Legislature(1997 - 1998)

04/02/1997 01:40 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
                     HOUSE FINANCE COMMITTEE                                   
                          APRIL 2, 1997                                        
                            1:40 P.M.                                          
                                                                               
  TAPE HFC 97 - 86, Side 1, #000 - end.                                        
  TAPE HFC 97 - 86, Side 2, #000 - #585.                                       
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Co-Chair Gene Therriault called  the House Finance Committee                 
  meeting to order at 1:40 P.M.                                                
                                                                               
  PRESENT                                                                      
                                                                               
  Co-Chair Hanley               Representative Kelly                           
  Co-Chair Therriault           Representative Kohring                         
  Representative Davies         Representative Martin                          
  Representative Davis                                                         
  Representative Foster                                                        
                                                                               
  Representatives  Grussendorf,  Moses  and  Mulder  were  not                 
  present for the meeting.                                                     
                                                                               
  ALSO PRESENT                                                                 
                                                                               
  Bob  Bartholomew, Deputy  Director,  Income  & Excise  Audit                 
  Division,  Department of  Revenue;  Mark Necessary,  TESORO,                 
  Alaska,  Kenai;  Peter Ecklund,  Staff,  Representative Bill                 
  Williams; Jack  Shay,  Mayor,  Ketchikan  Borough  Assembly,                 
  Ketchikan;  Tom Williams,  Facility  Manager, Department  of                 
  Health  and  Social  Services; Gregory  Hayes,  Dr.,  Chief,                 
  Public  Health Laboratories,  Anchorage;  Mike Probst,  Dr.,                 
  Anchorage.                                                                   
                                                                               
  SUMMARY                                                                      
                                                                               
  HB 63     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; and providing for                 
            an effective date.                                                 
                                                                               
            CS HB 63 (FIN) was reported  out of Committee with                 
            a "do pass"  recommendation and with a  new fiscal                 
            note by the Department of Revenue.                                 
                                                                               
  HB 66     An Act giving  notice of  and approving the  entry                 
            into,   and  the   issuance  of   certificates  of                 
            participation in, a lease-purchase agreement for a                 
            centralized public health laboratory facility.                     
                                                                               
            CS HB 66 (HES) was reported  out of Committee with                 
                                                                               
                                1                                              
                                                                               
                                                                               
            "no recommendation" and with  fiscal notes by  the                 
            Department  of  Administration  dated 2/5/97,  the                 
            Department  of Health  and  Social Services  dated                 
            2/5/97,  and  the  Department   of  Revenue  dated                 
            2/5/97, and a  zero fiscal note by  the Department                 
            of Public Safety dated 2/5/97.                                     
  HOUSE BILL 63                                                                
                                                                               
       "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; and providing for an effective date."                          
                                                                               
  Co-Chair  Therriault informed  members that  work  draft #0-                 
  LS0262\L, Chenoweth, 3/11/97, had been adopted at a previous                 
  meeting.                                                                     
                                                                               
  Representative G. Davis  MOVED to adopt Amendment #1.  [Copy                 
  on file].   Co-Chair Therriault OBJECTED for  the purpose of                 
  discussion.                                                                  
                                                                               
  Representative  G. Davis explained  that Amendment  #1 would                 
  delete the reference to passenger "water craft", which would                 
  change the intent and  would increase sales of  bunker fuel.                 
  Usage of  "passenger" restricts  sales to  cruise ships  who                 
  utilize bunker fuel.                                                         
                                                                               
  BOB  BARTHOLOMEW,  DEPUTY  DIRECTOR, INCOME  &  EXCISE AUDIT                 
  DIVISION, DEPARTMENT OF REVENUE, spoke  to the fiscal impact                 
  of the amendment.  He noted that currently, the marine motor                 
  fuel tax is collected by the  Department of Revenue and does                 
  not provide a  report in which the  information is separated                 
  between the amount of bunker fuel used.  There would be $600                 
  thousand  dollars  of  lost  tax  revenue  with  passage  of                 
  Amendment #1.                                                                
                                                                               
  Representative J.  Davies questioned if  non-passenger water                 
  craft  was  currently fueling  in  Alaska.   Mr. Bartholomew                 
  understood that the tax would be placed on fuel purchased or                 
  used by  the company that  actually produces it,  selling it                 
  then to others who export.                                                   
                                                                               
  He continued,  in  1994,  a  provision was  adopted  by  the                 
  Legislature that charged a full marine fuel tax on purchases                 
  up to  four million  gallons.   At that  threshold, the  tax                 
  would be  dropped from  five cents a  gallon to  one cent  a                 
  gallon to encourage bunker fuel  business outside of Alaska.                 
  That action  created a revenue increase in  the first couple                 
  of years, although, to date it has "fallen off".                             
                                                                               
  MARK  NECESSARY,  TESORO,  ALASKA,  KENAI,  noted  that  the                 
                                                                               
                                2                                              
                                                                               
                                                                               
  majority  of the bunker fuel  used was on ships transporting                 
  oil throughout the states.  He added, the oil industry hopes                 
  to attract "takers" who are currently using other sources.                   
                                                                               
  Representative J.  Davies asked  if the  amendment would  be                 
  expanding the exemption  to "all" water craft.   He inquired                 
  if  there  would be  an incentive  to the  vessels currently                 
  fueling outside the  State.  Mr. Necessary  ascertained that                 
  bunker  fuel sells  at a  low  cost and  that the  tax  is a                 
  substantial  portion   of  that   amount.     From  TESORO's                 
  perspective, inclusion of the proposed language will provide                 
  an opportunity to develop that business.                                     
                                                                               
  Representative Martin questioned if ship carriers paid taxes                 
  in other states.  Mr. Necessary  understood that they do not                 
  which then places Alaska  at a disadvantage.   The objective                 
  is to price the fuel to be competitive with other markets on                 
  the West coast.  Representative  Martin suggested that being                 
  "competitive" would be at the  State's lost revenue expense.                 
                                                                               
                                                                               
  Co-Chair Therriault clarified that royalty oil contracts are                 
  not   "sweetheart"  deals;  fair   market  price   is  paid.                 
  Representative  G.  Davis added  that  the bunker  fuel that                 
  TESORO produces  is residual waste  product, suggesting that                 
  it could  be beneficial  to major  industry.   He urged  the                 
  Committee's support of  the amendment.   Co-Chair Therriault                 
  WITHDREW his OBJECTION.  Representative Martin OBJECTED.                     
                                                                               
  A roll call vote was taken on the MOTION.                                    
                                                                               
       IN FAVOR:      G.   Davis,   Foster,   Kelly,  Kohring,                 
                      Hanley, Therriault                                       
       OPPOSED:       J. Davies, Martin                                        
                                                                               
  Representatives  Grussendorf,  Moses  and  Mulder  were  not                 
  present for the vote.                                                        
                                                                               
  The MOTION PASSED (6-2).                                                     
                                                                               
  Representative Foster MOVED to adopt Amendment #2.  [Copy on                 
  file].                                                                       
                                                                               
  PETER ECKLUND, STAFF, REPRESENTATIVE TOM WILLIAMS,  provided                 
  a historical background,  pointing out that since  1990, the                 
  State has lost over 60% of the jobs in  the Tongess National                 
  Forest and the timber  industry.  He stated that  pulp mills                 
  used to  be a  good "source"  for using low  end boards  for                 
  milling.    The  amendment  would  allow  for  the  State to                 
  participate in  a new  and emerging  technology which  would                 
  produce ethanol derived from wood and wood wastes.                           
                                                                               
                                                                               
                                3                                              
                                                                               
                                                                               
  Amendment #2 would  provide a more narrow focus, keeping the                 
  tax incentive in place but only for ethanol that is produced                 
  from wood.  Mr.  Ecklund spoke to  the many benefits that  a                 
  biomass ethanol industry could bring to Alaska:                              
                                                                               
       *    Create jobs for Alaskans;                                          
       *    Save about $1.5  million dollars per year  by                      
            decreasing support payments;                                       
       *    Help sustain the Alaskan timber industry;                          
       *    Help abate pollution from vehicles;                                
       *    Introduce  new  ethanol  export  markets  for                      
            Alaska to the Lower 48 and Japan; and                              
       *    Increase  corporate  taxes  going   into  the                      
            Alaskan treasury from the new industry.                            
                                                                               
  Representative Martin  asked  if this  would "wipe-out"  the                 
  ethanol made from other products.  Mr. Ecklund  replied that                 
  corn,  barley and other sources of ethanol would not qualify                 
  for the tax exemption.   Representative Martin questioned if                 
  such a restriction  would be legal.   Mr. Ecklund understood                 
  that it would be legal.                                                      
                                                                               
  Co-Chair  Hanley  pointed  out  that   the  10%  ethanol  is                 
  currently being shipped from out-of-state; Alaska is loosing                 
  all  that  revenue.    He  voiced concern  for  the  future,                 
  suggesting that  at some  point, producers  in Alaska  would                 
  like to have that advantage.  Co-Chair Hanley commented that                 
  his preference was to either repeal such an incentive or use                 
  a 1.5 cents credit for ethanol, which would be well over the                 
  25% credit  incentive.  His concern  was  that with  a  100%                 
  credit, there would never be an  incentive to raise taxes to                 
  dedicate a  fund.  Co-Chair  Hanley OBJECTED to  adoption of                 
  Amendment #2.                                                                
                                                                               
  Ms. Bartholomew spoke to the fiscal impact of  Amendment #2.                 
  He pointed  out  that  the  Department  is  not  opposed  to                 
  business incentives, although,  he stressed the  "magnitude"                 
  of the incentive provided through  Amendment #2.  A complete                 
  exemption  would  delete  $6 to  $8  million  dollars annual                 
  revenue for the State.  The unknown issue is the size of the                 
  plant being considered.  A feasibility study was provided on                 
  eight million  gallons, which  would meet  about 80%  of the                 
  Anchorage  market  consumption.   That  would equate  to 100                 
  million gallons of tax free gas.  Mr.  Bartholomew indicated                 
  that the  Department did  not know  at this  time, if  there                 
  would be an  incentive to go  statewide.  He concluded  that                 
  the State  should not  loose one  of the  most standard  tax                 
  base.                                                                        
                                                                               
  Representative J. Davies asked what corporate taxes could be                 
  realized through the amendment.   Mr. Bartholomew noted that                 
  the Department  has not  looked into  that issue.   At  this                 
                                                                               
                                4                                              
                                                                               
                                                                               
  time, there are 13,000 corporations in Alaska, although, the                 
  largest proportion  of revenue  tax is  provided from  a few                 
  companies.                                                                   
                                                                               
  Representative J. Davies commented that he was uncomfortable                 
  with the  approach proposed because  of the impact  on State                 
  revenue.  He  believed that the  State must maintain  roads.                 
  He  suggested  a 5  year "tax  holiday"  as an  incentive to                 
  establish  the new business.   Mr. Ecklund  pointed out that                 
  50-100 direct  jobs would  result from  creating an  ethanol                 
  wood plant.                                                                  
                                                                               
  JACK SHAY, MAYOR,  KETCHIKAN BOROUGH, KETCHIKAN,  noted that                 
  Ketchikan is currently  in the throws of  restructuring with                 
  the close of  the mill.  Mayors  throughout Southeast Alaska                 
  have been pleading for  the release of the Tongess  Land Use                 
  Management Plan.    When  that  plan is  released,  it  will                 
  demonstrate that there  is ample timber to operate  any type                 
  of producing ethanol  facility.  He  urged the Committee  to                 
  seriously consider the usage of  ethanol from wood products.                 
                                                                               
                                                                               
  Representative  J.  Davies  reiterated  his  support to  the                 
  Ketchikan community and proposed that  by creating some sort                 
  of direct  "tax holiday"  could provide  the same  incentive                 
  that the amendment would.  Mr. Shay requested that Ketchikan                 
  be  aided  by  the  State  in  any capacity  to  initiate  a                 
  methodology to create the facility and eliminate competition                 
  from other interests out side of the State.                                  
                                                                               
  Co-Chair  Therriault  charged  that   the  State  was  being                 
  requested to provide a "complete" exemption from the State's                 
  tax base before  the Borough Assembly of  Ketchikan had even                 
  made  a  determination   if  "they"  would  be   willing  to                 
  contribute an incentive.                                                     
                                                                               
  (Tape Change HFC 97-86, Side 2).                                             
                                                                               
  A roll call vote was taken on the MOTION.                                    
                                                                               
       IN FAVOR:      G. Davis, Foster                                         
       OPPOSED:       Kelly,  Kohring,   Martin,  J.   Davies,                 
                      Therriault, Hanley                                       
                                                                               
  Representatives  Mulder,  Moses  and  Grussendorf  were  not                 
  present for the vote.                                                        
                                                                               
  The MOTION FAILED (2-6).                                                     
                                                                               
  Representative Martin  asked if  passage of  the bill  would                 
  bring  a  gas  increase  to consumers  in  Anchorage.    Mr.                 
  Bartholomew replied that he did not  know that market or the                 
                                                                               
                                5                                              
                                                                               
                                                                               
  dynamics that  affect  it.   People  in  the  industry  have                 
  testified previously on those effects.   Co-Chair Therriault                 
  commented that there currently exists a 5.4 cents per gallon                 
  tax break offered by the federal government.                                 
                                                                               
  Co-Chair  Hanley  MOVED to  report  CS  HB 63  (FIN)  out of                 
  Committee  with  individual  recommendations   and  the  new                 
  Revenue fiscal note.   There being  NO OBJECTION, it was  so                 
  ordered.                                                                     
                                                                               
  CS HB  63 (FIN)  was reported  out of  Committee with  a "do                 
  pass" recommendation  and  with a  new  fiscal note  by  the                 
  Department of Revenue.                                                       
  HOUSE BILL 66                                                                
                                                                               
       "An Act giving notice of and approving the  entry into,                 
       and the issuance of certificates of participation in, a                 
       lease-purchase  agreement  for  a   centralized  public                 
       health laboratory facility."                                            
                                                                               
  GREGORY HAYES, DR., CHIEF, STATE PUBLIC HEALTH LABORATORIES,                 
  ANCHORAGE, provided  an overview of  the handout.   [Copy on                 
  file].   He spoke to the  proposition of a new public health                 
  lab located  in Anchorage  which would  include the  medical                 
  examiners lab and the functions of the Juneau  and Anchorage                 
  laboratories and would  be designed and  constructed through                 
  debt financing.                                                              
                                                                               
  The unique role of public health laboratories  are to assess                 
  infectious disease in partnership with private laboratories,                 
  specializing in disease surveillance and recognition of  new                 
  and re-emerging diseases and applying  critical state of the                 
  art  technology  for  rapid  testing  of  large  numbers  of                 
  specimens, in face of an epidemic.                                           
                                                                               
  Mr.  Hayes provided examples of  how public health labs have                 
  historically benefited the public by addressing the epidemic                 
  gastroenteritis  and contamination  of  king crab,  epidemic                 
  gastroenteritis   in   the   Tourism    Industry-May   1992,                 
  tuberculosis outbreaks  in rural  villages,  and the  rabies                 
  expertise in Pilot Point exposure in 1995.                                   
                                                                               
  He explained the public health lab mission statement:                        
                                                                               
       *    Essential  component  of  state and  national                      
            public health systems  providing a  different                      
            purpose than private labs;                                         
                                                                               
       *    To   provide    scientific   and    technical                      
            information for disease prevention;                                
                                                                               
                                                                               
                                6                                              
                                                                               
                                                                               
       *    First  line  of  defense  in recognizing  and                      
            controlling spread of communicable diseases;                       
                                                                               
       *    Accomplish core public  health functions  and                      
            responsibilities in partnership  with private                      
            and federal laboratories.                                          
                                                                               
  Dr. Hayes addressed  the need to  build a new facility.   He                 
  emphasized that  it would  save money  while maintaining  an                 
  essential public service  more cheaply and efficiently.   To                 
  have new advances  requires new  technologies and a  modern,                 
  well-designed, adaptable,  safe laboratory, which is  a 21st                 
  Century necessity.   He stressed that the  status quo cannot                 
  continue.  The State  can not afford  nor does it need  four                 
  separate  labs.   The  current  arrangement for  the medical                 
  examiner is untenable.                                                       
                                                                               
  Dr. Hayes pointed  out that the Legislature  almost approved                 
  the new lab during the last session.  That legislation would                 
  have combined the  Anchorage and  Juneau public health  labs                 
  and  medical examiner into  a new lab  in Anchorage, leaving                 
  the Fairbanks public health lab operating.                                   
                                                                               
  The  current   labs  spaces  are  inadequate   and  crowded,                 
  consuming 15,000  square feet.   The proposed  architectural                 
  and laboratory  standards require 23,400 gross  square feet.                 
  Construction of this facility would be adequate for at least                 
  fifty years.  Construction would start in 1999 @ $482/square                 
  foot.  Costs would reflect:                                                  
                                                                               
       *    Special utility & ventilation requirements;                        
       *    Special containment;                                               
       *    Explosion proof;                                                   
       *    Morgue;                                                            
       *    Security access; and                                               
       *    High floor loading & floor ceiling heights.                        
                                                                               
  Co-Chair Therriault  asked what  the building  complex would                 
  house.  Dr. Hayes reiterated  that there would be  technical                 
  area, a  darkroom, shared  storage, microbiological  center,                 
  immunology  area,  molecular   diagnostic  area,   classroom                 
  training, support areas, employee areas, specimen processing                 
  unit;  utility   space  and  waste  storage,  bulk  storage,                 
  housekeeping, reception areas, technical  administrative and                 
  billing offices and a conference room.   There also would be                 
  an embalming  room, shower  room, body  holding room, and  a                 
  place  where the  chief  medical  examiner, pathologist  and                 
  chief  investigator  would   co-locate,  a  photo   lab  and                 
  receiving area.   This area would  total 5,915 square  feet.                 
  In  response to  Co-Chair  Therriault,  Dr.  Hayes  informed                 
  members   that   the   library/conference  room   would   be                 
  technically for staff  to keep their journals,  whereas, the                 
                                                                               
                                7                                              
                                                                               
                                                                               
  classroom would be  an area for educating and training other                 
  labatorians in the State.                                                    
                                                                               
  In response to Co-Chair Therriault, Dr. Hayes noted that  he                 
  had  answered  all  questions posed  by  the  Senate Finance                 
  Committee during his overview presentation.                                  
                                                                               
  MIKE PROBST,  DR., ANCHORAGE,  MEDICAL EXAMINER,  ANCHORAGE,                 
  explained that the  medical examiner currently has  space in                 
  two buildings.  The space occupied in the laboratory was not                 
  designed as a morgue for people;  it was designed to do post                 
  morgue examinations on animals.  Also, the demands to do DNA                 
  testing technology by the crime  laboratory has increased in                 
  the  past  few  years and  the  Department  needs  the space                 
  currently being occupied by the medical examiner.                            
                                                                               
  Representative J. Davies cited  that construction cuts would                 
  be around  $12  million  dollars.    He  inquired  what  the                 
  remaining $6 million dollars would be budgeted for.                          
                                                                               
  TOM  WILLIAMS,  FACILITY MANAGER,  DEPARTMENT OF  HEALTH AND                 
  SOCIAL SERVICES, stated that the full cost would include not                 
  only the construction cost but also the design and equipment                 
  costs.  There  would be a  savings of $200 thousand  dollars                 
  per   year  in   comparison   to  the   existing  situation.                 
  Currently, leased costs  paid in Anchorage and  Juneau would                 
  be consolidated creating also a  savings in personnel costs.                 
  Over  the life  time of  the building,  those  savings could                 
  provide for the cost of the facility.  The recommended space                 
  is projected to  cover the State's  needs for up to  a fifty                 
  year time period.                                                            
                                                                               
  Representative Martin MOVED to report CS  HB 66 (HES) out of                 
  Committee  with  individual  recommendations  and  with  the                 
  accompanying fiscal notes.  There being NO OBJECTION, it was                 
  so ordered.                                                                  
                                                                               
  CS HB  66 (HES)  was reported  out of  Committee with a  "no                 
  recommendation" and with a fiscal note by  the Department of                 
  Administration dated  2/5/97, the  Department of  Health and                 
  Social  Services  dated 2/5/97,  the  Department of  Revenue                 
  dated 2/5/97 and  a zero  fiscal note by  the Department  of                 
  Public Safety dated 2/5/97.  #                                               
  ADJOURNMENT                                                                  
                                                                               
  The meeting adjourned at 3:10 P.M.                                           
                                                                               
                                                                               
                                8                                              

Document Name Date/Time Subjects