Legislature(2005 - 2006)CAPITOL 124


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                    ALASKA STATE LEGISLATURE                                                                                  
    HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                   
                         March 29, 2005                                                                                         
                           8:14 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Kurt Olson, Co-Chair                                                                                             
Representative Bill Thomas, Co-Chair                                                                                            
Representative Gabrielle LeDoux                                                                                                 
Representative Sharon Cissna                                                                                                    
Representative Woodie Salmon                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative Pete Kott                                                                                                        
Representative Mark Neuman                                                                                                      
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 28                                                                                                               
"An  Act   relating  to  the  municipal   dividend  program;  and                                                               
providing for an effective date."                                                                                               
     - HEARD AND HELD                                                                                                           
HOUSE BILL NO. 36                                                                                                               
"An Act  making an  appropriation for  the state  revenue sharing                                                               
program  and the  safe communities  program at  fiscal year  1998                                                               
levels, as adjusted  for inflation, to provide  for public safety                                                               
and  other municipal  services;  and providing  for an  effective                                                               
     - HEARD AND HELD                                                                                                           
HOUSE BILL NO. 2                                                                                                                
"An Act relating to taxes  regarding certain commercial passenger                                                               
vessels operating  in the state;  and providing for  an effective                                                               
     - HEARD AND HELD                                                                                                           
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB  28                                                                                                                  
SHORT TITLE: MUNICIPAL DIVIDEND PROGRAM                                                                                         
SPONSOR(S): REPRESENTATIVE(S) MOSES                                                                                             
01/10/05       (H)       PREFILE RELEASED 12/30/04                                                                              
01/10/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/10/05       (H)       CRA, STA, FIN                                                                                          
03/29/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
BILL: HB  36                                                                                                                  
SHORT TITLE: APPROP: MUNI REVENUE SHARING/SAFE COMM                                                                             
SPONSOR(S): REPRESENTATIVE(S) KAPSNER, GARA, GUTTENBERG                                                                         
01/10/05       (H)       PREFILE RELEASED 12/30/04                                                                              
01/10/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/10/05       (H)       CRA, FIN                                                                                               
03/29/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
BILL: HB   2                                                                                                                  
SHORT TITLE: TAX ON COMMERCIAL VESSEL PASSENGERS                                                                                
SPONSOR(S): REPRESENTATIVE(S) GATTO                                                                                             
01/10/05       (H)       PREFILE RELEASED 12/30/04                                                                              
01/10/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/10/05       (H)       CRA, TRA, FIN                                                                                          
03/29/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
WITNESS REGISTER                                                                                                              
ADAM BERG, Staff                                                                                                                
to Representative Carl Moses                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented HB 28 on behalf of the sponsor,                                                                  
Representative Moses.                                                                                                           
KEVIN RITCHIE, Executive Director                                                                                               
Alaska Municipal League (AML)                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  During discussion of HB 28, discussed                                                                      
property taxes in Alaska.                                                                                                       
REPRESENTATIVE MARY KAPSNER                                                                                                     
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on HB 28 and spoke as the sponsor                                                                
of HB 36.                                                                                                                       
KATHIE WASSERMAN                                                                                                                
Alaska Municipal League                                                                                                         
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   During discussion  of HB  28, related  the                                                               
plight of small communities, and testified in support of HB 36.                                                                 
REPRESENTATIVE DAVID GUTTENBERG                                                                                                 
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 36.                                                                             
BOBBY ANDREW, President                                                                                                         
Aleknagik Natives Limited                                                                                                       
Aleknagik, Alaska                                                                                                               
POSITION STATEMENT:  Testified on HB 36.                                                                                        
BILL ROLFZEN, State Revenue Sharing Municipal Assistance                                                                        
Division of Community Advocacy                                                                                                  
Department of Commerce, Community, & Economic Development                                                                       
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    During  discussion  of  HB  36,  answered                                                               
REPRESENTATIVE CARL GATTO                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Spoke as the sponsor of HB 2.                                                                              
CODY RICE, Staff                                                                                                                
to Representative Carl Gatto                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Presented  HB 2 on  behalf of  the sponsor,                                                               
Representative Gatto.                                                                                                           
ACTION NARRATIVE                                                                                                              
CO-CHAIR  KURT  OLSON called  the  House  Community and  Regional                                                             
Affairs  Standing  Committee  meeting  to order  at  8:14:15  AM.                                                             
Representatives Olson,  Thomas, LeDoux,  and Cissna  were present                                                               
at  the call  to order.    Representative Salmon  arrived as  the                                                               
meeting was in progress.                                                                                                        
HB  28-MUNICIPAL DIVIDEND PROGRAM                                                                                             
CO-CHAIR OLSON announced  that the first order  of business would                                                               
be HOUSE BILL NO. 28, "An  Act relating to the municipal dividend                                                               
program; and providing for an effective date."                                                                                  
8:14:32 AM                                                                                                                    
ADAM  BERG,  Staff to  Representative  Carl  Moses, Alaska  State                                                               
Legislature,  explained   that  HB   28  proposes   giving  every                                                               
incorporated municipality in  the state an amount  of money based                                                               
on the municipality's population.   The intent, he relayed, is to                                                               
empower local  officials by allowing  them to decide how  best to                                                               
spend the  money within their  community.  He explained  that the                                                               
dividend is  $250 per  person with a  minimum payment  of $40,000                                                               
per municipality.   Boroughs would also receive  a dividend based                                                               
on  the  total   population  of  the  borough   minus  the  total                                                               
population  of incorporated  municipalities  within the  borough.                                                               
The money will  come from the earnings reserve  account, and only                                                               
after  permanent  fund  dividends  have been  accounted  for  and                                                               
inflation-proofing has  taken place.   In the event  the earnings                                                               
reserve  account is  less than  the municipal  dividend payments,                                                               
municipal dividends would be reduced on a pro rata basis.                                                                       
8:16:35 AM                                                                                                                    
KEVIN  RITCHIE,  Executive   Director,  Alaska  Municipal  League                                                               
(AML), opined  that key  components of this  issue are  the shift                                                               
away from local services, local  issues, and economic development                                                               
over the last  10 years.  The aforementioned came  to a head with                                                               
the elimination of revenue sharing last  year.  Next year at this                                                               
time, as the facts indicate, there  will be half the small cities                                                               
that there are  this year.  Although these  small communities are                                                               
poor, they  have been in existence  for thousands of years  and a                                                               
higher standard  of living  has developed  such that  some public                                                               
safety is expected as  is the ability to fly or  drive out of the                                                               
community.    However, those  services  are  being lost  and  the                                                               
smaller city  population will migrate to  the larger communities.                                                               
Those  larger communities  are losing  their  ability to  address                                                               
problems.   In  fact, Alaska  has  some of  the highest  property                                                               
taxes and  some of the highest  total local taxes in  the nation.                                                               
Mr. Ritchie then  referred to a handout  entitled, "Status Update                                                               
(3/1/05)  Municipal  Governments  (DCCED  Division  of  Community                                                               
Advocacy),"  which provides  a summary  of what  is happening  in                                                               
Alaska's small cities.  He  pointed out that the committee packet                                                               
should   also  include   letters  from   many  of   the  impacted                                                               
communities.   The green sheet entitled,  "Local Government Issue                                                               
Paper" details property  tax increases since 1986  as provided by                                                               
the  state  assessor,  and illustrates  the  correlation  between                                                               
property taxes  and state funding.   He noted that  the committee                                                               
packet should also include a  document that provides a comparison                                                               
of  local taxes  nationwide  and  in Alaska.    One  of the  most                                                               
significant pieces  of information  is that  Anchorage's property                                                               
taxes rank  17th in  the nation  in 2003, while  on a  per capita                                                               
basis the  tax revenues  in Anchorage ranked  31st in  per capita                                                               
taxation in Alaska.                                                                                                             
MR. RITCHIE  then highlighted that  one of the major  factors for                                                               
rising taxes  in communities  is the fact  that the  state hasn't                                                               
fulfilled  its statutory  obligation to  reimburse municipalities                                                               
for  the  senior  citizen  and   disabled  veteran  property  tax                                                               
exemption.    In  summary,  Mr.  Ritchie  stated  that  what  the                                                               
legislature  does  this  year  could   save  half  of  the  small                                                               
communities of  the state.  The  economy of the state  is largely                                                               
dependent upon the commerce between small and large communities.                                                                
8:23:29 AM                                                                                                                    
REPRESENTATIVE  LEDOUX asked  if Mr.  Ritchie meant  to say  that                                                               
Alaska has some of the highest local taxes in the nation.                                                                       
MR. RITCHIE replied yes.                                                                                                        
REPRESENTATIVE LEDOUX pointed out that  the chart provided by Mr.                                                               
Ritchie  specifies that  while property  taxes  are ranked  17th,                                                               
when one considers [all taxes] Anchorage is ranked 50th.                                                                        
MR. RITCHIE  acknowledged that the  chart covers state  and local                                                               
taxes throughout the  nation.  He highlighted that  Alaska is the                                                               
only  state without  state  taxes.   The  significance of  having                                                               
really high property and local  taxes is in comparison with other                                                               
states, which provide significant  sharing of revenues with their                                                               
communities.  Furthermore, when any  one tax is skewed, even more                                                               
of the competitive edge with the country is lost.                                                                               
8:25:14 AM                                                                                                                    
REPRESENTATIVE CISSNA inquired  as to why the  [state] would want                                                               
smaller  communities.   She said  she wasn't  surprised with  Mr.                                                               
Ritchie's   testimony  as   she  observed   the  problems   small                                                               
communities  face in  her visits  to small  communities over  the                                                               
interim.    From  all  these,  she has  realized  that  what  the                                                               
legislature  does   has  an  impact.     She  characterized  this                                                               
legislation as  good.  She  then indicated  the need to  know why                                                               
incentives are necessary for small  towns and why small towns are                                                               
important to  the state.  Representative  Cissna turned attention                                                               
to her own district, which is  the core of the health services in                                                               
the state,  including many  of the  institutions of  last resort.                                                               
Those  institutions reported  a huge  influx.   For example,  one                                                               
agency reported an increase in  consumers in the amount of 3,000.                                                               
Such an  influx begins to  erode capacity, which in  turn impacts                                                               
quality  and causes  costs to  increase.   Representative  Cissna                                                               
emphasized the need for the  state to have policies that maintain                                                               
stability.   She said that  revenue sharing is important  to have                                                               
in attempting to  keep health care costs in line.   She indicated                                                               
that  perhaps [the  plight of  small communities]  is related  to                                                               
[health care costs].                                                                                                            
8:29:35 AM                                                                                                                    
MR.  RITCHIE said  that  he  would address  the  value of  "small                                                               
cities to  small cities" and  to Alaska as  a whole.   In Alaska,                                                               
nearly all of the very small  rural communities are poor and have                                                               
a rich cultural  history.  In the past 50  years, revenue sharing                                                               
and other programs  have allowed these small  communities to have                                                               
an  acceptable  level of  services  such  as public  safety,  law                                                               
enforcement, and  transportation.   However, the quality  of life                                                               
in  these small  communities  is diminishing  to  the point  that                                                               
residents  are  moving out.    He  highlighted [an  Institute  of                                                               
Social and  Economic Research (ISER)  study entitled,  "Status of                                                               
Alaska Natives  2004"], which states:   "Out-migration  of Alaska                                                               
Natives from  their homes  in rural  Alaska has  accelerated over                                                               
the last  30 years.   In the  last decade, 11,011  Alaska Natives                                                               
(nearly 10%  of the rural  population) migrated to  urban areas."                                                               
With  regard to  the value  these small  communities have  to the                                                               
state, he related that about one  out of five jobs in urban areas                                                               
sell items to other areas of  the state.  An estimated 20 percent                                                               
of the jobs in  urban areas serve other parts of  the state.  Mr.                                                               
Ritchie pointed out  that poor small communities  are magnets for                                                               
federal funds  that aren't  available otherwise.   If  many small                                                               
communities are  lost or shrink  to the point of  being nonviable                                                               
communities  and more  people move  into urban  areas, the  urban                                                               
areas lose some of the jobs that serve the rural areas.                                                                         
8:33:13 AM                                                                                                                    
REPRESENTATIVE  LEDOUX pointed  out that  many small  communities                                                               
aren't   municipalities   and   are   operated   through   tribal                                                               
governments.   She surmised that this  municipal dividend doesn't                                                               
include  tribal   governments,  although   they  have   the  same                                                               
financial problems [as municipalities].                                                                                         
MR. RITCHIE said that he isn't  competent to speak to the funding                                                               
of   tribes,  which   have  a   different  funding   stream  than                                                               
municipalities.  However,  he said that there is  so little money                                                               
in much of rural Alaska and  thus if the tribal government or the                                                               
municipal  government doesn't  work together,  there are  serious                                                               
impacts on the  quality of life in the community.   He noted that                                                               
those communities that  have no municipal government  at all, and                                                               
in  some   cases  have   no  tribe  either,   are  part   of  the                                                               
legislature's unorganized borough,  to a large extent.   "I think                                                               
the legislature  as a whole would  be well-served to look  at all                                                               
communities and what could be done to assist them," he opined.                                                                  
8:35:00 AM                                                                                                                    
CO-CHAIR THOMAS referred to the  document entitled "Status Update                                                               
(3/1/05)  Municipal  Governments",  which  specifies  that  these                                                               
small communities struggling with  financial situations have made                                                               
significant reductions  to core  services, including  the closure                                                               
of   washeterias.     He  asked   if  some   communities  provide                                                               
washeterias for the community.                                                                                                  
MR.  RITCHIE  replied  yes,  and  clarified  that  sometimes  the                                                               
washeterias  are run  through a  local health  organization or  a                                                               
municipality.  He  explained that if there's no  running water or                                                               
sewer  in  a  community,  the washeteria  becomes  a  center  for                                                               
washing clothes, washing oneself, and obtaining water.                                                                          
8:35:56 AM                                                                                                                    
REPRESENTATIVE   MARY   KAPSNER,    Alaska   State   Legislature,                                                               
interjected that many  small communities run the  local water and                                                               
sewer  plant   to  which   the  washeteria/laundromat   is  often                                                               
attached.   Many  communities, she  related, believe  washeterias                                                               
fall  under the  realm of  public health.   For  instance, before                                                               
there were  washeterias it would  have been almost  impossible to                                                               
stop a lice outbreak.   She explained that traditionally [many of                                                               
these small  rural communities]  had steam  baths, but  now, with                                                               
more  antibiotics   being  prescribed,  bacteria  that   is  more                                                               
difficult to  kill is surfacing.   For example, steam  bath boils                                                               
are being  transmitted and  the steam  bath has  to be  burned to                                                               
eliminate the bacteria.  Therefore,  the washeterias are becoming                                                               
more important [in these small rural communities].                                                                              
8:37:36 AM                                                                                                                    
CO-CHAIR  THOMAS related  that  he lives  in  a community  that's                                                               
economically  depressed.   He  related  that  three of  his  five                                                               
children  have  left  Alaska  because  of the  lack  of  jobs  in                                                               
Southeast.  Although  people strive to obtain  an education, that                                                               
education can't be  used in [the small rural  community] and thus                                                               
those individuals migrate.                                                                                                      
MR.  RITCHIE noted  that  in many  Southeast  communities when  a                                                               
major  industry  closes,  the  community  struggles  to  recreate                                                               
itself.  However,  when the initial wave of  residents leave [due                                                               
to the closure  of a major industry]  the infrastructure remains,                                                               
which  results   in  higher  taxes   or  lower  services.     The                                                               
aforementioned  could  cause others,  who  don't  really want  to                                                               
leave, to do  so.  Therefore, the elimination  of revenue sharing                                                               
and avoidance  of the Public Employees'  Retirement System (PERS)                                                               
and Teachers'  Retirement System  (TRS) issue  pushes communities                                                               
down further.                                                                                                                   
8:40:10 AM                                                                                                                    
CO-CHAIR THOMAS recalled  that when fishing was  the hot industry                                                               
and  fishing  prices dipped,  people  [in  small rural  villages]                                                               
turned to logging, which also ultimately faced a downturn.                                                                      
8:41:06 AM                                                                                                                    
REPRESENTATIVE SALMON  pointed out that  HB 28 is similar  to [HB                                                               
49].   As  funds are  taken  away from  these small  communities,                                                               
people  have to  move  to the  urban areas.    The villages  that                                                               
really  need  funds aren't  even  on  the  list included  in  the                                                               
committee packet.   Tribal communities are still  part of Alaska,                                                               
he emphasized.   He further emphasized  the need to look  at this                                                               
problem  [throughout] the  whole  of Alaska  because the  smaller                                                               
communities are part  of [Alaska's economic] formula.   He echoed                                                               
earlier   testimony  regarding   the  fact   that  resource-based                                                               
industries, such as fish, timber, and fur, are diminishing.                                                                     
8:44:03 AM                                                                                                                    
KATHIE   WASSERMAN,  Alaska   Municipal   League,  recalled   her                                                               
experience as  mayor the of  one of these small  communities, and                                                               
opined  how   it's  virtually  impossible  to   operate  a  small                                                               
community.  She related the  diminished services that Pelican has                                                               
experienced  and  the  difficulty  in  taking  care  of  a  small                                                               
community to which no money  is entering.  Although every entity,                                                               
small community, and  state may not operate wisely  all the time,                                                               
it doesn't mean it should be  cut.  With regard to the governor's                                                               
recent comments  at the Southeast  Alaska Conference at  which he                                                               
related that  life is good  in Alaska, Ms. Wasserman  opined that                                                               
[the  aforementioned view]  is  all about  one's  location.   She                                                               
questioned what business  will want to enter  a community without                                                               
[basic] services.  These communities,  she opined, need the tools                                                               
to build themselves back up to viable communities.                                                                              
8:47:27 AM                                                                                                                    
CO-CHAIR  THOMAS remarked  that  he didn't  like revenue  sharing                                                               
legislation  because such  legislation doesn't  provide funds  to                                                               
the  unorganized  municipalities.   He  estimated  that about  80                                                               
percent  of  Alaska's  wealth  is from  the  oil  royalties  from                                                               
outside  the  urban areas.    Furthermore,  the impacts  of  [the                                                               
industries producing  those royalties]  are felt in  those [rural                                                               
areas].    He characterized  the oil  industry and the  wealth it                                                               
brings as an asset that all  Alaskans should share.  He concluded                                                               
by echoing  Representative Salmon's comment that  the unorganized                                                               
municipalities should receive their share.                                                                                      
8:49:05 AM                                                                                                                    
REPRESENTATIVE  CISSNA asked  if  the sponsor  has thought  about                                                               
ways to expand the impacted population.                                                                                         
MR. BERG  said that subject has  come up.  Mr.  Berg related that                                                               
Representative  Moses is  open to  amendments that  would include                                                               
unincorporated areas.  However,  the legislature has [encouraged]                                                               
the organization  of communities.  Therefore,  the unincorporated                                                               
areas aren't  included in this legislation  because [the sponsor]                                                               
believes it's important to get  these communities help.  Whatever                                                               
[legislation  helping  communities]  can   make  it  through  the                                                               
legislature  is  what  the  sponsor  desires,  he  related.    If                                                               
including  unincorporated areas  kills the  legislation, then  no                                                               
one would be helped.                                                                                                            
8:50:56 AM                                                                                                                    
CO-CHAIR  THOMAS recalled  that under  the old  municipal revenue                                                               
sharing, everyone shared the funds.                                                                                             
MR.  BERG  reiterated  that  the   sponsor  is  open  to  include                                                               
unorganized  areas so  long as  it's backed  by the  will of  the                                                               
CO-CHAIR  THOMAS  surmised  that  allowing the  funds  to  go  to                                                               
unorganized  areas  would dilute  the  total  allocation to  each                                                               
MR.  BERG  suggested  that  the   committee  could  increase  the                                                               
allocation.  He reiterated that the  desire is to provide as much                                                               
help as possible to as many communities as possible.                                                                            
8:52:44 AM                                                                                                                    
REPRESENTATIVE SALMON pointed out that  out of the 95 villages in                                                               
District  6, 72  villages  are not  on list  of  those that  will                                                               
receive  funds under  HB 28.   Therefore,  he questioned  what to                                                               
tell those villages.  He opined  that he would rather not see any                                                               
money  go  out  [to  any  area],  if  those  72  villages  aren't                                                               
MR. BERG reiterated that the sponsor  is open to amendments to HB                                                               
28.   The  desire  is  to provide  help  to  all the  communities                                                               
[possible], but the  sponsor wants to have  legislation that will                                                               
pass  through  both bodies.    He  also  reiterated that  if  the                                                               
political will is there to take  care of the unorganized areas as                                                               
well, the sponsor is supportive of that.                                                                                        
8:55:04 AM                                                                                                                    
REPRESENTATIVE  CISSNA interjected  that [the  state/legislature]                                                               
has  eliminated help  to communities  in many  other ways  beyond                                                               
revenue  sharing.   If [the  legislature] doesn't  act soon,  she                                                               
opined  that  the  nature  of Alaska  will  change.    Therefore,                                                               
Representative  Cissna  said  that  she would  like  to  see  the                                                               
committee do something with HB 28.                                                                                              
8:56:01 AM                                                                                                                    
CO-CHAIR  OLSON  announced  that  the committee  would  not  take                                                               
action on HB 28 today.                                                                                                          
HB  36-APPROP: MUNI REVENUE SHARING/SAFE COMM                                                                                 
CO-CHAIR OLSON  announced that the  next order of  business would                                                               
be HOUSE  BILL NO. 36,  "An Act  making an appropriation  for the                                                               
state revenue  sharing program and  the safe  communities program                                                               
at  fiscal  year  1998  levels, as  adjusted  for  inflation,  to                                                               
provide  for  public safety  and  other  municipal services;  and                                                               
providing for an effective date."                                                                                               
8:56:23 AM                                                                                                                    
REPRESENTATIVE MARY  KAPSNER, Alaska State  Legislature, sponsor,                                                               
began by noting her disappointment that  HB 28 didn't move out of                                                               
committee because it's  a long-term fix [for  the revenue sharing                                                               
and safe  communities programs], while  HB 36 is a  one-year fix.                                                               
She  explained that  HB 36  would reinstate  municipal assistance                                                               
and revenue  sharing at fiscal year  (FY) 1998 levels.   The 1998                                                               
levels  were  chosen  because  it  was  during  a  more  fiscally                                                               
conservative time  that also recognized  the important  role that                                                               
municipalities play in the delivery  of services to all Alaskans.                                                               
Representative  Kapsner  informed  the committee  that  currently                                                               
staffing at the small community level  is skeletal.  If no one is                                                               
present  to open  mail,  then  no one  is  there  to receive  the                                                               
notices  regarding federal  grants  for which  they could  apply.                                                               
She    reviewed   the    services   provided    by   communities.                                                               
Representative   Kapsner   highlighted  that   this   legislation                                                               
acknowledges  the constitutional  obligation  to provide  certain                                                               
services, such  as public safety,  public health,  education, and                                                               
transportation.   Whether the services are  delivered through the                                                               
state or local level, these constituents  have to be served.  The                                                               
choice is whether to have  the municipalities close and shift the                                                               
responsibility back  to the state with  line item appropriations.                                                               
Representative Kapsner pointed out that  while an increase in the                                                               
price of oil is good for  the state, it's not good for consumers,                                                               
municipalities,  and small  communities.   Representative Kapsner                                                               
related that she  had looked forward to this  session because she                                                               
hadn't  anticipated the  fighting  over pennies,  but rather  had                                                               
expected that  there would  be more generosity  of spirit  and an                                                               
understanding that municipalities are hitting hard times.                                                                       
9:01:19 AM                                                                                                                    
REPRESENTATIVE LEDOUX turned attention to  Table 2 in the January                                                               
2005  Legislative Research  Service  Report, which  lays out  the                                                               
revenue sharing distribution to  unincorporated communities.  She                                                               
noted that  none of the  seven unincorporated communities  in her                                                               
district are listed in Table 2.                                                                                                 
REPRESENTATIVE  KAPSNER reminded  the committee  that this  table                                                               
refers  to the  1998 allocation.    She offered  to research  why                                                               
those communities weren't receiving the appropriation in 1998.                                                                  
REPRESENTATIVE  LEDOUX  surmised  that  those  seven  communities                                                               
didn't  receive  municipal  revenue   sharing  because  they  are                                                               
unincorporated  communities   within  an   incorporated  borough.                                                               
However,  she  said she  didn't  see  any reason  to  distinguish                                                               
between  unincorporated  and  incorporated communities  within  a                                                               
REPRESENTATIVE  KAPSNER  recalled  that  in 1996,  because  of  a                                                               
Senate   initiative,    the   contribution    to   unincorporated                                                               
communities  was ratcheted  down.   For further  information, she                                                               
deferred to Mr. Rolfzen with DCCED.                                                                                             
9:03:23 AM                                                                                                                    
CO-CHAIR THOMAS  inquired as to  why Metlakatla received  zero in                                                               
municipal revenue sharing.  He  then turned to the municipalities                                                               
on the  1998 list, and  informed the committee that  Gustavus has                                                               
re-filed for second  class city status and it's not  on the list,                                                               
which  is the  case with  other  communities as  well.   Co-Chair                                                               
Thomas said  that he didn't  realize that  it takes two  to three                                                               
years to be recognized as a  municipality.  He expressed the need                                                               
to provide incentives for communities to organize.                                                                              
9:05:07 AM                                                                                                                    
KATHIE WASSERMAN,  Alaska Municipal League (AML),  commented that                                                               
although some  say that  the state  is in  good shape  and making                                                               
money, the smaller communities don't  seem to be benefiting.  She                                                               
highlighted the  rising costs  for fuel,  insurance, and  PERS as                                                               
well  as  the  loss  of  capital  grants,  revenue  sharing,  and                                                               
reimbursement of  the senior and  veteran tax, all of  which make                                                               
it difficult for  these [smaller communities].   She concluded by                                                               
relating AML's support for HB 36.                                                                                               
9:06:50 AM                                                                                                                    
REPRESENTATIVE DAVID GUTTENBERG,  Alaska State Legislature, spoke                                                               
in support of HB 36.  He  reviewed the erosion of funds for areas                                                               
throughout  the state.    Representative  Guttenberg opined  that                                                               
since the state is receiving  higher oil revenues, it should pass                                                               
some [of  that revenue] on  to the  communities.  He  pointed out                                                               
that many communities  have no sustaining sources of  income.  He                                                               
echoed  earlier testimony  regarding the  lack of  local staffing                                                               
and  the  difficulties  it creates.    Representative  Guttenberg                                                               
opined   that  it's   key  for   the  state   to  recognize   its                                                               
responsibility   to   give   back  to   communities,   which   he                                                               
characterized as  most efficient because when  things fall apart,                                                               
they find their way to  the legislature.  "Maintenance of dollars                                                               
will prevent that," he opined.                                                                                                  
9:10:24 AM                                                                                                                    
BOBBY ANDREW, President, Aleknagik  Natives Limited, informed the                                                               
committee that  the Village of  Aleknagik signed a  memorandum of                                                               
understanding (MOU) October 29,  2000, to address village issues,                                                               
especially in  the face  of declining revenues  coming in  to the                                                               
village.   Once HB 36  passes, it  will help those  villages that                                                               
don't have  a tax base.   He pointed out  that most of  the lands                                                               
[in many  of the villages]  are town sites or  Native allotments.                                                               
He informed  the committee that the  main offices of many  of the                                                               
regional corporations are located in  urban areas.  He emphasized                                                               
that there  are many needs in  the Village of Aleknagik,  such as                                                               
improving the  water and sewer  systems.  This  legislation would                                                               
assist the  village.  In  fact, [the assistance provided  by this                                                               
legislation] could  help with the  matching dollars that  some of                                                               
the  programs  for which  communities  apply.   The  [Village  of                                                               
Aleknagik] is fortunate  to be able to utilize  [some funds] from                                                               
the Bristol Bay Economic Development Corporation.                                                                               
9:13:20 AM                                                                                                                    
REPRESENTATIVE KAPSNER  inquired as to  with whom the  Village of                                                               
Aleknagik's MOU was.                                                                                                            
MR. ANDREW  answered that  the MOU  is between  Aleknagik Natives                                                               
Limited,  the  Aleknagik Traditional  Council,  and  the City  of                                                               
Aleknagik.   He  informed the  committee that  the aforementioned                                                               
organizations meet quarterly.  At  a recent meeting, a resolution                                                               
in support of HB 36 was passed.                                                                                                 
9:14:22 AM                                                                                                                    
CO-CHAIR  OLSON announced  that  all  three municipal  assistance                                                               
bills would be back before the committee next week.                                                                             
9:15:01 AM                                                                                                                    
BILL  ROLFZEN,   State  Revenue  Sharing   Municipal  Assistance,                                                               
Division   of  Community   Advocacy,   Department  of   Commerce,                                                               
Community,   &  Economic   Development   (DCCED),  informed   the                                                               
committee that  the revenue sharing  program was revised  in 1980                                                               
to the current statutory program,  which only provides funding to                                                               
unincorporated areas within organized  boroughs.  Therefore, that                                                               
was followed  in HB 36.   With regard to the  communities such as                                                               
Gustavus not  being on the lists,  the data used is  from the end                                                               
of  fiscal year  2004, prior  to the  governor's veto.   If  this                                                               
legislation is enacted,  the information would be  updated.  With                                                               
regard  to  the  community  of   Metlakatla,  it,  under  revenue                                                               
sharing, received  funding as an unincorporated  community; under                                                               
safe  communities, it  received  funding as  a municipality;  and                                                               
under  capital   matching  grants  it  received   funding  as  an                                                               
unincorporated entity.                                                                                                          
9:16:23 AM                                                                                                                    
REPRESENTATIVE CISSNA  pointed out that  the City of  Gustavus is                                                               
listed on Table 2.                                                                                                              
MR.   ROLFZEN   clarified   that   in  2004   Gustavus   was   an                                                               
unincorporated community, but now it's a city government.                                                                       
CO-CHAIR THOMAS  commented that the  amount of money  a community                                                               
receives is dependent upon how it's organized.                                                                                  
[HB 36 was held over.]                                                                                                          
HB   2-TAX ON COMMERCIAL VESSEL PASSENGERS                                                                                    
The committee took an at-ease from 9:17:38 AM to 9:26:45 AM                                                                 
CO-CHAIR OLSON announced  that the final order  of business would                                                               
be HOUSE BILL NO. 2, "An  Act relating to taxes regarding certain                                                               
commercial  passenger   vessels  operating  in  the   state;  and                                                               
providing for an effective date."                                                                                               
9:26:53 AM                                                                                                                    
CO-CHAIR  THOMAS  moved to  adopt  CSHB  2, Version  24-LS0003\G,                                                               
Kurtz,  2/17/05,  as  the  working  document.    There  being  no                                                               
objection, Version G was before the committee.                                                                                  
9:27:07 AM                                                                                                                    
REPRESENTATIVE  CARL GATTO,  Alaska  State Legislature,  sponsor,                                                               
explained that  this legislation simply reimburses  the state for                                                               
a portion of  the expenses that are incurred due  to the presence                                                               
of a certain industry.                                                                                                          
9:28:29 AM                                                                                                                    
CODY  RICE,  Staff to  Representative  Carl  Gatto, Alaska  State                                                               
Legislature, presented a PowerPoint  presentation, which began by                                                               
addressing the ability  of the cruise ship industry  to pay these                                                               
taxes.    Mr. Rice  highlighted  statements  by the  senior  vice                                                               
president of  Royal Caribbean Cruises  Ltd. regarding  the impact                                                               
of taxes on the cruise ship  industry as well, as a Juneau Empire                                                             
news  article dated  5/19/03, which  reported  a lawsuit  against                                                               
[Royal Caribbean Cruises,  Ltd.] for fraudulent head  taxes.  The                                                               
aforementioned suit was ultimately settled  out of court for $125                                                               
million  in  cruise  vouchers.     Mr.  Rice  then  related  2004                                                               
financial  data,  which  will  be   updated  soon,  although  the                                                               
information seems  to be in line  with 2005 annual reports.   For                                                               
instance,  the net  profit for  Carnival  this year  is up  53-56                                                               
percent and  the net income  for Royal Caribbean Cruises  [is up]                                                               
66  percent.    He  then  turned attention  to  a  Juneau  Empire                                                             
article, which  relates that people  are still  cruising although                                                               
prices  for cruises  have risen,  on average,  20 percent.   Yet,                                                               
testimony  in the  House Finance  Committee  [from Charlie  Ball,                                                               
President of  Princess Lines]  related that a  $50 increase  on a                                                               
$1,200 package would be a significant increase.                                                                                 
MR. RICE then pointed out  an actual brochure for Mexican cruise,                                                               
which  specifies government  fees totaling  approximately $191.26                                                               
per person.  The legislation  before the committee proposes a $50                                                               
per person tax that is only applicable  once in 30 days.  He then                                                               
turned  attention to  the slide  in his  PowerPoint that  related                                                               
Carnival  Cruise  Lines  revenues,  which  he  related  would  be                                                               
updated  over  the  next  few  days.     He  noted  that  on  the                                                               
aforementioned slides  and others the timeframe  between 2003 and                                                               
"2003-b"  refers to  one quarter  of 2003.   He  highlighted that                                                               
although around September  11, 2001, there was a  dip in profits,                                                               
Carnival  Cruise Lines  responded  fairly  well, particularly  in                                                               
light of  the fact that  it and  Royal Caribbean were  building a                                                               
significant amount  of ships.   Mr.  Rice moved  on to  the chart                                                               
specifying  the  number  of   passengers  Carnival  Cruise  Lines                                                               
carried  from  1995-2003,  which   specifies  the  companies  500                                                               
percent  growth  in the  number  of  passengers carried,  with  a                                                               
significant amount  of that  growth occurring  between 2001-2003.                                                               
He informed  the committee that  Carnival Cruise  Lines increased                                                               
its total  number of  ships from  just over 40  to over  70 ships                                                               
between  2002-2003.   He  noted  that part  of  that  was due  to                                                               
Carnival Cruise Lines acquisition of Princess tours.                                                                            
MR.  RICE   highlighted  that  the  cruise   ship  industry  does                                                               
contribute  to charities  in Alaska  in the  amount of  more than                                                               
$500,000  a year  and  pays $844,750  to DEC  for  air and  water                                                               
quality  monitoring.   However,  [the charge  for  air and  water                                                               
quality monitoring]  is just less  than $1.00 per passenger.   He                                                               
then  turned  the  committee's attention  to  a  table  entitled,                                                               
"Costs Attributable to the Cruise  Ship Industry as Determined by                                                               
OMB and the  Department of Revenue," which was  created last year                                                               
in relation to  House Bill 537, the governor's tourism  tax.  The                                                               
chart outlines  the costs potentially attributable  to the cruise                                                               
ship   industry's   presence   in  Alaska,   which   amounts   to                                                               
approximately $115 million in costs to the state.                                                                               
9:36:05 AM                                                                                                                    
CO-CHAIR THOMAS pointed  out that the chart  specifies that about                                                               
$60 million [of that $115  million] comes from airports, although                                                               
there is  no airport head  tax.  Therefore, although  those might                                                               
be  tourism  dollars,  they  wouldn't be  from  the  cruise  ship                                                               
MR.  RICE said  that he's  not  an accountant,  and therefore  he                                                               
couldn't speak  to the  process behind this  table.   However, he                                                               
related  his  understanding that  the  assumption  was that  most                                                               
cruise ship passengers  do use one or more of  the major airports                                                               
because  most  passengers  cruise  one   way  and  fly  one  way.                                                               
Therefore,  there  is  some  usage of  airports  by  cruise  ship                                                               
9:37:14 AM                                                                                                                    
REPRESENTATIVE  GATTO  related  his  understanding  that  airport                                                               
security systems are designed around  peak loads and some portion                                                               
of the  peak loads are attributable  to tourists who arrive  on a                                                               
cruise  ship and  fly home.    "And so  they've proportioned  the                                                               
amount that  the airport  had to, essentially,  have in  place as                                                               
that amount  that is  attributable only to  this group  of people                                                               
[cruise ship passengers]."                                                                                                      
9:38:09 AM                                                                                                                    
MR. RICE  turned to  the final issue  of legality,  in particular                                                               
how  it  relates  to the  Maritime  Transportation  Security  Act                                                               
(MTSA).  The MTSA specifies  that only reasonable fees charged on                                                               
a fair and  equitable basis can be charged and  can only be "used                                                               
solely  to  pay for  the  cost  of a  service  to  the vessel  or                                                               
watercraft;  enhance  the  safety and  efficiency  of  interstate                                                               
commerce; do  not impose more  than a small burden  on interstate                                                               
or  foreign  commerce."    Version  G  reiterates  much  of  that                                                               
language  with regard  to  how the  state  will distribute  those                                                               
funds.    He  informed  the committee  that  the  disposition  of                                                               
receipts  is modeled  after the  Cruise  Ship Initiative  because                                                               
it's  substantial and  similar and  falls in  line with  Attorney                                                               
General  Renkes' opinion.    He pointed  out  that the  committee                                                               
packet should  include an  October 6,  2003, memorandum  from the                                                               
attorney  general  regarding  legal  questions.   He  quoted  the                                                               
following  excerpt from  the aforementioned  memorandum:   "While                                                               
there are limitations imposed by  federal law on the purposes for                                                               
which the  excise tax in  section 1 of  the proposed bill  can be                                                               
used,  it   would  be  a   mistake  to  interpret   this  federal                                                               
restriction as  creating a dedicated  fund."  Mr.  Rice explained                                                               
that current legislation  has a subaccount to  meet the standards                                                               
required in the  MTSA, the receipts are placed  in the subaccount                                                               
and are used  to pay the $5  a port fee at the  first five ports.                                                               
He noted  that there is  also a  regional subaccount of  which 25                                                               
percent of  the receipts will  cover the costs of  regional areas                                                               
that may or may not necessarily  be a port, but still be impacted                                                               
by the  cruise ship  industry.   The remainder  is placed  in the                                                               
state GF for  usage only on such projects as  enhanced safety and                                                               
efficiency of  interstate commerce.   Mr. Rice  acknowledged that                                                               
there  is the  question as  to whether  the subaccounts  create a                                                               
dedicated fund by  state standards.  An  attorney general opinion                                                               
in 2003 specified that while  the subaccounts did satisfy federal                                                               
standards  for creating  a dedicated  fund,  they didn't  violate                                                               
state standards for creating a dedicated fund.                                                                                  
9:41:53 AM                                                                                                                    
REPRESENTATIVE GATTO  returned attention to the  PowerPoint slide                                                               
entitled,  "Issues  for Discussion."    He  highlighted that  the                                                               
cruise  ships are  enormously profitable.    However, the  cruise                                                               
ships  continually say  that  any $50  tax  would hurt  business,                                                               
although  the facts  haven't borne  that  out.   He related  that                                                               
passenger interviews have shown that  most passengers shrug off a                                                               
$50 tax  because taxes  in other  places are  substantially more.                                                               
For  instance, when  one cruises  to  Mexico, the  port fees  are                                                               
about $150,  which amounts to about  $50 per port.   However, the                                                               
proposal in  HB 2 would  charge a fee of  $50 for the  first five                                                               
ports  in Alaska.   The  current contributions  to the  state are                                                               
essentially  zero.   With regard  to the  cruise ship  industry's                                                               
ability to  continue to prosper  in Alaska,  Representative Gatto                                                               
pointed  out that  Alaska is  a  primary destination.   Fully  10                                                               
percent of  [cruise passengers] come  to Alaska, which  he opined                                                               
would continue to increase for some  time.  In fact, the building                                                               
of ships wouldn't continue unless  the prospects of filling those                                                               
ships was  clear and convincing.   With regard to  the illegality                                                               
of [a tax  such as that proposed  in HB 2], he said  that's not a                                                               
decision that  can be  made in  committee or can  be made  by the                                                               
cruise ship  industry; "that's why we  have a court system."   He                                                               
indicated  that [whether  the tax  is illegal]  isn't of  concern                                                               
[for  the committee]  unless the  statute clearly  specifies that                                                               
cruise  ship taxes,  in any  form, are  illegal.   Representative                                                               
Gatto  said his  concern is  that  if the  Department of  Revenue                                                               
projections are correct, the state  is already spending a certain                                                               
amount of  money to support  the cruise ship industry.   However,                                                               
the  argument  [of  the  department]  is  that  it  doesn't  like                                                               
targeted taxes,  although the taxes  on mining,  timber, tourism,                                                               
and oil and  gas are such.  Representative Gatto  said that he is                                                               
at a loss to find a non  targetted tax.  The cruise ship industry                                                               
has said it would  support a sales tax and an  income tax for the                                                               
state, which  he opined  is because  they don't  pay any  part of                                                               
those.   The  idea [with  HB  2], he  stressed, is  to recover  a                                                               
portion  of  the state's  costs  on  behalf  of the  cruise  ship                                                               
9:48:08 AM                                                                                                                    
REPRESENTATIVE  LEDOUX inquired  as to  whether any  other states                                                               
have cruise ship taxes.                                                                                                         
REPRESENTATIVE GATTO answered that Hawaii  does.  He informed the                                                               
committee  that Bermuda,  Jamaica,  and the  Virgin Islands  also                                                               
charge  cruise ship  taxes.   Representative Gatto  also informed                                                               
the committee  of the  cruise ship industry's  ability to  do the                                                               
practice  of  "port pulling,"  which  the  community of  Whittier                                                               
experienced  with its  minimum tax.    However, this  legislation                                                               
collects a  certain amount of  money up-front and  distributes it                                                               
to the  first five ports, and  thus the ports aren't  left in the                                                               
"wing."   Representative  Gatto opined  that Alaska  provides the                                                               
cruise ships  arguably the  most beautiful  scenery in  the world                                                               
for  free  and  they  sell  it.    He  indicated  that  if  other                                                               
industries in  the state are  going to  be taxed, then  it's only                                                               
fair to  [tax the cruise ship  industry].  "And if  you're really                                                               
worried  about the  legality, let's  concentrate on  the legality                                                               
question in the courts," he opined.                                                                                             
9:51:25 AM                                                                                                                    
REPRESENTATIVE  LEDOUX restated  her question  as to  whether any                                                               
other  states  have   head  taxes  and  if  so,   have  they  met                                                               
constitutional challenges.                                                                                                      
MR. RICE  answered that he isn't  aware of any other  states that                                                               
have head  taxes.  However,  discussions with the drafter  of the                                                               
MTSA provision  and the Legislative  Legal and  Research Division                                                               
attorneys have  viewed the MTSA  as so broad that  it invalidates                                                               
quite  a  few  existing  taxes,   such  as  riverboat  taxes  and                                                               
individual port taxes in Florida and  Hawaii.  Mr. Rice said that                                                               
most  other states  don't have  a  statewide head  tax, which  he                                                               
opined is fitting in relation to the size and number of ports.                                                                  
9:52:47 AM                                                                                                                    
MR. RICE,  in response to  Representative LeDoux,  specified that                                                               
whether [a tax] meets MTSA  clauses depends upon how the receipts                                                               
are  spent.    If  the  receipts aren't  spent  solely  on  costs                                                               
attributable  to  the  vessel  and  to  enhance  the  safety  and                                                               
efficiency  of  interstate commerce,  then  it  doesn't meet  the                                                               
MTSA.      This   legislation,   he  opined,   would   meet   the                                                               
aforementioned   standards  and   require   the  legislature   to                                                               
appropriate receipts only in ways that meet those standards.                                                                    
REPRESENTATIVE  GATTO  informed  the  committee  that  a  lot  of                                                               
shipping occurs  in San Pedro, California,  besides cruise ships.                                                               
Therefore, San Pedro  already has its infrastructure  in place to                                                               
handle  large vessels.   However,  if it  weren't for  the cruise                                                               
ships, Alaska wouldn't have a need  for large vessels and thus an                                                               
infrastructure  has to  be constructed  to  accommodate the  only                                                               
large vessels arriving in the state.                                                                                            
9:54:22 AM                                                                                                                    
CO-CHAIR THOMAS turned to the  notion that Juneau is the impacted                                                               
community,  and  pointed out  that  those  coming in  from  other                                                               
Southeast communities  are fairly  well displaced when  they come                                                               
to shop in Juneau.   With regard to the impact  funds that can be                                                               
given to  municipalities, Co-Chair  Thomas opined that  the funds                                                               
should go to those communities outside of the port.                                                                             
9:55:35 AM                                                                                                                    
REPRESENTATIVE   CISSNA  surmised   that   Co-Chair  Thomas   was                                                               
referring to the  impact on communities to which  the cruise ship                                                               
industry decides not  to visit.  However,  she questioned whether                                                               
the  money [from  the  cruise  ship industry]  makes  up for  the                                                               
expense of the port facilities.                                                                                                 
REPRESENTATIVE GATTO informed the  committee that the cruise ship                                                               
industry has categorized  Juneau as a must see,  and therefore it                                                               
doesn't matter  how much  money Juneau  charges the  cruise ships                                                               
because  the  industry won't  bypass  Juneau.   The  concern,  he                                                               
related, is in regard to  the other communities [that aren't must                                                               
see stops].   He highlighted that the subaccounts  will take care                                                               
of those impacted communities.                                                                                                  
MR. RICE  explained that  25 percent of  [head tax]  receipts are                                                               
placed in  a regional subaccount, which  is specifically designed                                                               
to go  to those communities impacted  although they may not  be a                                                               
port of  call.  The aforementioned  happens so long as  the money                                                               
is  used  to  meet  the   safety  and  efficiency  of  interstate                                                               
9:57:59 AM                                                                                                                    
CO-CHAIR THOMAS highlighted the  graph specifying the $60 million                                                               
in impacts of  [the Interior], which would result  in funds being                                                               
generated in Southeast and sent to Fairbanks and Anchorage.                                                                     
MR. RICE  said that  he can't  predict where  future legislatures                                                               
will send the money.                                                                                                            
9:58:54 AM                                                                                                                    
REPRESENTATIVE  SALMON  recalled that  over  the  past couple  of                                                               
years  those  in  Fairbanks have  complained  that  there  aren't                                                               
enough  tourists.   He opined  that a  $50 head  tax will  impact                                                               
those up  north and thus that  should be reviewed.   He said that                                                               
tourists shouldn't be  taxed to the point of not  wanting to come                                                               
to Alaska.                                                                                                                      
10:00:19 AM                                                                                                                   
CO-CHAIR OLSON announced that HB 2 would be held over.                                                                          
There being no  further business before the  committee, the House                                                               
Community  and Regional  Affairs Standing  Committee meeting  was                                                               
adjourned at 10:00:31 AM.                                                                                                     

Document Name Date/Time Subjects