Legislature(2003 - 2004)
04/08/2003 08:07 AM House CRA
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ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
April 8, 2003
8:07 a.m.
MEMBERS PRESENT
Representative Carl Morgan, Chair
Representative Kelly Wolf, Vice Chair
Representative Pete Kott
Representative Tom Anderson
Representative Ralph Samuels
Representative Sharon Cissna
Representative Albert Kookesh
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 209
"An Act relating to municipal property tax adjustments for
property affected by a disaster."
- MOVED CSHB 209(CRA) OUT OF COMMITTEE
HOUSE BILL NO. 216
"An Act relating to municipal taxation of refined fuel
products."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 209
SHORT TITLE:MUNI.TAX: PROPERTY AFFECTED BY DISASTER
SPONSOR(S): REPRESENTATIVE(S)CHENAULT
Jrn-Date Jrn-Page Action
03/24/03 0617 (H) READ THE FIRST TIME -
REFERRALS
03/24/03 0617 (H) CRA, FIN
04/07/03 0831 (H) COSPONSOR(S): WOLF
04/08/03 (H) CRA AT 8:00 AM CAPITOL 124
BILL: HB 216
SHORT TITLE:MUNI TAXATION OF REFINED FUEL PRODUCTS
SPONSOR(S): LABOR & COMMERCE
Jrn-Date Jrn-Page Action
03/26/03 0641 (H) READ THE FIRST TIME -
REFERRALS
03/26/03 0641 (H) CRA, FIN
03/26/03 0641 (H) REFERRED TO CRA
04/08/03 (H) CRA AT 8:00 AM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE MIKE CHENAULT
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 209.
KEVIN RITCHIE, Executive Director
Alaska Municipal League
Juneau, Alaska
POSITION STATEMENT: Testified in support of the concept
embodied in HB 209 and expressed concern that the intent of HB
216 isn't accomplished very well with the current legislation.
DAN BOCKHORST, Local Boundary Commission
Division of Community and Business Development
Department of Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Noted that DCED hasn't taken a position on
HB 209.
ED OBERTS, Mayor's Assistant
Kenai Peninsula Borough Mayor's Office
Soldotna, Alaska
POSITION STATEMENT: Testified on HB 209.
JEFF COOK, Vice President
External Affairs
Williams Alaska Petroleum, Inc.
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 216.
JIM BOLTZ, Chief Operating Officer
Petro Star, Inc.
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 216.
ACTION NARRATIVE
TAPE 03-13, SIDE A
Number 0001
CHAIR CARL MORGAN called the House Community and Regional
Affairs Standing Committee meeting to order at 8:07 a.m.
Representatives Morgan, Wolf, Kott, Anderson, and Cissna were
present at the call to order. Representatives Samuels and
Kookesh arrived as the meeting was in progress.
HB 209-MUNI.TAX: PROPERTY AFFECTED BY DISASTER
CHAIR MORGAN announced that the first order of business would be
HOUSE BILL NO. 209, "An Act relating to municipal property tax
adjustments for property affected by a disaster."
Number 0130
REPRESENTATIVE MIKE CHENAULT, Alaska State Legislature,
testified as the sponsor. He explained that the intent of HB
209 is to give boroughs the opportunity to provide tax breaks to
owners in the event of casualty loss such as from a fire in the
home. Representative Chenault said:
HB 209 will allow municipalities to provide a tax
reduction for properties destroyed, damaged or
otherwise reduced in value as a result of a disaster.
A municipality can adopt, by ordinance, criteria for
assessment or reassessment of the property values.
What this legislation is intended to do is to broaden
the municipalities' authority to define "disaster" to
include for example, a fire or flood that occurs
within a home. It repeals Section 29.45.230(e). In
this section "disaster" means a major disaster
declared by the President of the United States under
federal law or a disaster declared by the governor.
Currently, there are other states: Arizona,
California, Idaho, Mississippi, Pennsylvania, and
South Dakota ... that currently provide pro-ration of
taxes for casualty loss. Other states are currently
considering similar legislation.
Number 0315
REPRESENTATIVE CISSNA inquired as to why this hasn't been done
before.
REPRESENTATIVE CHENAULT said that he didn't know. He noted that
he has been approached by [the Kenai Peninsula Borough].
Representative Chenault posed a situation in which an
individual's taxes are due on the first of January and that
individual's house burns on the fifth of January. Under HB 209,
the borough could opt to pro-rate the individual's taxes based
upon the number of months the house was livable. This is
currently not allowed under state law and thus HB 209 would
place this power in the hands of the borough where he indicated
it should be.
REPRESENTATIVE ANDERSON inquired as to the current process with
regard to a disaster.
REPRESENTATIVE CHENAULT reiterated that a disaster has to be
declared by the President of the United States or the governor.
He was not aware of any process by which boroughs could take
into consideration an event [such as a fire] and declare it as a
disaster. In response to Chair Morgan, Representative Chenault
confirmed that HB 209 also includes municipalities.
Number 0561
KEVIN RITCHIE, Executive Director, Alaska Municipal League
(AML), said that AML likes bills such as HB 209 because of its
optional nature. Therefore, AML supports the concept embodied
in HB 209, he said.
REPRESENTATIVE KOTT specified that HB 209 broadens the
opportunities for municipalities and boroughs to declare
property taxed at a reduced level based on the category of
disaster, not natural disaster, as construed by municipalities
or boroughs.
MR. RITCHIE agreed.
REPRESENTATIVE CISSNA restated her earlier question with regard
to why this hasn't been done before.
MR. RITCHIE answered that he didn't know, although he noted that
HB 209 provides the municipalities a broader hand to make
decisions with regard to timing and standards for what
constitutes a disaster.
Number 0691
REPRESENTATIVE KOTT asked if there could be a situation in which
a homeowner has to pay taxes on real property that is no longer
real, such as a house that burned and for which there is no
value.
MR. RITCHIE said that he couldn't answer the question, although
he offered his belief that it would be a matter of timing in the
tax year.
Number 0832
DAN BOCKHORST, Local Boundary Commission, Division of Community
and Business Development, Department of Community & Economic
Development (DCED), answered Chair Morgan by saying that the
department hasn't taken a position on the legislation.
Number 0848
ED OBERTS, Mayor's Assistant, Kenai Peninsula Borough Mayor's
Office, informed the committee [that the borough] would like to
have the flexibility to address smaller situations in which a
single house or a few houses burn or are destroyed [after the
assessed value and taxes have been determined by the local area
government]. Under current statutes, [boroughs and
municipalities] establish assessed values and taxes January 1st,
but the billing occurs in the fall. Therefore, an individual
who lost his/her house in the spring could receive a bill based
on the assessed value of the house before its demise, although
the house wouldn't have any value at that point. If the
individual doesn't have insurance, the individual can't afford
to rebuild a livable structure very quickly. Individuals in
such situations come to the mayor and plea their case, although
the mayor has no authority to grant an exception. This
legislation attempts to provide flexibility to establish
criteria in order to address the aforementioned situations.
REPRESENTATIVE KOTT directed attention to Section 2 of HB 209
and asked whether the requirement that the boroughs establish
criteria for the reduction of taxes would cause any difficulty
for the boroughs and municipalities. He also inquired as to the
extent such would be accomplished.
Number 1003
MR. OBERTS remarked that the committee might want to consider
changing the "shall" to "may" in Section 2.
REPRESENTATIVE WOLF inquired as to the sponsor's thoughts with
regard to the suggestion to change "shall" to "may."
REPRESENTATIVE CHENAULT said that he believes boroughs and
municipalities should be given all the options, without forcing
a change. Therefore, he said he didn't have any "major
heartburn" with such a change.
CHAIR MORGAN closed public testimony.
Number 1132
REPRESENTATIVE KOTT moved that the committee adopt Amendment 1,
which read:
Page 1, line 10,
Delete "shall"
Insert "may"
REPRESENTATIVE KOTT explained that this change would provide the
municipalities and boroughs with the greatest level of
flexibility. He said, "I'm not really too keen on mandating
something on an entity that is already suffering financially and
we're adding one more layer of government."
There being no objection, Amendment 1 was adopted.
Number 1205
REPRESENTATIVE KOTT moved to report HB 209 as amended out of
committee with individual recommendations and the accompanying
zero fiscal note. There being no objection, CSHB 209(CRA) was
reported from the House Community and Regional Affairs Standing
Committee.
HB 216-MUNI TAXATION OF REFINED FUEL PRODUCTS
CHAIR MORGAN announced that the final order of business would be
HOUSE BILL NO. 216, "An Act relating to municipal taxation of
refined fuel products."
Number 1260
REPRESENTATIVE ANDERSON, spoke on behalf of the House Labor and
Commerce Standing Committee, the sponsor of HB 216.
Representative Anderson explained that HB 216 clarifies local
taxing authority for refined fuels sold both inside and outside
of a local jurisdiction. Furthermore, HB 216 clarifies the
local jurisdiction's right to tax any fuel consumed within its
governmental boundaries, although local jurisdictions don't have
taxing authority for value-added products refined for shipment
and sale outside the local boundaries. He highlighted that
clarification is also necessary in order to limit the number of
entities that can tax fuel. Representative Anderson said that
the clarification contained in HB 216 will benefit local
governments. In noting the uncertainty in state law with regard
to the authority to tax fuel, Representative Anderson referred
to former Alaska Attorney General Avrum Gross's May 29, 2002,
opinion for the Fairbanks North Star Borough. He urged the
committee's support for HB 216 and concluded by noting that
Representative Samuels may offer an amendment worthy of
consideration so long as the amendment doesn't take away a
federal mandate.
Number 1514
JEFF COOK, Vice President, External Affairs, Williams Alaska
Petroleum, Inc., provided the following testimony:
Williams operates Alaska's largest refinery at North
Pole near Fairbanks. In addition, Williams owns
products and terminals in Fairbanks [International]
Airport and at the Port of Anchorage. We operate 29
convenience stores in seven Alaska ... communities
throughout Alaska. And we also own a 3 percent
interest in the Trans-Alaska Pipeline. Since our
refinery at North Pole came on-line just over 25 years
ago, we have purchased a total of $300 million barrels
of crude oil from the State of Alaska royalty crude.
Paying the state approximately $5 billion dollars for
that crude. Our refinery and the other refineries in
Alaska have been a real value-added success story in
Alaska's economy.
I am here to support HB 216 and the sponsor statement.
And the comments by Representative Anderson provide an
excellent summary of the reasons this bill should be
supported. On June 25th of last year a special
election was held for the Fairbanks North Star Borough
to determine if a two cent per gallon transfer tax
should be enacted. That would offset property tax
under the revenue cap that the borough had in place.
Fortunately, the tax proposal failed by a vote of 62
percent "No" to 38 percent "Yes," but that process in
the election did bring to the forefront a potential
taxing problem that could be devastating to Alaska
refiners; one that discourages future value-added
investments in the Alaska refining business. Had that
tax passed, Williams Alaska and our neighbor refinery
Petro Star owned by Arctic Slope Regional Corporation
would have had to pay out in excess of $20 million per
year, though we think there were a lot of exemptions,
especially on the jet fuel. And we simply wouldn't
have paid the tax and let the borough establish that
we did in fact owe it. That added cost could not be
passed on to the majority of our consumers as they
have alternative sources of supply. Williams refines
about 70,000 barrels a day of product and about 60
percent of that product is jet fuel with over 90
percent of that product shipped by rail for use not
only at the Anchorage Airport but barged to coastal
communities and river communities in Alaska for use at
their airports as well as other home heating fuel
products: gasoline and diesel for generation is also
exported by barge.
MR. COOK continued:
The air passenger and air cargo business in particular
are very competitive. The air carriers will not pay a
penny more for a gallon of fuel than is necessary.
The recent decision by Air France to pull out of
Fairbanks to use longer range aircraft and now be able
to fly over Russian airspace points out the
vulnerability of the air traffic business in Alaska.
That pull out from Fairbanks [International Airport]
has a significant economic impact. It would be unwise
to burden air carriers in a very competitive market
with anymore taxes that they would not be able to
absorb. I might also add that we have a growing
market in the export of a product that we call
naphtha, which is a gasoline blend stock. And our
trading partner (indisc.) recently built an ice-class
vessel ... so that they can take that product in and
out year round from the Port of Anchorage; and that's
a significant economic benefit that would be,
certainly, in jeopardy if we pile taxes on. An
additional point that was brought up is our concern
that there are as many as eight taxing jurisdictions
between our North Pole refinery and the Port of
Anchorage where we ship our fuel. Actually, three of
those are in Fairbanks since we have the City of North
Pole, City of Fairbanks, and the Fairbanks North Star
Borough. If all of these entities did tax fuel
exported from Fairbanks we would ... simply be driven
out of business; we couldn't be competitive. It is in
the best interest of the State of Alaska and the
consumers of Alaska to have an equal tax on refined
products exported out of any refining community. This
is important for the preservation of jobs and economic
impact from the Alaska refineries, and also to
encourage those refineries to do future expansions.
Alaska refiners, right now, are faced with millions of
dollars of new investment by the end of 2006 to meet
federally mandated clean fuel requirements. Such
investment would be certainly discouraged and
difficult to do if we had these additional taxes on
our product. There is also something unfair in having
taxpayers from other parts of Alaska pay the cost for
local government, say in Fairbanks. The Fairbanks
property owners would've received property tax relief
and consumers of gasoline, heating fuel, and other
products in the state would potentially pay higher
prices for those products. We really couldn't pass it
on, in most cases, to the airlines. In that
competitive business ... the market might end up in a
higher price on consumer products other than airlines.
And those people in Fairbanks should be able to see
the inequity of this also. If you wanted to carry
this type of taxation to its extreme, the Port of
Anchorage, which is owned by the municipality, could
decide they want to tax every pound of freight going
north as sort of a payback for a fuel tax that their
consumers might have to pay based on a tax out of
Fairbanks. I don't think this is a trend we want to
see starting in Alaska. And as noted prior to the
vote in Fairbanks last June, the former attorney
general Avrum Gross did render an opinion to the
Fairbanks North Star Borough at the request of the
Assembly and he concluded, as noted, there was no
certainty on that taxing authority. We feel that
passage of House Bill 216 will be good for Alaska
refiners, local governments, and consumers. It will
clarify taxing authority, create a level playing field
for refiners throughout the state and avoid costly
litigation and court challenges in the future. So,
... I would urge, both on behalf of myself and my
company you to pass House Bill 216.
Number 1866
REPRESENTATIVE KOOKESH asked if Williams Petroleum Alaska, Inc.,
pays some sort of tax in Fairbanks already.
MR. COOK answered that the company pays property tax and ranks
the second highest in assessed value in the Fairbanks North Star
Borough. Williams Petroleum Alaska, Inc., pays in excess of $3
million. In response to Representative Kookesh, Mr. Cook
explained that the only taxing done now is within the City of
North Pole. There are no fuel taxes levied by the other
governments.
REPRESENTATIVE ANDERSON inquired as to what other companies
would be impacted by [HB 216].
MR. COOK responded that potentially all of the refiners would be
impacted by this legislation. He identified the Petro Star
refinery and Tesoro in Nikiski.
CHAIR MORGAN asked if Mr. Cook's earlier comment regarding clean
fuel was in reference to ultra-low sulfur fuel.
MR. COOK replied yes. In further response to Chair Morgan, Mr.
Cook explained that Williams Petroleum Alaska, Inc., will
upgrade its refinery for gasoline. He noted that Williams
Petroleum Alaska, Inc., refines about 6,000 barrels of gasoline
a day and Tesoro refines about 11,000 barrels. For diesel, Mr.
Cook pointed out that low sulfur diesel is initially applying to
highway diesel. Only 5 percent of the diesel consumed in Alaska
is highway diesel. Williams Petroleum Alaska, Inc., can't
justify the extreme expense, $120-$140 million for 800 barrels a
day out of the 6,300 barrels a day of diesel, [for changing the
facilities to produce ultra-low sulfur diesel].
Number 2030
JIM BOLTZ, Chief Operating Officer, Petro Star, Inc., informed
the committee that Petro Star is a wholly owned subsidiary of
Arctic Slope Regional Corporation, and operates two small
refineries in Alaska. The refinery at North Pole has crude
capacity of $16,000 barrels per day and the larger refinery at
Valdez has a capacity of $50,000 barrels per day. Additionally,
Petro Star owns and operates fuel distributorships and product
terminals in Fairbanks, Valdez, Kodiak, and Dutch Harbor along
with 11 convenience stores and a lubricants division. Mr. Boltz
pointed out that Petro Star is a small player that has grown
substantially since it was founded in 1984.
MR. BOLTZ announced support of HB 216. Clarification that local
governments have the right to tax any fuel consumed within their
governmental boundaries but don't have taxing authority for
value-added products refined for sale outside local boundaries
is necessary. Mr. Boltz related Petro Star's concern that it
stay competitive in all the markets. Therefore, clarification
to limit the number of entities that can tax fuel in each market
is extremely important. This is important to Petro Star as well
as to consumers. He highlighted that Petro Star along with
other Alaska refiners face millions of dollars of new investment
in the next few years in order to met the federally mandated
ultra-clean fuel standards. Mr. Boltz emphasized that it's in
the best interest of all residents of Alaska to make these
investments and continue to provide high quality fuels to meet
our future needs. Passage of HB 216 will be good for Alaska, he
said, and thus he urged the committee's support.
Number 2173
KEVIN RITCHIE, Executive Director, Alaska Municipal League
(AML), expressed concern that the current language of the
legislation doesn't really accomplish the intent in a good
manner. He drew attention to page 1, line 12, which is a
general prohibition against taxation against any fuel products
inside or outside the borough, including heating fuel and motor
oil. On page 1, line 14, the language specifies that the
municipality "may impose a sales or transfer tax on motor fuel
that is not transported for sale or distribution outside that
municipality." Therefore, municipalities would only be allowed
to tax fuel at the pump under a sales tax. This overly broad
prohibition would have a massive negative impact on municipal
revenue. Even if the aforementioned language is flip flopped,
one still needs to be cautious with regard to the wording about
municipalities. For example, if there was a heating oil
distributor in Soldotna that transported fuel to a customer
outside of Soldotna that would potentially become a nontaxable
transaction. However, now the borough collects a tax the city
has on sales. Therefore, there are lots of down-stream impacts.
Mr. Ritchie drew attention to AS 29.45.650 which addresses the
problem of duplicate taxation. He offered to work with whomever
to develop a solution that doesn't have unintended impacts.
Number 2377
REPRESENTATIVE CISSNA inquired as to the correction Mr. Ritchie
would suggest.
MR. RITCHIE said that he wasn't sure. He reiterated that he
would work with the state in order to develop a solution that
doesn't negatively impact municipalities. However, the
legislature has already determined that it isn't fair for
[multiple] municipalities to tax the same thing and thus the
existing statutory structure may offer a solution. He related
his understanding that such is the intent of HB 216.
Number 2453
REPRESENTATIVE ANDERSON informed the committee that Tamara Cook,
Executive Director, Legislative Legal and Research Services, has
indicated that [the language] is inextricably connected to the
intent of the legislation. He inquired as to an example of
where the language would create a problem.
MR. RITCHIE pointed out that page 1, lines 12-13, specify that
"a municipality may not impose a property, sales, or other tax
on refined fuel products or constituents of refined fuel
products." That language is a broad blanket saying that refined
fuel products can't be taxed, including home heating fuel, motor
oil, et cetera. He related his belief that there is no
definition for refined fuel product. The legislation only
allows municipalities to charge a sales/transfer tax on motor
fuel, which he identified as gas or diesel that isn't
transported for sale or distribution outside the municipality.
Therefore, municipal taxation would be narrowed and a whole host
of revenue that municipalities utilize would be eliminated.
REPRESENTATIVE CISSNA asked if redefining it with specifics
would work.
REPRESENTATIVE ANDERSON said perhaps and expressed his
discomfort with making alterations without legal counsel.
REPRESENTATIVE SAMUELS remarked that he didn't have a problem
with the intent of the legislation. He noted his conflict of
interest due to his employment by an airline. Representative
Samuels informed the committee that there are federal statutes
that determine how [the taxes] can be spent. He explained that
if the municipality taxes jet fuel at the state-owned Anchorage
International Airport, where the bulk of it is sold, the taxes
can only be spent at a municipally owned airport. Therefore,
passengers living in Fairbanks and flying [into] Fairbanks would
pay for Merrill Field because it's a municipal airport. There
are very few municipally owned airports. Representative Samuels
noted that he has drafted an amendment to address this. The
amendment is on page 1, line 14, "exclude fuel use for
aviation."
REPRESENTATIVE ANDERSON requested that HB 216 be held over so
that he could work with the interested parties to develop a
committee substitute.
CHAIR MORGAN agreed and thus HB 216 was held.
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 8:50 a.m.
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