Legislature(1995 - 1996)
03/21/1996 01:50 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
MARCH 21, 1996
1:50 P.M.
TAPE HFC 96 - 83, Side 1, #000 - end.
TAPE HFC 96 - 83, Side 2, #000 - end.
TAPE HFC 96 - 84, Side 1, #000 - end.
TAPE HFC 96 - 84, Side 2, #000 - #249.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:50.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Kohring
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly Representative Therriault
Representative Mulder was not present for the meeting.
ALSO PRESENT
Representative Jeannette James; Joe Perkins, Commissioner,
Department of Transportation and Public Facilities; Bob
Bartholomew, Deputy Director, Income & Excise Audit
Division, Department of Revenue; Kevin Ritchie, Staff,
Alaska Conference of Mayors, Alaska Municipal League (AML),
Juneau; Kurt Parkan, Deputy Commissioner, Office of
Commissioner, Department of Transportation and Public
Facilities; M. Clyde Stolzfus, Special Assistant, Office of
the Commissioner, Department of Transportation and Public
Facilities; Pamela LaBolle, President, Alaska State Chamber
of Commerce, Juneau; Richard Curtin, General Counsel, Petro
Star, Anchorage; Jeff Cook, (Testified via teleconference),
Vice-President, External Affairs & Administration, MAPCO
Petroleum, Anchorage; Randy Welker, Legislative Auditor,
Legislative Audit Division; Neil Slotnick, Assistant
Attorney General, Civil Division, Department of Law; Bob
Juettner, (Testified via teleconference), Anchorage; Frank
Dillon, (Testified via teleconference), Executive Vice-
President, Alaska Trucking Association, Anchorage; Jack
Burmingham, (Testified via teleconference), Alaska Air
Carriers Association, Anchorage.
SUMMARY
HJR 49 Proposing amendments to the Constitution of the
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State of Alaska creating a highway fund.
HJR 49 was HELD in Committee for further
consideration.
HB 362 An Act extending the motor fuel tax exemption for
fuel sold for use in jet propulsion aircraft to
fuel used in those aircraft for flights that
continue from a foreign country.
HB 362 was HELD in Committee for further
consideration.
HOUSE JOINT RESOLUTION 49
Proposing amendments to the Constitution of the State
of Alaska creating a highway fund.
REPRESENTATIVE JEANNETTE JAMES testified in support of HJR
49. She stated that HJR 49 proposes amendments to the
Alaska State Constitution creating a dedicated
transportation fund. The amendments would be placed before
the voters of Alaska at the next general election.
The legislation would not address an amount of motor fuel
tax increase. It would provide a mechanism for allocating
the proceeds from the collection of fuel taxes.
Representative James stated that the resolution has received
wide support relative to the current level of fuel taxes,
and that Alaska citizens will be much more likely to accept
a necessary increase in their motor fuel taxes if they know
the money would be utilized to address the need for improved
maintenance of roads and highways.
Co-Chair Hanley stated that the committee substitute would
remove the portion which dedicated the marine fuel tax,
leaving the gas tax portion to be dedicated to highways.
Representative James voiced support for the committee
substitute.
Representative Parnell MOVED work draft #9-LS1178\o,
Chenoweth, 3/20/96, be the version before the Committee.
There being NO OBJECTION, it was so ordered.
Co-Chair Hanley pointed out an additional change of the vote
number from 3/5ths to 4/5ths. He stressed that a dedicated
fund should not be easily entered into.
JOE PERKINS, COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND
PUBLIC FACILITIES (DOTPF), advised that transportation is
different from many government services in that the use of
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that system generates a distinct stream of revenue. The
fuel used by motor vehicles as they travel throughout the
system is taxed where it is sold. The distinct "user fee"
can be dedicated for specific services, thereby, linking the
services received to the cost of doing business. He
provided the example of the Federal Highway Trust Fund,
primarily funded by a national gas fuel tax, and the Airport
Improvement Program, funded by an aircraft fuel tax and
taxes on airline tickets.
Commissioner Perkins noted that Alaska is the only state
that does not have some sort of dedicated fund for
transportation. Our program is entirely based on federal
funding. Managing transportation facilities and keeping
them maintained to include winter maintenance requires
stable and predictable funding. He stated that the best way
to guarantee stable and predictable funding would be by
dedicating revenue from public use of the transportation
system. Commissioner Perkins added, for a short period of
time, Alaska did have dedicated revenue for transportation,
which was amended in 1961 by the Legislature eliminating
that fund.
He pointed out that the State of Alaska does not have a
State harbor program. Unfortunately, the feds do not have a
dedicated fund for ports and harbors either. Consequently,
the State relies on the "hit" or "miss" Corps of Engineers
Program which requires specific congressional action for
each project.
Commissioner Perkins added that approximately $8 million
dollars per year is collected by the State via a watercraft
fuel tax. Of that amount, a little over $4 million dollars
per year has been returned to the coastal communities for
harbor work. The Corps of Engineers program is on the down
turn and future funding is questionable.
The Department recommends that the Committee consider
dedicating the watercraft fuel tax for construction and
operation of Alaskan harbors. Commissioner Perkins offered
to provide Representative Parnell information regarding the
1961 legislative decision to discontinue the transportation
dedicated fund.
Representative Martin noted that he would not advocate road
use taxes being used for boats and harbors. Co-Chair Hanley
clarified that the legislation before the Committee would
dedicate motor fuel tax to highways. Representative Martin
pointed out language on Page 2, Line 2:
"maintenance costs of roads and highways and of
marine highways by the State..."
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He suggested that language be deleted. Representative James
noted that the statute definition of "highway" includes
"marine highways". She pointed out that marine highways
were different from ports and harbors. Commissioner Perkins
added that the Alaska Marine Highway System is a portion of
the national highway system as passed by Congress.
Maintenance of some ferry facilities could be considered a
legitimate use of the proposed dedicated fund.
Representative Martin objected. He thought that issue had
been addressed separately in the front section of the budget
and should not be included in this fund. Discussion
followed among Committee members regarding the use of the
dedicated fund for the marine highway system.
Representative Martin thought that when the resolution comes
before the Alaska voters, that probably over 80% of the
voters would not support the idea of the marine highway
being included. He suggested inclusion of that portion
would defeat the resolution. Representative Grussendorf
countered that the State of Alaska receives a sizeable
amount of revenue from the marine highway "miles".
Co-Chair Hanley pointed out that a 2/3rds vote would be
required to pass a resolution in order for it to be on the
ballot. He thought that his constituents would be skeptical
using a gasoline tax for the marine highway. Voters are
willing to pay an increased tax if they believe that it will
be going for the purposes that they think it should be used
for. That direct link is essential. He suggested a
possibility of using program receipts out of the Alaska
Marine Highway System for a dedicated fund for the operation
and maintenance of the marine highway system.
Commissioner Perkins responded to Representative Brown's
question regarding the definition of "maintenance" use in
the fund. "Maintenance" would be sustaining existing
facilities to a useable order. Representative Brown
referenced Page 2, Line 7, suggesting that the word
"balance" was not appropriate, and recommended that it be
deleted.
Representative Brown referenced Page 1, Line 15 - 16,
inquiring how much additional money would be needed to be
added to the $20 million dollars collected by the State.
BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE AUDIT
DIVISION, DEPARTMENT OF REVENUE, replied that the largest
refunds would relate to the off highway tax. Currently,
equipment or generators that operate based on motor fuel,
but do not operate on the highway, pay eight cents motor
fuel tax, claiming a refund from the Department of Revenue
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(DOR) of six cents a gallon. DOR currently refunds $6.5
million dollars a year. Representative Brown asked if the
language in the bill would provide for new refunds or
credits on that tax. Mr. Bartholomew stated that DOR
understands that language would allow what currently exists.
Representative Brown pointed out another concern on Page 2,
Line 10, suggesting a change to a 3/4th vote versus a 4/5th
vote. She questioned the need to create a higher threshold
of accessibility to this fund than that used for the
Constitutional Budget Reserve (CBR). Co-Chair Hanley
advised that if the fund was to be "dedicated", it should
not be accessible. Discussion followed regarding the
accessibility to the fund.
(Tape Change HFC 96-83, Side 2).
In response to a question by Representative Therriault,
Commissioner Perkins replied that under the federal rules,
there exists certain classification of designated roads and
highways. He offered to provide that information to the
Committee.
KEVIN RITCHIE, STAFF, ALASKA MUNICIPAL LEAGUE (AML), ALASKA
CONFERENCE OF MAYORS, JUNEAU, testified that the AML policy
statement has voiced support for the increased fuel tax.
AML supports HJR 49, and thinks that it would be a "good
start" in establishing basic services throughout the State.
The legislation recognizes the comprehensive nature of the
Alaska highway system.
Representative Brown pointed out that there was nothing
within the contents of the legislation which would insure
support to local activities or roads. Mr. Ritchie agreed
that was a concern. He added that AML was interested in any
supporting bill which would define how the fuel taxes could
be shared.
BOB JUETTNER, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE,
testified in support of deleting the provision in the
legislation which reference the marine fuel tax.
FRANK DILLON, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE
VICE-PRESIDENT, ALASKA TRUCKING ASSOCIATION, ANCHORAGE,
spoke in support of the legislation before the Committee,
although questioned inclusion of the marine highway. He
commented that taxpayers would prefer that the intent be
clearly outlined. He echoed the concerns of Representative
Martin in inclusion of that language.
Co-Chair Hanley responded to Representative Brown's concern,
pointing out that the bill before the Committee strictly
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dedicates the fuels that are currently flowing. It would
not increase taxes. Representative Navarre questioned if an
increase in fuel tax would displace general funds or would
it be used to improve maintenance to the highway system. He
maintained that there will be public pressure to provide for
the defined use of that fund. Co-Chair Hanley agreed.
Representative Martin MOVED to amend the resolution on Page
2, Line 2, deleting "and of marine highways".
Representative Grussendorf OBJECTED. Representative Parnell
pointed out that the definition of highways includes the
definition of a ferry system. Co-Chair Hanley stated that a
specific section would need to be inserted which indicates
"not including the marine highway". Representative Martin
suggested changing the amended language by deleting "and of"
and inserting "except the". Representative Grussendorf
reminded Committee members that the marine highway system is
an intricate portion of the entire Alaska highway system.
There are many visitors who come to Alaska via the ferry
system and then move upward to Interior Alaska. This
funding would only be used to help maintain the vessels.
Representative Martin argued that all highways should be
treated equal. The front section of the budget allocates
$75 million dollars specifically for the ferry system. He
reminded Committee members that all communities in Southeast
Alaska would also be able to use the fund for their road
systems, not their waterway systems. Representative
Grussendorf reminded members that the marine ferry system is
a commerce carrier between the communities in those waters.
Discussion followed between Representative Grussendorf and
Representative Martin regarding the proposed amendment.
Representative Parnell suggested finding an agreement which
would not pit the two regions of Alaska against one another.
Co-Chair Hanley suggested considering the addition of a
section to another resolution, which could create a
dedicated fund for use of current marine highway receipts
specific to that system. Co-Chair Hanley advised that this
bill would be before the Committee at a later date,
following a more in-depth analysis. Representative Martin
WITHDREW the MOTION to AMEND. There being NO OBJECTION, it
was withdrawn.
HJR 49 was HELD in Committee for further consideration.
HOUSE BILL 362
"An Act extending the motor fuel tax exemption for fuel
sold for use in jet propulsion aircraft to fuel used in
those aircraft for flights that continue from a foreign
country."
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Commissioner Perkins provided an update on the issues which
were left outstanding from the previous meeting regarding
the proposed legislation. The first issue concerns the
management of the Foreign Trade Zone (FTZ) in Anchorage.
The Municipality of Anchorage and the State of Alaska
committed to a meeting to discuss the State's involvement in
management issues related to State land in the FTZ. The
meeting did occur and agreement was reached that the State
would be included in any decision on the FTZ. Details
remain to be worked out relative to the existing use of the
FTZ. He provided a letter from Mayor Rick Mystrom regarding
the Anchorage FTZ. [Copy on file].
The second concern addressed the availability of Custom
Bonded Warehousing for the storage of AvJet fuel. That
issue has been researched thoroughly, concluding that in the
State's ability to tax, there would be no practical
difference. He noted that either one, an FTZ or a Custom
Bonded Warehouse could be used for the purpose that FTZ is
used today. However, it would also clarify that a Custom
Bonded Warehouse would have disadvantages that are not
present with an FTZ. In a Custom Bonded Warehouse, goods
must be segregated from the moment they enter the warehouse
until they leave. For an FTZ, there is no such requirement.
JEFF COOK, (TESTIFIED VIA TELECONFERENCE), VICE-PRESIDENT,
EXTERNAL AFFAIRS & ADMINISTRATION, MAPCO PETROLEUM,
ANCHORAGE, stated that the only way to provide the in-state
refineries protection would be through passage of HB 362.
He pointed out that Fed Ex has testified that they intend to
use bonded fuel.
(Tape Change, HFC 96-84, Side 1).
Mr. Cook reiterated MAPCO's position of support for HB 362
which he thought would "level the playing field". In
response to Representative Navarre's question, Mr. Cook
stated that bonded fuel has been available since the 1930's.
Representative Navarre asked if it had always been exempt
from the tax, and if so why had it not eliminated the demand
from the market. Mr. Cook admitted that he was not
qualified to answer that query, although reiterated that
Alaska does not refine enough jet fuel for the demand.
Representative Navarre suggested that in-state refiners
might already have a competitive advantage. He requested
information on the current MAPCO profit margin. Mr. Cook
stated that MAPCO competes against other refiners and was
not willing to lay out their costs. He assured Committee
members that shipping costs through the FTZ were cheaper
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than what local refiners pay to ship via the Alaska Railroad
from Fairbanks.
Representative Navarre maintained that bonded fuel has been
available and has not yet glutted the market. He believed
that would not happen, emphasizing that the 3.2 cents
charged by the State is not the only factor in the equation.
Representative Navarre emphasized that enough information is
not available to make the decision recommended. Mr. Cook
agreed that the tax is not the only variable. Business has
become much more competitive and the airlines definitely
have interest in saving money. He emphasized that in the
fourth quarter, 1995, 20 million gallons of jet fuel did
come into the Alaskan market. He urged that the tax
advantage for the foreign refined fuel be eliminated.
Discussion continued between Representative Navarre and Mr.
Cook.
Representative Navarre questioned the two cent per gallon
flowage fee lifted at the airport. He asked if that was a
charge on all fuel pumped at the airport.
KURT PARKAN, DEPUTY COMMISSIONER, OFFICE OF THE
COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC
FACILITIES (DOTPF), stated that the fuel flowage fee
circulates back into the enterprise fund at the airport.
Most of that is collected through an operating agreement
with the air carriers. That agreement is based on a five
year operating agreement during which time, the fuel flowage
fees can not be increased. The fuel users within the FTZ
are nearly all members of the operating agreement.
Members discussed the concept of profit margin.
Representative Therriault spoke to the advantages and
disadvantages among private sector in determining the profit
margin. Co-Chair Hanley inquired if fuel that came into
Alaska had displaced any Alaska refined product.
Representative Navarre suggested that it had been a
balancing influence in the competitive market.
Commissioner Perkins stated that DOTPF wants to "level the
playing field", although he felt that enough information
indicating that it was not currently level, is not
available. The Department plans to proceed to work with the
Municipality of Anchorage addressing the FTZ portion of the
legislation. The bonding concerns should be addressed at a
later date.
Co-Chair Hanley asked if new facilities would need to be
built for bonded fuel. Commissioner Perkins advised that
the current set-up could be used, although it can not be
mixed in the tanks. He added, bonded fuel did come into
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Alaska in 1971, which was the only bonded fuel to come into
Alaska until the tanker last year. He did not know of any
tankers which were scheduled to come back into Alaska.
Discussion followed between Representative Kelly and
Commissioner Perkins as to the definition of a "level
playing field". Commissioner Perkins noted that there were
many considerations which would create a level playing field
including the cost of transportation and the cost of
product. The deciding factor is whether a business can
compete and make a profit. Representative Kelly reiterated
that it was not "fair" that in the free market place, one
business was required to pay over and above the other, a 3.2
cent tax. Representative Navarre advised that the tax was
not the only thing making the playing field not level. He
stressed that it has not been proven that the bonded fuel is
crippling the in-state refiners.
Commissioner Perkins asked if there had been to date, enough
impact on industry to remove the 3.2 cent tax, eliminating
that revenue source for the State of Alaska. He noted that
the Department supports in-state producers and would
guarantee that if there was a lot of fuel arriving at the
Anchorage harbors, the Department would then suggest that
the tax be removed. Co-Chair Hanley agreed that the State
would lose revenue with the removal of the tax.
JACK BURMINGHAM, (TESTIFIED VIA TELECONFERENCE), ALASKA AIR
CARRIERS ASSOCIATION, ANCHORAGE, testified that airlines
were the ones required to pay the aviation fuel tax, not the
refiners. To the extend that there is an unlevel playing
field, he noted that some airlines do not pay the fuel tax
and are competing with those airlines that do. He stated
that there has not been specific justification for the tax
give-a-way for bonded fuel.
PAMELA LABOLLE, PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE,
JUNEAU, spoke in support of HB 362. Under present
circumstances, Alaskan business' are being put at a
disadvantage. She recommended the State goals be:
1. Value added resources; and
2. Economic development.
Co-Chair Hanley asked if bonded fuel could be taxed.
NEIL SLOTNICK, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, noted that he had checked if state tax would be
preempted by federal law. There is no statute that
explicitly preempts state taxation, which then leaves the
State in determining if state taxation is implicitly
preempted. He thought that arguments could be made on both
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sides. The taxpayers are likely to argue that there are two
cases before the U.S. Supreme Court that control that issue.
The commissioner of the Department of Revenue has
considered all the information, including weighing the risks
of litigation costs, and has determined that it would not be
in the State's best interest to assess state taxes against
bonded fuel.
(Tape Change, HFC 96-84, Side 2).
M. CLYDE STOLZFUS, SPECIAL ASSISTANT, OFFICE OF THE
COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC
FACILITIES, responded to Co-Chair Hanley's question
regarding other states which tax bonded fuel. He advised
that there are other jurisdictions that tax bonded fuel,
although the type of taxes vary. The existence of a FTZ
does not in itself, exempt taxation.
Co-Chair Hanley asked if some states are taxing the fuel,
why doesn't Alaska. Mr. Stolzfus responded that the
situation was not fuel related. It was "other" commodities
within a FTZ. Mr. Slotnick added, the difference was not in
the commodities, but rather the type of tax. There are some
"privilege" taxes that have been allowed on exempt
commodities which are in a FTZ.
Representative Kelly suggested the possibility of offering a
rebate given to the local producers based on the amount that
is actually brought into the State. Mr. Bartholomew stated
that consideration could be a possibility. Perhaps an
exemption of every gallon coming into the State of that used
in excess of the capacity of the local producers.
RANDY WELKER, LEGISLATIVE AUDITOR, LEGISLATIVE AUDIT
DIVISION, commented that federal regulations that govern the
FTZ consists of a governing board. The regulations do
provide that the board, if given good cause, can exclude
certain goods or property from the FTZ. He stated that
there is a possibility that a resolution submitted to that
Foreign Trade Zone Board could encourage the exemption of
fuel from that zone. If that should occur, the fuel coming
in could be taxed, which would only address that FTZ fuel
and not the bonded fuel.
RICHARD CURTIN, GENERAL COUNSEL, PETRO STAR, ANCHORAGE,
testified that Petro Star owns the only Alaskan refinery and
the smallest refinery in the State. He stressed that once
the tankers are in route, it will be too late for in-state
refiners. The impact will cause some refineries to go out
of business. He concluded that the purchasers of jet fuel
have indicated that they intend to move to bonded fuel.
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HB 362 was HELD in Committee for further consideration.
ADJOURNMENT
The meeting adjourned at 4:10 P.M.
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