 and SJR7 - OMB and DOR presentation.pdf SSTA 2/4/2021 3:30:00 PM
SJR 5
SJR 7