Legislature(2017 - 2018)BUTROVICH 205
02/02/2017 01:30 PM Senate TRANSPORTATION
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| Audio | Topic |
|---|---|
| Start | |
| SB25 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 25 | TELECONFERENCED | |
SB 25-MOTOR FUEL TAX; TRANSPORTATION MAINT. FUND
1:32:08 PM
CHAIR STEDMAN announced that the only order of business would be
the first hearing on SB 25. He said the intent is to hear the
bill, take public testimony, and hold the bill. He stated that
SB 25 is a motor fuel tax/transportation maintenance fund bill
sponsored by the Governor.
1:32:55 PM
JERRY BURNETT, Deputy Commissioner, Department of Revenue,
presented SB 25 on behalf of the administration. He thanked the
committee for hearing the bill. He related that SB 25 was
introduced with the budget this year and the proceeds from the
increased motor fuel tax are included in the FY18 budget.
He provided the history of the motor fuel tax. He said that
Alaska has had a motor fuel tax since 1945 and the structure has
remained unchanged. The last increase of the motor fuel tax for
highway use was in 1970, 1977 for marine use, and 1994 for
aviation fuel. The highway tax in 1970 was 8 cents a gallon, as
it is now, and the average gallon of gas in the U.S. sold for 36
cents. He recalled how 8 cents was a big portion of a gallon of
gas back then. The total state budget in FY71 was $369 million.
The general fund portion was around $240 million, and the motor
fuel tax brought in $9.4 million for highways at that time and
was separately identified in the budget.
He said the budget these days is closer to $4 billion and taxes
are bringing in about $40 million. As a percentage of the
budget, that is much less. He continued to say that in 2008 the
motor fuel tax was suspended when the price of gas was over $4.
In 2015 the last fuel tax increase was under a penny and it went
to the Spill Prevention and Response Fund.
MR. BURNETT compared Alaska's tax rate to other states. Alaska
has the lowest fuel tax of all states and the longest time since
there was an increase. For jet fuel, Alaska is 35th out of 50
states and for aviation gas it is 24th out of 50 states. If the
bill were to pass, Alaska taxes would still be below average for
highway fuel. He noted that he has provided the committee with a
report from the Institute on Taxation and Economic Policy 2017
showing the relative motor fuel tax rates. He pointed out that
the report shows a different rate than what is in the bill
because the rates in the bill include a blended average of local
sales tax which is added. The report indicates an average price
per gallon in Alaska of about 12 cents. However, it varies
tremendously in Alaska due to sales tax.
MR. BURNETT noted that most states do not have a separate marine
fuel tax and pay highway rates for their marine fuel.
1:37:41 PM
MR. BURNETT showed a table with the current motor fuel tax
proposal for the following fuels: highway, marine, jet fuel, and
aviation gas.
1:38:23 PM
SENATOR WILSON asked who currently receives off-road use credit.
MR. BURNETT explained that most off-road use credit is for mines
and large construction.
MR. BURNETT described the increases for each type of fuel for
July 1, 2017, and July 1, 2018.
1:39:49 PM
CHAIR STEDMAN noted the arrival of Senator MacKinnon.
He asked what the increase in the marine fuel tax will be going
towards - the targeted uses.
MR. BURNETT replied that the money will be going into the
Transportation Maintenance Fund and it can be used for direct
capital and operating expenditures, marine infrastructure, and
marine transportation.
1:40:36 PM
MR. BURNETT provided examples of motor fuel tax impacts. The
first example is a motorist who drives 25,000 miles a year
would, today, pay $133 dollars in taxes; next year they would
pay $266 and the following year $399. The second example shows a
freight driver transporting 30,000 pounds of freight per year
paying 2 cents per 100 pounds today, 4 cents next year, and 5
cents the following year. He also showed examples of marine
fuel, jet fuel and aviation gas use under the same timeline with
the same percentage of increase in costs. He concluded that it
triples the cost, but as a percentage of the fuel cost, it is
not that large. They are real dollar impacts to people, but the
value of the maintenance and infrastructure more than offsets
the cost.
1:43:31 PM
SENATOR MACKINNON asked about the jet fuel proposed increase.
She said international operators have requested an exemption due
to the effect of long haul flights.
MR. BURNETT explained that long haul international jets are
currently exempt and that will not change. He suggested that Mr.
Binder could speak to the issue. Mr. Burnett said international
carriers are paying for costs through landing fees.
SENATOR MACKINNON asked if they are exempt or partially exempt.
CHAIR STEDMAN noted Mr. Binder would address that question.
1:46:31 PM
MR. BURNETT explained the disposition of fuel tax revenues. They
created the Transportation Maintenance Fund as a new fund within
the general fund. Under current law, aviation fuel taxes are
"other funds" dedicated as required for participation in a
federal program. HB 60 moves taxes on highway and marine fuel
from undesignated general fund to designated general fund for
budgeting. The Transportation Maintenance Fund will create
confidence that revenues from motor fuel will be used to build
and maintain transportation infrastructure.
1:47:42 PM
SENATOR MACKINNON asked if there will be allocations for roads
and marine highway.
MR. BURNETT said yes. Within the Transportation Maintenance Fund
there will be separate allocations for marine fuel taxes and
highway fuel taxes. Within the special aviation fuel account
there are allocations not in the general fund.
1:48:35 PM
He explained the revenue impact of SB 25. There will be
additional revenue of about $40 million the first year and $80
million per year thereafter. There are small annual variations
in the numbers of gallons sold, except for aviation fuel, which
varies depending on economic conditions. He said about $400,000
more will be shared with municipal-owned airports. The remainder
will go into the Transportation Maintenance Fund. Estimates in
the fiscal note are based on the 2016 Revenue Forecast. He noted
it does not account for changes in fuel demand.
1:50:40 PM
SENATOR WILSON inquired whether any changes in behavior by users
are expected due to this tax. For example, a fishing fleet that
may decide to buy gas from an international provider.
1:51:07 PM
MR. BURNETT understood that, because of pricing differences,
some marine users already purchase international fuel. However,
he opined that the tax is not enough of a change for highway
users. The tax is still below the national average.
1:52:31 PM
MR. BURNETT addressed the implementation cost which will be a
one-time cost of $50,000. No additional staff is needed.
1:53:29 PM
At ease
1:53:47 PM
JOHN BINDER, Deputy Commissioner, Department of Transportation
and Public Facilities (DOTPF), presented information on SB 25.
He said he would explain how the funds from SB 25 would be used.
He began with the scope of the presentation which is to show the
impact of the motor fuel tax on DOT's operating budget. He said
it ends up being a fund swap between the unrestricted general
fund (UGF) and the designated general fund (DGF) as a result of
the tax revenues. The budget components that are recipients of
the fuel tax revenue are the regional Highways and Aviation
components and the Alaska Marine Highway System.
1:55:31 PM
MR. BINDER showed the overall FY2018 Governor's proposed
operating budget with all funding sources. The total budget is
about $581 million, primarily funded through four different fund
categories. The two pie charts compare the FY 17 Management plan
to the FY 18 proposed plan. The Governor's proposed plan shows a
decrease in UGF and a corresponding increase in DGF as a result
of SB 25. He pointed out that one of the biggest benefits of the
bill is that it ties the fees people are being charged to the
operation and preservation of systems they are using.
He drew attention to the smaller funds that make up the broad
four fund categories.
MR. BINDER addressed Senator MacKinnon's question about the
international airport revenue funds. He summarized that all
domestic aircraft traffic is charged the full aviation fuel tax
per current state statute. All international traffic is
completely exempt.
1:57:29 PM
SENATOR MACKINNON asked if there is a reciprocal agreement for
U.S. flights to other countries.
MR. BINDER said no, he is not aware of any.
1:58:05 PM
MR. BINDER showed the four core services that DOT operates
under: operating, preserving, and modernizing Alaska's
transportation infrastructure, and providing transportation
services. The two core services affected by SB 25 are the
"operate" and "preserve" areas.
He addressed the preserve core service first, noting the direct
services that support it. It extends the life of existing
transportation infrastructure. Much of this area is federally
funded and requires the state to meet federal standards.
1:59:20 PM
MR. BINDER discussed the results of the bill on the FY 18
budget. There would be a 23 percent reduction of UGF and an
increase of 5 percent in DGF. The services provided with that
money would not change. He showed examples of direct services on
the preserve side of the house.
2:00:15 PM
SENATOR BISHOP asked if Mr. Binder anticipates any improvement
in services or status quo.
MR. BINDER said the department always strives to provide better
service, but the overall funding would not change so it would be
the same level of services currently allocated.
2:01:01 PM
MR. BINDER addressed the operate core services. Currently, about
$105 million is allocated for this area. These are services the
public typically sees, such as snow removal. They allow movement
on existing infrastructure. He noted a 71 percent decrease in
UGF and a corresponding 4 percent increase in DGF. He said that
there are performance measures in place to ensure quality
services.
2:02:30 PM
MR. BINDER showed a slide comparing fund category distribution
between the current and proposed budgets.
2:03:01 PM
SENATOR MACKINNON appreciates that the department is using
service standards from the operating side of the house. She
inquired if there is a similar structure for capital
investments, such as airports. She brought up an example of
three airports within a 12-mile radius by Toksook Bay, noting
that one airport is on the improvement list. She asked if it is
cheaper to do maintenance on three airports than to build and
maintain a road to connect three communities. She requested
information, from a capital perspective, how DOT evaluates cost
allocation choices.
MR. BINDER agreed to provide that information.
CHAIR STEDMAN thanked the presenters.
2:06:31 PM
AVES THOMPSON, Executive Director, Alaska Trucking Association,
testified in support of SB 25. He shared the history of the
Trucking Association. He said one of their legislative
priorities is the development of a balanced, durable, long-term
fiscal plan utilizing cuts to state government, use of permanent
fund earnings, and taxes if required. The fuel tax as proposed
in SB 25 is acceptable within the framework of a long-term
fiscal plan. They believe in a fuel tax increase if the funds
can be dedicated to transportation needs. He noted an objection
to the motor fuel tax last year was that there were no specific
guidelines on how the revenue would be spent. This year with the
Transportation Maintenance Fund, they are able to support it. He
noted the trucking industry pays about 40 to 45 percent of the
motor fuel taxes in the state.
MR. THOMPSON asked the committee to consider spacing the two-
step tax; have an 8 cent increase in 2017 and again in 2019 in
order to give the trucking industry time to adjust to the
increases. He noted that many companies already use fuel
surcharges, which are based on a regional index. The Association
would end up absorbing the increase until it can be adjusted
into the freight rates.
2:10:24 PM
He also wished to see stronger intent language regarding the
Transportation Maintenance Fund. There is no increase in the
total funding available, so the Association wants to ensure that
the spending is for roads, bridges, and highway maintenance
only. He used the example of the line item in the Department of
Public Safety's budget for money from the Transportation
Maintenance Fund for highway patrolling.
CHAIR STEDMAN commented that there is a restriction on dedicated
funds. He said it is important that those funds are
proportionately allocated and within the constitutional mandate.
It will be a conversation to have with the Senate Finance
Committee.
2:13:12 PM
SENATOR MACKINNON asked when trucking contracts are negotiated.
MR. THOMPSON said it varies depending on when the contracts were
first negotiated. They are typically for a year or more. He
clarified his proposal to have a two-tiered tax of an 8-cent
increase beginning on July 1, 2017, with another 8-cent increase
on July 1, 2019.
2:14:34 PM
SENATOR BISHOP how the 30,000 pounds for freight rate was chosen
as an example.
MR. THOMPSON agreed it would be a light load.
SENATOR BISHOP said it could be an arbitrary number.
2:15:59 PM
NICK D'ANDREA, Vice President, Public Affairs, UPS, testified in
support of SB 25. He responded to a previous question from
Senator MacKinnon on international exemptions.
SENATOR MACKINNON noted one state removed that exemption.
2:17:23 PM
MR. D'ANDREA described the makeup of UPS in Alaska. He talked
about new purchases and why UPS is located in Alaska. He listed
the services and benefits UPS provides to the state. He brought
up the fact that the fuel tax goes to subsidize airports that
UPS do not use. He voiced concern that the tax targets aviation
and may decrease the number of flights. They would like to
support the motor fuel tax.
2:22:44 PM
DANA DEBEL, Managing Director, State and Local Government
Affairs, Delta Airlines, testified in support of SB 25. She
concurred with Mr. D'Andrea's concerns about revenue going to
other airports that Delta does not use. She discussed Delta's
footprint in the state. She listed the flights to Alaska and the
number of employees. She said she prefers not to subsidize
airports they do not use.
2:25:37 PM
SENATOR BISHOP opined that UPS and Delta do benefit by the other
airports in Alaska.
2:26:53 PM
CHRISTINE KLEIN, representing herself, testified in support of
SB 25. She shared that she served on past administrative
transportation committees. She brought up that Alaska is the
only state that does not have a transportation fund, so money
for operations that come out of general funds are cut when there
is a budget crisis. Alaska has the lowest fuel tax in the
country. She said it could provide better services by leveraging
state funding. The projects that rely on federal monies are more
costly and take longer. Also, there will be competition
nationally and Alaska is not contributing to it.
She concluded that in this critical budget crisis everyone must
participate in the solution. She spoke of a program that existed
previously. She said the user fee will help and the increased
fuel tax. The $80 million in new revenue would be dedicated to
maintenance. She agreed with Mr. Thompson. It is the most
equitable way to generate needed revenue and complies with
federal grant requirements. She recommended no exceptions.
2:34:39 PM
MARK BERDAHL, representing himself, testified in opposition to
SB 25. He said the tax will fall on the average citizen and
doubling the tax is too much.
2:36:00 PM
RICHARD MCGAHAN, representing himself, testified in opposition
to SB 25. He maintained that Alaskans use a lot of fuel and
already pay too much for gas. He suggested getting rid of some
state employees who just got a raise and getting rid of the
ferries. He said the state should have saved more money from
oil.
2:39:01 PM
GEORGE PIERCE, representing himself, testified in opposition to
SB 25. He suggested that the oil industry pay the tax instead of
the people. Gas, oil, and mining should pay the tax and
legislators should cut their staff.
2:40:51 PM
CHAIR STEDMAN said the legislature will continue to work on the
problem.
2:41:11 PM
FRED STURMAN, representing himself, testified in opposition to
SB 25. He shared a story about his friends' financial issues and
said more taxes would hurt them more. He requested legislators
keep people in mind when they add a motor fuel tax.
2:44:28 PM
CHRYSTAL SCHOENROCK, representing herself, testified in
opposition to SB 25. She spoke of "hard times" people and her
business are having and said they can't afford a tax.
2:46:14 PM
PAMELA BRODIE, representing herself, testified in support of SB
25. She said people have to do their part to fix the budget
crisis. She thought the tax could raise or lower the tax based
on the price of oil per barrel.
2:47:51 PM
CHAIR STEDMAN asked if there are any final questions.
2:48:14 PM
SENATOR BISHOP asked at how Mr. Burnett arrived at 30,000 pounds
of freight (slide 5).
MR. BURNETT replied.
CHAIR STEDMAN thanked the presenters and held SB 25 in
committee.