Legislature(2017 - 2018)BUTROVICH 205

02/02/2017 01:30 PM TRANSPORTATION

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01:31:11 PM Start
01:32:08 PM SB25
02:49:11 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
        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                                                               
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                                                               
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                                                               
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                                                               
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                                                               

Document Name Date/Time Subjects
SB25 ver A.PDF STRA 2/2/2017 1:30:00 PM
SB 25
SB25 Sponsor Statement - Governor's Transmittal letter.pdf STRA 2/2/2017 1:30:00 PM
SB 25
SB25 Supplemental Document - ITEP Report - AK Motor Fuel - 1.25.17.pdf STRA 2/2/2017 1:30:00 PM
SB 25
SB25 Supporting Document-Motor Fuel Tax Briefing,DOT-2.2.17.pdf STRA 2/2/2017 1:30:00 PM
SB 25
SB25 Supporting Document-DOR Presentation-2.2.17.pdf STRA 2/2/2017 1:30:00 PM
SB 25
SB25 - Letter of Support Aviation Advisory COmmittee.PDF STRA 2/2/2017 1:30:00 PM
SB 25
SB25 - Letter of Opposition - Alaska Airlines.PDF STRA 2/2/2017 1:30:00 PM
SB 25
SB25 - Alaska Air Carriers.pdf STRA 2/2/2017 1:30:00 PM
SB 25
SB25 - Alaska Air Carriers.pdf STRA 2/2/2017 1:30:00 PM
SB 25
SB25 - Air Carriers position paper.PDF STRA 2/2/2017 1:30:00 PM
SB 25
SB25 - Delta Presentation.pdf STRA 2/2/2017 1:30:00 PM
SB 25
SB25 - DeltaUPS Jt Letter.pdf STRA 2/2/2017 1:30:00 PM
SB 25
SB25 - UPS Letter to Governor Walker.pdf STRA 2/2/2017 1:30:00 PM
SB 25