Legislature(1993 - 1994)

04/24/1993 09:06 AM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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                     HOUSE FINANCE COMMITTEE                                   
                         April 24, 1993                                        
                            9:06 a.m.                                          
                                                                               
  TAPE HFC 93-121, Side 2, #000 - end.                                         
  TAPE HFC 93-122, Side 1, #000 - end.                                         
  TAPE HFC 93-122, Side 2, #000 - 481.                                         
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Co-Chair Larson called the House  Finance Committee to order                 
  at 9:06 a.m.                                                                 
                                                                               
  PRESENT                                                                      
                                                                               
  Co-Chair Larson             Representative Hoffman                           
  Co-Chair MacLean            Representative Martin                            
  Vice-Chair Hanley           Representative Navarre                           
  Representative Brown        Representative Parnell                           
  Representative Foster       Representative Therriault                        
  Representative Grussendorf                                                   
                                                                               
  ALSO PRESENT                                                                 
                                                                               
  Representative    B.     Davis;    Representative     Ulmer;                 
  Representative Moses; Representative Mackie;  Jeff Koenings,                 
  Director, Commercial Fisheries, Department of Fish and Game;                 
  Mike Szymanski, Fishing Company of Alaska; Carl Ohls, Bering                 
  Sea Fishermen's  Association; Phil  Chitwood, Arctic  Alaska                 
  Fisheries; Thorn Smith, North Pacific Longliners;  Joe Blum,                 
  American Factory Trollers; John Walsh, Director, Division of                 
  Municipal and  Regional Assistance, Department  of Community                 
  and Regional Affairs.                                                        
                                                                               
  SUMMARY INFORMATION                                                          
                                                                               
  HB 60     "An   Act   making   appropriations  for   capital                 
            projects; and providing for an effective date."                    
                                                                               
            CSHB 60 (FIN) was reported out of Committee with a                 
            "do pass" recommendation.                                          
                                                                               
  HB 264    "An Act providing for  a fishery resource  landing                 
            tax; and providing for an effective date."                         
                                                                               
            HB 264 was  HELD in  a subcommittee consisting  of                 
            Chair   Parnell   with   Representatives   Foster,                 
            Therriault, Navarre and Hoffman.                                   
  HOUSE BILL NO. 264                                                           
                                                                               
       "An Act providing  for a fishery resource  landing tax;                 
                                                                               
                                1                                              
                                                                               
                                                                               
       and providing for an effective date."                                   
                                                                               
  THORN SMITH, NORTH  PACIFIC LONGLINERS ASSOCIATION testified                 
  via teleconference.  He stated that his association operates                 
  approximately  30  vessels  off the  coast  of  Alaska.   He                 
  emphasized  that  the  product  is  processed in  off  shore                 
  waters.   He asserted  that the  Association contributes  to                 
  Alaska's  economy.   He noted  that  whitefish international                 
  markets have been  flooded by the  Russians.  He asked  that                 
  the  Attorney  General's  office do  a  comprehensive  legal                 
  analysis.  He observed that  the federal Interstate Commerce                 
  Clause limits state's ability to tax and regulate interstate                 
  and foreign  commerce.   He  asserted that  the majority  of                 
  their  operations  are  performed  outside  of  the  state's                 
  jurisdiction.  He  noted that the majority  of their product                 
  goes to foreign markets.                                                     
                                                                               
  JOE  BLUM, AMERICAN  FACTORY TROLLERS  ASSOCIATION testified                 
  from  Seattle  via  teleconference.    He  stated  that  the                 
  American Factory Trollers  Association opposes  HB 264.   He                 
  asserted that there has been inadequate legal  analysis.  He                 
  observed  that  no  credit  is  given  to  the  Bering   Sea                 
  Commercial Fisheries  Development Foundation.   He described                 
  the Bering Sea  Commercial Fisheries Development Foundation.                 
  He  asserted  that  the definition  of  value  is vague  and                 
  confusing.  He  maintained that the  tax does not reflect  a                 
  fair  assessment  of the  demand  the factory  troller fleet                 
  places on the  state and local services.  He  noted that the                 
  factory troller fleet must compete in the world market.                      
                                                                               
  CARL OHLS, BERING SEA  FISHERMEN'S ASSOCIATION testified via                 
  teleconference.     Mr.  Ohls  represents   Bering  Sea  CDQ                 
  communities.    He  observed  that  the  federal  government                 
  allocated 75 percent  of the harvested pallock  resources in                 
  the Bering Sea to villages in  Western Alaska.  The villages                 
  formed into six corporations.  The corporations have entered                 
  into partnerships  with the  established seafood  processing                 
  industry operating in Alaska.                                                
                                                                               
  Mr. Ohls referred to  section 43.77.040.  He noted  that the                 
  provision allows  the processors a credit on the CDQ harvest                 
  portion of the  landing tax  for contributions to  nonprofit                 
  corporations in Western Alaska.   The contributions would be                 
  used for scholarships, training,  infrastructure development                 
  and research.                                                                
                                                                               
  Representative  Therriault asked  if  processors could  form                 
  their own nonprofit corporations.   Mr. Ohls noted that  the                 
  processors are  under contract  with CDQ  corporations.   He                 
  asserted  that  processors  would not  have  their contracts                 
  renewed if the tax credit is abused.  He maintained that the                 
  purpose  of  the section  is to  get  funds back  to Western                 
                                                                               
                                2                                              
                                                                               
                                                                               
  Alaska.                                                                      
                                                                               
  Representative  Therriault  asked  if a  statutory  notation                 
  could be added  to clarify  that the contribution  is to  be                 
  given to a nonprofit associated with a CDQ corporation.  Mr.                 
  Ohls responded that there is one for-profit CDQ corporation.                 
                                                                               
                                                                               
  Representative Martin asked Mr. Ohls to send him information                 
  regarding projects implemented with CDQ revenues.                            
                                                                               
  Representative Navarre asked if the credit would be given on                 
  the overall  tax.  He  questioned if the tax  would be taken                 
  from  the  state and/or  municipal  share.   Co-Chair Larson                 
  thought that  the credit  would be  taken out  of the  local                 
  government share.                                                            
                                                                               
  REPRESENTATIVE MOSES  agreed that  the tax  credit would  be                 
  taken  from  the  local government  share.    Representative                 
  Navarre interpreted the legislation as taking the tax credit                 
  off the  top  with the  remainder being  shared between  the                 
  state and local government.  Mr.  Ohls stated that it is the                 
  intent  of  the provision  that the  tax  be taken  from the                 
  municipal share.                                                             
                                                                               
  PHIL  CHITWOOD,   ARCTIC  ALASKA  FISHERIES   testified  via                 
  teleconference.  He asserted that the legislation would have                 
  a serious  impact on  the industry.   He  stressed that  the                 
  seafood industry is  facing serious financial problems.   He                 
  noted that fish prices have fallen.   He maintained that the                 
  increased landing  tax would  result in  curtailment of  the                 
  Alaskan  fisheries.   He  urged  the  Committee  to  seek  a                 
  detailed legal  opinion.  He  suggested that a  provision be                 
  included for full  credit for  contributions to the  Western                 
  Alaska Fisheries Development  Foundation.   He advised  that                 
  section  43.77.060 (a) be  removed.  He  maintained that the                 
  language confuses the  bills intention.   He asked that  the                 
  tax rate  for offshore processors  be amended downward.   He                 
  asserted that it is unfair to tax offshore processors at the                 
  same rate as onshore processors.  He stressed that  offshore                 
  processors  maintain  their   own  support  services.     He                 
  maintained that the portion of tax should be proportional to                 
  the demand placed on local services.                                         
                                                                               
  JOHN WALSH,  DIVISION OF MUNICIPAL AND  REGIONAL ASSISTANCE,                 
  DEPARTMENT OF  COMMUNITY AND REGIONAL  AFFAIRS explained, in                 
  response to a  question by  Representative Martin, that  the                 
  Department can perform the tax distribution.   He noted that                 
  Akutan  and  Dutch  Harbor  stand  to receive  the  greatest                 
  benefit from the tax.                                                        
                                                                               
  (Tape Change, HFC 93-122, Side 1)                                            
                                                                               
                                3                                              
                                                                               
                                                                               
  MIKE  SZYMANSKI,  FISHING  COMPANY OF  ALASKA  gave  a brief                 
  history of the  Company.   He noted that  all the  Company's                 
  operations are performed offshore.  He asserted that the 3.3                 
  percent tax  on the products  value will have  a devastating                 
  impact  on the  Company's ability  to operate  in a  foreign                 
  market.  He asserted that the legislation creates a two tier                 
  taxing structure.   He noted  that there has  been a  market                 
  price reduction of  50 percent  due to Russian  competition.                 
  He noted  that the  Company pays  for direct local  services                 
  such as;  garbage,  water,  sewage,  electricity,  security,                 
  medical, transportation  and food.   He  stressed that  they                 
  also pay payroll taxes, docking fees, port fees and piloting                 
  fees.  He referred to a  memorandum from legal counsel, Jack                 
  Chenoweth, to the sponsor,  suggesting that the  legislation                 
  would invite scrutiny under the United States Constitution's                 
  commerce clause.  Mr. Chenoweth advises that the legislation                 
  must demonstrate that  the tax: (1) has a  substantial nexus                 
  with the state; (2) does not discriminate against interstate                 
  commerce;  (3)  fairly  relates to  services  claimed  to be                 
  provided within or by the state or local government; and (4)                 
  is fairly apportioned.                                                       
                                                                               
  Mr. Szymanski suggested that the down stream taxes be exempt                 
  against  taxes paid in  the state.   He added that  tax free                 
  zones could  be developed  to entice  fleet operations  into                 
  more areas.                                                                  
                                                                               
  REPRESENTATIVE  CARL  MOSES  noted that  trollers  that sell                 
  their product onshore have to pay the processing fees, and a                 
  2 percent sales tax.  Mr. Szymanski replied that shore based                 
  operations have a greater impact on the community.                           
                                                                               
  JEFF KOENINGS, DIRECTOR, COMMERCIAL FISHERIES MANAGEMENT AND                 
  DEVELOPMENT DIVISION, DEPARTMENT  OF FISH AND GAME  spoke in                 
  support of HB 264.  He noted that the Department of Fish and                 
  Game provides coordination and support  of the management of                 
  Exclusive Economic Zone  (EEZ) fisheries.  He  gave specific                 
  examples  (Attachment 1).   He emphasized  that a  number of                 
  permanent staff are assigned the responsibility of providing                 
  coordination  and  support of  the  management of  Exclusive                 
  Economic Zone fisheries.                                                     
                                                                               
  Representative  Martin suggested that  a findings section be                 
  added to the legislation.                                                    
                                                                               
  Co-Chair Larson placed  HB 264 in a  subcommittee consisting                 
  of  Chair  Parnell   with  members  Representatives  Foster,                 
  Therriault, Navarre and Hoffman.                                             
  HOUSE BILL NO. 60                                                            
                                                                               
                                                                               
                                4                                              
                                                                               
                                                                               
       "An Act making appropriations for capital projects; and                 
       providing for an effective date."                                       
                                                                               
  Co-Chair MacLean  noted that three  amendments were  pending                 
  from the 4/23/93, House Finance Committee meeting.                           
                                                                               
  Co-Chair Larson referred  to a memorandum by  Representative                 
  Fran  Ulmer (Attachment  2), regarding  Amendment  8, $809.5                 
  thousand  dollars  for the  Alaska  State Museum  (see House                 
  Finance Committee meeting, 4/23/93).   Co-Chair Larson MOVED                 
  to  RESCIND  the  Committee's  action  in failing  to  adopt                 
  Amendment 8.  There  being NO OBJECTION, it was  so ordered.                 
  Co-Chair  Larson  MOVED  to  AMEND  Amendment 8,  to  $500.0                 
  thousand   dollars    for   the    Alaska   State    Museum.                 
  Representative Martin OBJECTED.  A  roll call vote was taken                 
  on the motion.                                                               
                                                                               
  IN FAVOR: Brown,  Grussendorf,  Hoffman,   Navarre,  Foster,                 
                 MacLean, Larson                                               
  OPPOSED:  Martin                                                             
                                                                               
  Representatives Hanley, Parnell  and Therriault were  absent                 
  from the vote.                                                               
                                                                               
  The MOTION PASSED (7-1).                                                     
                                                                               
  Co-Chair  MacLean noted that Amendment 7 was held during the                 
  4/23/93  House  Finance  Committee  meeting (Attachment  3).                 
  Amendment 7 would  appropriate $3  million dollars from  the                 
  earnings  reserve  of  the  Alaska  Science  and  Technology                 
  Endowment to the BIDCO Fund.                                                 
                                                                               
  REPRESENTATIVE  BETTYE  DAVIS   observed  that   legislation                 
  creating the BIDCO Fund provides for the use of the earnings                 
  reserve of the Alaska Science and Technology Endowment.  She                 
  provided  members  with  a   Memorandum  from  Ron   Duncan,                 
  Chairman,   Alaska   Science   and   Technology   Foundation                 
  (Attachment  4).    Mr.  Duncan  expressed support  for  the                 
  appropriation to the BIDCO Fund.                                             
                                                                               
  Co-Chair Larson expressed  concern that the  Legislature has                 
  over appropriated funding  from the earnings reserve  of the                 
  Alaska  Science  and Technology  Endowment.   Representative                 
  Davis  assured him  that  the Endowment  has  not been  over                 
  appropriated.                                                                
                                                                               
  Representative  Davis  provided  members with  a  letter  of                 
  intent:    "It is  the intent  of  the Legislature  that the                 
  Science and Technology  Foundation transfer $3 million  form                 
  its earning reserve to  the BIDCO Fund as the  money becomes                 
  available during  the  Fiscal Year  1994."    Representative                 
  Martin expressed concern with the letter of intent.                          
                                                                               
                                5                                              
                                                                               
                                                                               
  (Tape Change, HFC 93-122, Side 2)                                            
                                                                               
  Representative  Brown  pointed  out  that  according  to  AS                 
  37.17.210,  the  BIDCO  Fund  is   within  the  Science  and                 
  Technology  Endowment.    She stressed  that  the  letter of                 
  intent specifies the  timing of the  transfers to the  BIDCO                 
  Fund from the earning reserves.                                              
                                                                               
  Co-Chair  Larson  expressed  concern that  the  Science  and                 
  Technology Foundation  meet its original  intent to  provide                 
  incentives for  the private  sector to  create new  economic                 
  development in the State of Alaska.                                          
                                                                               
  Co-Chair MacLean MOVED to ADOPT AMENDMENT 7.  Representative                 
  Martin OBJECTED.    Members discussed  the  earning  reserve                 
  appropriation.  A roll call vote was taken on the motion.                    
                                                                               
  IN FAVOR: Brown,  Grussendorf,  Hoffman,  Navarre,  Parnell,                 
                 Therriault, MacLean, Larson                                   
  OPPOSED:  Foster, Martin                                                     
                                                                               
  Representative Hanley was not present for the vote.                          
                                                                               
  The MOTION PASSED (8-2).                                                     
                                                                               
  Representative Brown MOVED  to ADOPT  the letter of  intent.                 
  Representative  Martin  OBJECTED.     Representative   Brown                 
  explained that the  purpose of  the letter of  intent is  to                 
  give  the Science and  Technology Foundation the flexibility                 
  to provide funding as it becomes available.  Co-Chair Larson                 
  MOVED to  AMEND Amendment 8  by inserting after  "1994", "to                 
  the extent that it  does not decrease their ability  to meet                 
  their obligations during FY 95."   There being NO OBJECTION,                 
  it was  so ordered.   Co-Chair MacLean  reiterated the  main                 
  motion, to adopt the  letter of intent  as amended.  A  roll                 
  call vote was taken on the motion.                                           
                                                                               
  IN FAVOR: Grussendorf,  Hoffman,  Navarre,   Brown,  Foster,                 
                 Larson                                                        
  OPPOSED:  Martin, Parnell, Therriault, MacLean                               
                                                                               
  The MOTION PASSED (6-5).                                                     
                                                                               
  Co-Chair MacLean provided members with a technical amendment                 
  by  Representative  Williams, AMENDMENT  22  (Attachment 5).                 
  Co-Chair MacLean MOVED  to ADOPT Amendment 22.   There being                 
  NO OBJECTION, it was so ordered.                                             
                                                                               
  Representative Therriault provided members with a  technical                 
  amendment, AMENDMENT 23  (Attachment 6).  He  explained that                 
  "matching funds" will  be deleted  to allow for  the use  of                 
                                                                               
                                6                                              
                                                                               
                                                                               
  structural  equipment.  There being  NO OBJECTION, it was so                 
  ordered.                                                                     
                                                                               
  Representative Brown MOVED to AMEND page 77, line 23, insert                 
  after  "project," "District  15  and 16".    There being  NO                 
  OBJECTION, it was so ordered.                                                
                                                                               
  Co-Chair MacLean provided members  with a handout  detailing                 
  the FY 94 House proposed capital budget (Attachment 7).  She                 
  reviewed Attachment 7.                                                       
                                                                               
  Representative  Brown MOVED to  AMEND page  77, line  20, to                 
  delete "$30.0" and insert "$20.0" thousand dollars; and page                 
  78, line 20, to  delete "$25.0" and insert "$35.0"  thousand                 
  dollars.  There being NO OBJECTION, it was so ordered.                       
                                                                               
  Representative  Martin MOVED to report CSHB  60 (FIN) out of                 
  Committee with  individual recommendations.   There being NO                 
  OBJECTION, it was so ordered.                                                
                                                                               
  CSHB 60 (FIN) was reported out of Committee with a "do pass"                 
  recommendation.                                                              
  ADJOURNMENT                                                                  
                                                                               
  The meeting adjourned at 10:58 a.m.                                          
                                                                               
                                                                               
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