Legislature(2011 - 2012)BUTROVICH 205

02/03/2011 01:00 PM TRANSPORTATION

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01:01:15 PM Start
01:01:42 PM SB41
01:31:45 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
                SB  41-SUSPENDING MOTOR FUEL TAX                                                                            
1:01:42 PM                                                                                                                    
VICE CHAIR THOMAS announced the consideration of SB 41.                                                                         
1:02:17 PM                                                                                                                    
MARC LUIKEN, Commissioner, Department of Transportation and                                                                     
Public Facilities (DOTPF), introduced SB 41 as follows:                                                                         
     Tax suspension  is one of  the efforts the  governor is                                                                    
     putting  forward  to  improve the  economic  health  of                                                                    
     Alaskans.  Suspension  of  the   motor  fuel  tax  will                                                                    
     provide immediate tax relief  to every citizen in every                                                                    
     community across our state. The  actual amount of money                                                                    
     saved  will   vary  depending  on  the   type  of  fuel                                                                    
     purchased,  but  most consumers  should  save  up to  8                                                                    
     cents per  gallon when fueling  their vehicle,  boat or                                                                    
     Many Alaskan  communities deal with the  highest energy                                                                    
     costs  in the  nation.  Relieving the  burden of  motor                                                                    
     fuel tax  is one  step in this  administration's effort                                                                    
     to improve Alaskan's  daily living expenses. Suspending                                                                    
     the motor  fuel tax  provides a temporary  reduction in                                                                    
     the cost  of motor  fuel. Efforts are  being introduced                                                                    
     to  provide  long-term  solutions to  our  high  energy                                                                    
     Some may wonder how suspending  the motor fuel tax will                                                                    
     impact Alaska's federal  funding for transportation. In                                                                    
     fact,  a state  motor fuel  tax has  no direct  link to                                                                    
     federal dollars.  Therefore, suspending the  motor fuel                                                                    
     tax will have no impact  on Alaska's federal highway or                                                                    
     airport    funding.    Additionally,   Alaskans    fund                                                                    
     significantly   more   for   transportation   than   is                                                                    
     collected in the state and federal fuel tax revenues.                                                                      
     In  FY  12,  $328.5  million   is  set  aside  for  the                                                                    
     Department  of  Transportation  and  Public  Facilities                                                                    
     operating  budget,   and  another  $117   million  will                                                                    
     supplement  the   capital  budget  from   general  fund                                                                    
     dollars. That's  11.5 times more  than is  collected in                                                                    
     motor fuel tax.                                                                                                            
     Federal fuel tax  also paid at the  pump contributes to                                                                    
     the federal  highway trust fund.  These funds  are then                                                                    
     redistributed  back  to  the states  via  formulas  set                                                                    
     forth in federal bills related  to highways and airport                                                                    
     improvement.  Those formulas  have nothing  to do  with                                                                    
     whether a state  collects a separate motor  fuel tax as                                                                    
     there is  no federal government requirement  for states                                                                    
     to collect a gas tax to support transportation.                                                                            
     Might Congress retaliate  against Alaska for suspending                                                                    
     the motor  fuel tax?  It's unlikely. There  are several                                                                    
     examples  of states  that  have  suspended their  motor                                                                    
     fuel tax just prior to  the most recent federal surface                                                                    
     transportation  bill. SAFETEA-LU  went  into effect  in                                                                    
     2005. Those  states actually saw  an increase  in their                                                                    
     federal highway aid.                                                                                                       
     Additionally,   some  may   be   concerned  about   how                                                                    
     suspending  the   motor  fuel  tax  might   impact  the                                                                    
     Department  of  Transportation and  Public  Facilities'                                                                    
     operating  and  capital  budgets.  There  may  be  fear                                                                    
     losing  this   revenue  may  equate  to   a  respective                                                                    
     decrement in  our budget.  Well let  me talk  about the                                                                    
     capital  budget  first.   Seventy-six  percent  of  our                                                                    
     capital  budget comes  from  federal  receipts. I  just                                                                    
     addressed   that  issue.   The  remaining   twenty-four                                                                    
     percent  comes  from  state  general  funds  and  other                                                                    
     sources like the  international airport system receipts                                                                    
     and bonds,  AIDEA dividend  funds, and  highway working                                                                    
     capital funds for our state equipment fleet.                                                                               
     The general funds  in the capital budget  come from the                                                                    
     same  source that  funds 56  percent  of our  operating                                                                    
     budget - the  general fund. And that is what  it is - a                                                                    
     general  fund. [There  is] no  direct link  to the  tax                                                                    
     revenue taken  in by the  state motor fuel tax  and the                                                                    
     Department of  Transportation's budget.  Therefore, one                                                                    
     cannot make a  link between motor tax  fuel revenue and                                                                    
     our budget.  The suspension  of the  motor fuel  tax in                                                                    
     2008 did  not impact  DOT's budget then  and suspending                                                                    
     it now will not impact our budget in 2012.                                                                                 
     Suspension  of the  motor fuel  tax will  significantly                                                                    
     impact  Alaska's  economy.  It will  certainly  benefit                                                                    
     many  of  our   largest  industries.  Alaska's  largest                                                                    
     private  employer, the  fishing industry,  will benefit                                                                    
     significantly from the  suspension. United Fishermen of                                                                    
     Alaska indicated that  a suspension of the  tax in 2008                                                                    
     would  likely  provide  some benefit  to  thousands  of                                                                    
     commercial fishermen  statewide. Trucking  and aviation                                                                    
     industries and  the consumers that  buy the  goods that                                                                    
     those  entities  deliver  will also  profit.  In  fact,                                                                    
     we've received  letters of support from  the Alaska Air                                                                    
     Carriers   Association  indicating   economic  benefits                                                                    
     suspension of  the gas  tax would  have on  hundreds of                                                                    
     our  rural   commercial  air   carriers.  Additionally,                                                                    
     Alaska  Airlines  has  indicated they  will  provide  a                                                                    
     letter of support for this effort.                                                                                         
     Bottom line, there  is no compelling need  to collect a                                                                    
     motor fuel  tax at this  time. While suspension  of the                                                                    
     tax  will benefit  every  Alaskan  in every  community,                                                                    
     while  some  may gain  more  than  others, it  will  be                                                                    
     meaningful  for all  as  we put  this  money back  into                                                                    
     Alaskan's pockets.                                                                                                       
1:07:43 PM                                                                                                                    
JOHANNA  BALES,  Deputy  Director, Tax  Division,  Department  of                                                               
Revenue  (DOR),  stated  agreement  with  the  commissioner  that                                                               
Alaska's federal highway  dollars are not affected if  the tax is                                                               
suspended.  However, she  said, the  state is  still required  to                                                               
report to the  federal government the amount of  gasoline it uses                                                               
for highways. The bill includes  a requirement that retailers and                                                               
distributors must  continue to report  their sales.  This ensures                                                               
that there  will be no  impact on highway funding.  Suspension of                                                               
the tax  will help all  Alaskans including Bush  communities that                                                               
pay a 5 cent tax on fuel used  in water craft and off highway use                                                               
rather than the 8 cent tax for highway use.                                                                                     
1:08:50 PM                                                                                                                    
SENATOR  HUGGINS  commented  that   his  constituents  have  high                                                               
expectations of  this new  commissioner and  he's told  them that                                                               
he's pleased with the potential he's seen.                                                                                      
1:10:04 PM                                                                                                                    
ED   SNIFFEN,  Assistant   Attorney   General,  Civil   Division,                                                               
Department  of  Law (DOL),  stated  that  he is  responsible  for                                                               
enforcing  Alaska's consumer  protection  and antitrust  statutes                                                               
and  in that  capacity he's  conducted a  few retail  gas pricing                                                               
investigations. He informed  the committee that when  the tax was                                                               
suspended  in 2008,  DOL monitored  retail markets  in Fairbanks,                                                               
Anchorage,  and Juneau  and they  noticed  an immediate  positive                                                               
impact  on consumers.  Prices generally  dropped by  8 cents  per                                                               
gallon. However, because  of market forces it  wasn't possible to                                                               
monitor whether or not that amount  was added back into the price                                                               
of fuel over time                                                                                                               
MR.  SNIFFEN reported  that  this  week DOL  talked  to four  gas                                                               
station retailers  in Fairbanks and eight  in Anchorage regarding                                                               
the  potential impact  of suspending  the motor  fuel tax,  and a                                                               
majority  indicated  that  it  would result  in  an  immediate  8                                                               
cent/gal  savings  to  consumers.  He  noted  that  a  couple  of                                                               
independent retailers  said that to remain  competitive they drop                                                               
their fuel  prices when  signs down the  street indicate  a price                                                               
drop.  "We  believe that  the  suspension  does have  a  positive                                                               
impact  on consumers  … and  we  would encourage  support of  the                                                               
bill," he concluded.                                                                                                            
1:12:25 PM                                                                                                                    
VICE CHAIR THOMAS asked if  he gleaned any unexpected information                                                               
from those retailers.                                                                                                           
MR. SNIFFEN said  one retailer commented that if he  had paid tax                                                               
on the  fuel currently  in his  tank he  wouldn't drop  the price                                                               
until all that  fuel had been sold unless he  was compelled to do                                                               
so  to  remain  competitive.  While   there  may  be  pockets  of                                                               
independent retailers who may not  be swayed initially, he opined                                                               
that in competitive markets they would have to follow suit.                                                                     
VICE CHAIR  THOMAS said that  gas prices in Fairbanks  are fairly                                                               
stable, but his  recollection is that when the  tax was suspended                                                               
in 2008 the reduction in  price was short-lived. He observed that                                                               
price  seems to  be a  function  of competition,  but when  large                                                               
retailers like Safeway and Sam's  Club give gas discounts related                                                               
to purchases  in their grocery stores  it does have an  impact on                                                               
small independent retailers.                                                                                                    
VICE CHAIR THOMAS highlighted the  following potential savings to                                                               
   · Driving 30,000 miles per year in a vehicle that gets 15 mpg                                                                
     would result in an annual savings of $160 per year or $13                                                                  
     per month.                                                                                                                 
   · Driving 30,000 miles per year in a vehicle that gets 25 mpg                                                                
     would result in an annual savings of $96 per year or $8 per                                                                
VICE CHAIR  THOMAS noted that KABATA  has said that the  toll for                                                               
crossing the  bridge would be $5  each way and that  would figure                                                               
into some driver's calculations.                                                                                                
He asked  for an explanation of  how the aviation fuel  tax flows                                                               
into  small communities  and contributes  the operation  of small                                                               
1:16:57 PM                                                                                                                    
SENATOR MENARD joined the meeting.                                                                                              
MS.  BALES explained  that 60  percent of  the revenue  the state                                                               
collects  from aviation  fuel tax  goes  to municipally-owned  or                                                               
operated airports. This  amounts to about $140,000  per year. The                                                               
governor  has indicated  he supports  an  appropriation from  the                                                               
general fund to offset that loss  in revenue sharing funds due to                                                               
suspension of the  fuel tax. The appropriation would  be based on                                                               
the continued mandatory reporting as set forth in the bill.                                                                     
VICE CHAIR  THOMAS asked  if there is  any other  revenue sharing                                                               
associated with the motor fuel tax.                                                                                             
MS. BALES  answered no;  the balance  is deposited  directly into                                                               
the general fund.                                                                                                               
VICE  CHAIR  THOMAS  asked  for  a  break-down  of  the  highway,                                                               
aviation, and marine tax that's collected.                                                                                      
MS. BALES provided the following information for 2010:                                                                          
   · Highway fuel tax is 8 cents/gal and the state collected                                                                    
     $23.4 million.                                                                                                             
   · Marine fuel tax is 5 cents/gal and the state received $2                                                                   
   · Aviation fuel tax is 4.7 cents/gal and the state received                                                                  
     $2.9 million in 2010.                                                                                                      
   · Jet fuel tax is 3.2 cents/gal and the state received about                                                                 
MS. BALES clarified  that the 2010 numbers include  two months of                                                               
the  previous  fuel tax  suspension.  Generally,  $30 million  is                                                               
collected  in  highway-use  tax   every  year.  Responding  to  a                                                               
question  she  added that  every  vehicle  that is  licensed  for                                                               
highway use is subject to the tax  and the tax rates are based on                                                               
use, not type of fuel.                                                                                                          
1:21:01 PM                                                                                                                    
SENATOR  HUGGINS asked  her to  state for  the record  that home-                                                               
heating fuel falls into a different category.                                                                                   
MS. BALES  confirmed that home-heating  fuel is exempt  from both                                                               
the state and federal tax.                                                                                                      
VICE CHAIR THOMAS asked the source of the data she's citing.                                                                    
MS. BALES replied  she is referencing the DOR  annual report. She                                                               
offered to provide copies to the members.                                                                                       
SENATOR MENARD  asked how  many other  states have  suspended the                                                               
fuel  tax and  if they've  had to  offset the  lost revenue  with                                                               
another form of tax.                                                                                                            
MS. BALES replied  most states have dedicated  highway funds, but                                                               
she's  aware of  two other  states that  have suspended  the tax.                                                               
While  she has  no supporting  data,  she said  she assumes  they                                                               
would have  had to take money  from their general fund  to offset                                                               
the loss in revenue.                                                                                                            
SENATOR MENARD asked if the  federal government will be reluctant                                                               
to send money to Alaska if it suspends the fuel tax.                                                                            
MS. BALES  explained that  federal highway funding  is in  no way                                                               
based the motor  fuel tax. However, every dealer  that sells fuel                                                               
and typically  collects the fuel  tax would still be  required to                                                               
report monthly to  the Department of Revenue (DOR)  the amount of                                                               
motor fuel  that it sold. In  turn, DOR reports the  total to the                                                               
Federal Highway Administration.                                                                                                 
1:23:49 PM                                                                                                                    
SENATOR  MENARD  questioned  how   this  would  be  perceived  in                                                               
COMMISSIONER  LUIKEN pointed  out  that the  state  still pays  a                                                               
federal   motor   fuel  tax,   which   goes   into  the   surface                                                               
transportation  fund  and  is redistributed  to  all  states.  He                                                               
reiterated  that there  is no  link  between the  state fuel  tax                                                               
that's collected  and whether or  not the state  receives federal                                                               
funds for highways.                                                                                                             
SENATOR MENARD  asked if DOTPF  is doing any public  awareness to                                                               
correct this misperception.                                                                                                     
COMMISSIONER LUIKEN replied that's a good idea.                                                                                 
MS. BALES  added that everyone that  buys fuel in the  state pays                                                               
the 18.9 cent/gal  federal fuel tax. Based on  a formula, federal                                                               
highways returns  money to  the state  to use  for transportation                                                               
VICE CHAIR THOMAS said it'd be  helpful to look at the formula if                                                               
it's not too complicated.                                                                                                       
MS.  BALES  explained that  every  state  reports the  number  of                                                               
gallons  of gasoline  for  highway use  that's  sold each  month.                                                               
Federal funds are  allocated based on whatever  percentage of the                                                               
total the particular  state collects. For example,  if the Alaska                                                               
collects one-fiftieth of the total,  the federal government would                                                               
allocate  to  Alaska  one-fiftieth  of the  total  highway  taxes                                                               
SENATOR  MENARD  continued  to  express  reservations  about  the                                                               
negative perception this might create.                                                                                          
1:28:58 PM                                                                                                                    
VICE  CHAIR  THOMAS said  he  and  at  least  one in  the  Alaska                                                               
delegation have that  same concern. He asked Ms.  Bales to repeat                                                               
how much tax that was collected in each category.                                                                               
MS. BALES restated  that the 2010 numbers included  two months of                                                               
the previous tax suspension and provided the following:                                                                         
   · Highway fuel tax collected was $23 million and would have                                                                  
     been approximately $30 million had the tax been collected                                                                  
     for a full 12 months.                                                                                                      
   · Marine fuel tax collected was $2 million and would have                                                                    
     been approximately $2.5 million had the tax been collected                                                                 
     for a full 12 months.                                                                                                      
   · Jet fuel tax collected was $3 million and would have been                                                                  
     approximately $3.5 million had the tax been collected for a                                                                
     full 12 months.                                                                                                            
   · Aviation fuel tax collected was $337,000.                                                                                  
On  average she  said DOR  collects about  $40 million  each year                                                               
when  the  tax  is  in  full  effect.  Addressing  the  issue  of                                                               
perception  she  said  she  understands  the  concern,  but  it's                                                               
important  to understand  that the  state will  continue to  fund                                                               
highway  projects using  general fund  money. It's  just that  it                                                               
will come from other sources.                                                                                                   
VICE CHAIR THOMAS  commented it would come from  the oil industry                                                               
since that's where 90 percent  of the state's revenue comes from.                                                               
Finding no  further questions, he  announced he would hold  SB 41                                                               
in committee.                                                                                                                   
1:31:45 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Vice Chair  Thomas adjourned  the Senate  Transportation Standing                                                               
Committee meeting at 1:31 p.m.                                                                                                  

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