Legislature(2001 - 2002)

10/25/2001 01:19 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                     October 25, 2001                                                                                           
                          1:19 PM                                                                                               
                       Anchorage LIO                                                                                            
                                                                                                                                
TAPE HFC 01 - 119, Side A                                                                                                       
TAPE HFC 01 - 119, Side B                                                                                                       
TAPE HFC 01 - 120, Side A                                                                                                       
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Williams called the House Finance Committee                                                                            
meeting to order at 1:19 PM.                                                                                                    
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Bill Williams, Co-Chair                                                                                          
Representative Eldon Mulder, Co-Chair                                                                                           
Representative Con Bunde, Vice-Chair                                                                                            
Representative John Davies                                                                                                      
Representative Carl Moses                                                                                                       
Representative Richard Foster                                                                                                   
Representative John Harris                                                                                                      
Representative Bill Hudson                                                                                                      
Representative Ken Lancaster                                                                                                    
Representative Jim Whitaker                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Eric Croft                                                                                                       
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Senator   Kim   Elton;    Representative   Lisa   Murkowski;                                                                    
Representative Gary Stevens; Representative Andrew Halcro.                                                                      
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Anchorage:     James, A. Crary; Mike Savage, Brown Jug; Don                                                                     
               Grasse,  Alaska  Wine and  Spirits  Wholesale                                                                    
               Association;     Karen     Rogina,     Alaska                                                                    
               Hospitality    Alliance;   Kacch    McDowell,                                                                    
               Executive Director, Alaska  Cabaret Hotel and                                                                    
               Restaurant Retail  Association (CHARR); Elmer                                                                    
               Lindstrom,  Special Assistant,  Department of                                                                    
               Health  and Social  Services; Laura  Sarcone,                                                                    
               Alaska  Nurses  Association;  Larry  Persily,                                                                    
               Deputy  Commissioner, Department  of Revenue;                                                                    
               Obed  Nelson, President,  Council on  Alcohol                                                                    
               Abuse   and  Public   Safety;  Lee   Chipman,                                                                    
               General   Manager,    Hilton;   Jeff   Jesse,                                                                    
               Executive  Director,   Alaska  Mental  Health                                                                    
               Trust  Authority;  Tim Schrage;  Bob  Bailey;                                                                    
               Susan, Fischetti, Alaskans for Tax Reform.                                                                       
                                                                                                                                
Fairbanks:     Mr. Jeff Carter, K&L Distributors; Mr. Larry                                                                     
               Hackenmiller, Club Manchu.                                                                                       
                                                                                                                                
Homer:         Sandy Barker, Salty Dog Saloon; Melvyn                                                                           
               Strydom, Finance Manager, Patel Enterprises                                                                      
               Incorporated.                                                                                                    
                                                                                                                                
Juneau:        Judy McDonald, Bar Owner; Butch Tangney,                                                                         
               Techniques of Alcohol Management; Cindy                                                                          
               Cashen, Mothers Against Drunk Driving.                                                                           
                                                                                                                                
Ketchikan:     John Nixon, Social Club Manager, Eagles FOE                                                                      
               #162; Bill White, Pastor, Ketchikan; Stan                                                                        
               Berntson, Clergy, Ketchikan; Marge Hobart,                                                                       
               Sourdough Bar; Wes Loe, Newtown Liquor;                                                                          
               Lynda Adams, Alaskans for Drug Free Youths.                                                                      
                                                                                                                                
Kodiak:        Bobbie Hutcherson.                                                                                               
                                                                                                                                
Nikiski:       Chrystal Schoenrock Chrystal Schoenrock, 4-                                                                      
               Lands Bar.                                                                                                       
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 225    "An Act relating to municipal taxation of                                                                             
          alcoholic beverages and increasing the alcoholic                                                                      
          beverage tax rates."                                                                                                  
                                                                                                                                
          HB 225 was heard and HELD in Committee for                                                                            
          further consideration.                                                                                                
HOUSE BILL NO. 225                                                                                                            
                                                                                                                                
     "An Act relating to municipal taxation of alcoholic                                                                        
     beverages and increasing the alcoholic beverage tax                                                                        
     rates."                                                                                                                    
                                                                                                                                
REPRESENTATIVE LISA MURKOWSKI expressed her appreciation to                                                                     
the Chair for hearing the legislation.                                                                                          
                                                                                                                                
Vice-Chair   Bunde    expressed   concern    regarding   the                                                                    
expenditure of the tax. He questioned  if there was a way to                                                                    
direct the  money generated from  an alcohol tax  to alcohol                                                                    
abuse prevention and treatment.                                                                                                 
                                                                                                                                
Representative  Murkowski observed  that  revenue cannot  be                                                                    
dedicated  short of  a constitutional  amendment. She  noted                                                                    
that the decision  to direct the funds  toward treatment and                                                                    
prevention  could be  made through  intent language  and the                                                                    
appropriation  process. She  acknowledged the  importance of                                                                    
prevention and treatment.                                                                                                       
                                                                                                                                
Vice-Chair Bunde suggested  that if the purpose  is to raise                                                                    
money it  should be  presented honestly.  He had  hoped that                                                                    
there would  be a way  to tie  the revenues to  treatment if                                                                    
that is the intent.                                                                                                             
                                                                                                                                
Representative John  Davies maintained that a  fund could be                                                                    
created  to support  the  programs  mentioned by  Vice-Chair                                                                    
Bunde. He  stressed that  it is  a statutory  designation of                                                                    
funds  not a  constitutional  dedication.  He observed  that                                                                    
legislatures seldom  violate statutory dedications,  even if                                                                    
they  can   be  appropriated  for  any   purpose  under  the                                                                    
Constitution. He recommended  the creation of a  sub fund in                                                                    
the general  fund for treatment programs  and the dedication                                                                    
of revenues  from any  similar legislation.  He acknowledged                                                                    
that there would  be no guarantees that funding  from such a                                                                    
fund  would be  used  as indicated,  but  emphasized that  a                                                                    
moral fence would be built.                                                                                                     
                                                                                                                                
LEE  CHIPMAN,  GENERAL   MANAGER,  HILTON  GENERAL  MANAGER,                                                                    
ANCHORAGE testified  in support of the  legislation. He read                                                                    
from a  letter signed by representatives  of major Anchorage                                                                    
hotels:   Captain   Cook,   Hilton,   Millennium,   Downtown                                                                    
Marriott, and Sheraton.                                                                                                         
                                                                                                                                
     As General  Managers of major  Hotels in  Anchorage, we                                                                    
     would like  to go  on record  opposing any  increase in                                                                    
     the alcohol tax.                                                                                                           
                                                                                                                                
     The  world is  different since  September 11th  and the                                                                  
     hospitality world is different  in a major negative way                                                                    
     since  September 11th.  Airline travel  is down,  Hotel                                                                  
     bookings  are down,  several conventions  scheduled for                                                                    
     Anchorage  in September  were  cancelled, most  notably                                                                    
     the  Council  of State  Governments  which  all of  you                                                                    
     would have  attended, tourism bookings for  next season                                                                    
     are down  considerably, people are  eating out  less in                                                                    
     restaurants.  We  could  go on  and  on  with  specific                                                                    
     examples,  but  the point  is  it  is  hard to  find  a                                                                    
     positive indicator in the  hospitality industry at this                                                                    
     point in time.                                                                                                             
                                                                                                                                
     The last  thing the hospitality industry  needs at this                                                                    
     point in time  is a tax that will not  add any value to                                                                    
     the  industry!  It will  be  one  more negative  factor                                                                    
     piled onto a slew of  other negative factors that we do                                                                    
     not need at this time.                                                                                                     
                                                                                                                                
     As public policy  makers we need your  positive help to                                                                    
     rebuild the  hospitality industry  in Alaska.  We don't                                                                    
     need and  we strongly oppose  the addition of  one more                                                                    
     negative factor  for our industry  at this  time. Thank                                                                    
     you for your consideration.                                                                                                
                                                                                                                                
LARRY  PERSILY, DEPUTY  COMMISSIONER, DEPARTMENT  OF REVENUE                                                                    
explained how the  tax is collected. Taxes  are collected at                                                                    
the wholesale  level. Goods are  taxed when the are  sold or                                                                    
leave the  warehouse. If the  warehouse is  non-bonded goods                                                                    
are taxed  when they are  imported or sold into  Alaska. The                                                                    
tax  rate is  $5.60 dollars  for  a gallon  of hard  liquor,                                                                    
which  would equate  to .044  cents  a drink  per once.  The                                                                    
national average  for hard  liquor in  state taxes  is $3.30                                                                    
dollars  per gallon.  The federal  tax is  $13.50 dollars  a                                                                    
gallon. The state  tax on wine is approximately  .85 cents a                                                                    
gallon.  A six  once glass  of wine  would be  taxed at  .04                                                                    
cents. The national  average in state taxes for  wine is .60                                                                    
cents a gallon. The federal tax  on wine is $1.07. The state                                                                    
tax on beer is  .35 cents a gallon or .035  cents per can or                                                                    
bottle. The national average is  .19 cents a gallon. Federal                                                                    
tax is  .58 cents  a gallon.  The state  portion of  the tax                                                                    
would be between  .035 and .045 cents a  drink. Alaska first                                                                    
imposed a  beer and wine  tax in  1933; hard liquor  tax was                                                                    
imposed in 1937. The last  increase was in 1983; before that                                                                    
the tax on beer had not  been increased since 1957. Wine and                                                                    
hard liquor had been unchanged since 1961.                                                                                      
                                                                                                                                
Mr. Persily  noted that  the high  tourism states  of Hawaii                                                                    
and  Florida have  among the  highest alcohol  rates in  the                                                                    
nation.  There  are not  many  taxpayers  in Alaska  at  the                                                                    
wholesale rate. There  have been an average of  less than 30                                                                    
tax  returns   per  month.  Alcohol  tax   collections  have                                                                    
fluctuated between $12 and $12.3 million dollars in Alaska.                                                                     
                                                                                                                                
Mr.  Persily observed  that there  is one  halftime position                                                                    
for enforcement and collection of  alcohol taxes. No returns                                                                    
were audited  in the last  year and enforcement  is minimal.                                                                    
If the  alcohol tax  were increased  they would  expect some                                                                    
stockpiling,  which would  drop  revenues immediately  after                                                                    
the passage.  The increase could result  in greater revenues                                                                    
of $30 - $34 million  dollars if consumption is not reduced.                                                                    
The  Department  of  Revenue is  asking  for  one  full-time                                                                    
enforcement  position if  the alcohol  tax is  increased. He                                                                    
suggested  that the  legislation should  look at  increasing                                                                    
mail  orders of  alcohol  for personal  use,  which are  not                                                                    
subject to  tax in Alaska.  He recommended changing  the law                                                                    
so  that  the  tax  is payable  on  any  alcoholic  beverage                                                                    
brought  into the  state.  Such a  change  would require  an                                                                    
additional   enforcement   position,  which   would   likely                                                                    
generate more than its cost in additional revenue.                                                                              
                                                                                                                                
Representative Harris asked if  the problems associated with                                                                    
alcohol  would  be  addressed through  a  tax.  Mr.  Persily                                                                    
stressed that  the Department of Revenue  cannot address the                                                                    
social impact but would be happy to collect the tax.                                                                            
                                                                                                                                
Vice-Chair Bunde  observed that  combined state  and federal                                                                    
tax on alcohol is approximately .15 cents a drink.                                                                              
                                                                                                                                
Mr. Persily did not know of  any other states with a similar                                                                    
percentage increase that could be used as a model.                                                                              
                                                                                                                                
JOHN NIXON, SOCIAL CLUB MANAGER,  EAGLES FOE #162, KETCHIKAN                                                                    
testified  via  teleconference. He  is  the  president of  a                                                                    
social club.  The club is supported  through its membership.                                                                    
He  noted  that  the  club contributions  to  charities.  He                                                                    
observed  that  their  organization  contributes  more  than                                                                    
$20,000 dollars a year to local charities.                                                                                      
                                                                                                                                
JUDY   MCDONALD,    BAR   OWNER,   JUNEAU    testified   via                                                                    
teleconference  in   opposition  to  the   legislation.  She                                                                    
maintained  that  the  tax  would   be  devastating  to  her                                                                    
business.  She  stated  that  she  would  have  to  lay  off                                                                    
employees. She  stressed the impact  of the  9/11/01 tragedy                                                                    
on  her business.  She acknowledged  the need  to balance  a                                                                    
budget but  maintained that all  sources of revenue  need to                                                                    
be reviewed.                                                                                                                    
                                                                                                                                
Vice-Chair Bunde  questioned if a 5  percent statewide sales                                                                    
tax in  place of an  alcohol tax would impact  her business.                                                                    
Ms. McDonald responded that a  statewide sales tax would not                                                                    
have  as great  an impact  as the  proposed increase  in the                                                                    
alcohol tax.                                                                                                                    
                                                                                                                                
SANDY  BARKER,   SALTY  DOG  SALOON,  HOMER   testified  via                                                                    
teleconference  in   opposition  to  the   legislation.  She                                                                    
acknowledged  the need  to increase  revenues but  felt that                                                                    
the hospitality industry is being  unfairly singled out. She                                                                    
expressed concern that the  hospitality industry will suffer                                                                    
even more as a result  of the economic downturn, which would                                                                    
be worsened by HB 225.                                                                                                          
                                                                                                                                
CHRYSTAL  SCHOENROCK,  4-LANDS  BAR, KIKISKI  testified  via                                                                    
teleconference against  HB 225. She  did not think  that the                                                                    
increase in  taxes would help  anything and  would adversely                                                                    
affect her  business. She maintained  that there would  be a                                                                    
300 percent increase in taxes, which would be too great.                                                                        
                                                                                                                                
BOBBIE   HUTCHINSON,   BARTENDER,   KODIAK   testified   via                                                                    
teleconference against the  legislation. She maintained that                                                                    
the tax  would cause her to  work longer hours for  the same                                                                    
amount of money.  She agreed that a 300  percent increase is                                                                    
too  much. She  felt that  education, not  taxation, is  the                                                                    
answer to the state's problems.                                                                                                 
                                                                                                                                
JEFF  CARTER, K  & L  DISTRIBUTORS, FAIRBANKS  testified via                                                                    
teleconference  against the  legislation. He  questioned why                                                                    
the state needs  a tax that is 6 times  the national average                                                                    
in order to educate people on alcohol awareness.                                                                                
                                                                                                                                
JAMES  A.  CRARY,  ANCHORAGE testified  in  support  of  the                                                                    
legislation.  He  noted  that   he  is  a  former  municipal                                                                    
prosecutor.  He noted  that 80  percent  of his  cases as  a                                                                    
prosecutor  were related  to alcohol  abuse. He  pointed out                                                                    
that the  occurrence in New  York on September 11,  2001 had                                                                    
nothing to do  with the issue of alcohol  tax. He maintained                                                                    
that  an  increase in  tax  would  decrease consumption.  He                                                                    
observed the  uniqueness of  Hawaii and  Alaska in  terms of                                                                    
their isolation from other states.  He observed that the tax                                                                    
would be a  .10-cent a drink increase.  He expressed support                                                                    
for an  increase of .15  cents a  drink. He questioned  if a                                                                    
moderate drinker  would decrease  consumption due to  a .20-                                                                    
cent increase.  He maintained that  heavy drinkers  would be                                                                    
the most affected.                                                                                                              
                                                                                                                                
Representative  Hudson asked  where the  additional revenues                                                                    
raised by the tax would be  best spent in order to eliminate                                                                    
the  problems of  society.  Mr. Crary  spoke  in support  of                                                                    
additional law enforcement  on the streets and  in the rural                                                                    
areas.                                                                                                                          
                                                                                                                                
Representative Harris  pointed out that the  state of Alaska                                                                    
has  more  people incarcerated  per  capita  than any  other                                                                    
state in the  nation. He questioned how the  populace can be                                                                    
educated. He observed that there  are drug problems in rural                                                                    
Alaska where alcohol is not  available. Mr. Crary reiterated                                                                    
that the additional revenue could  go toward law enforcement                                                                    
and education. He stressed that  80 percent of those in jail                                                                    
are there  for alcohol related  crime. Alcohol is  the worst                                                                    
abused drug in the state.                                                                                                       
                                                                                                                                
BILL WHITE,  PASTER, KETCHIKAN testified  via teleconference                                                                    
in  support of  the legislation.  He noted  that the  clergy                                                                    
supports a substantial increase in the alcohol tax rate.                                                                        
                                                                                                                                
Vice-Chair  Bunde questioned  if  the  support was  directed                                                                    
toward prohibition  and treatment  or toward  raising funds.                                                                    
Mr.  White expressed  support  for both  aims.  The cost  of                                                                    
alcohol abuse  to the  state of  Alaska exceeds  the current                                                                    
revenues [raised from alcohol  taxes]. The clergy works with                                                                    
those whose lives have been broken by alcohol.                                                                                  
                                                                                                                                
STAN BERNTSON, CLERGY, KETCHIKAN  stated that they are aware                                                                    
of the affect on consumption.                                                                                                   
                                                                                                                                
Vice-Chair  Bunde  maintained  that   there  would  be  less                                                                    
funding   available  for   treatment  if   consumption  were                                                                    
reduced.                                                                                                                        
                                                                                                                                
CINDY   CASHEN,  MOTHERS   AGAINST  DRUNK   DRIVING,  JUNEAU                                                                    
testified via teleconference in  support of the legislation.                                                                    
She  spoke in  support of  a  tax of  at least  .10 cents  a                                                                    
drink.                                                                                                                          
                                                                                                                                
MIKE  SAVAGE,   EMPLOYEE,  BROWN  JUG   ANCHOARGE  testified                                                                    
against the  legislation. He felt that  the alcohol industry                                                                    
was being singled out.                                                                                                          
                                                                                                                                
MARGE  HOBART,   SOURDOUGH  BAR,  KETCHIKAN   testified  via                                                                    
teleconference against the legislation.  She felt that a tax                                                                    
of 300 percent would hurt her livelihood.                                                                                       
                                                                                                                                
BUTCH  TANGNEY,  TECHNIQUES  OF ALCOHOL  MANAGEMENT,  JUNEAU                                                                    
testified  via teleconference  against  the legislation.  He                                                                    
noted that Alaska already spends  more per capita on alcohol                                                                    
treatment than any other state.                                                                                                 
                                                                                                                                
TAPE HFC 01 - 119, Side B                                                                                                     
                                                                                                                                
Mr.  Tangney  added that  most  of  the people  against  the                                                                    
legislation are small business owners.  He felt that the tax                                                                    
could  cause closure  or layoffs  in many  businesses. Since                                                                    
September  11,  2001 there  have  been  other blows  to  the                                                                    
hospitality industry.                                                                                                           
                                                                                                                                
MELVYN   STRYDOM,   FINANCE   MANAGER,   PATEL   ENTERPRISES                                                                    
INCORPORATED,   HOMER   testified  via   teleconference   in                                                                    
opposition  to the  legislation. He  maintained that  taxing                                                                    
only the alcohol industry would  place an undue burden on an                                                                    
industry that  already pays a substantial  tax. He suggested                                                                    
a  state sales  tax  be  introduced as  a  vehicle to  raise                                                                    
additional  revenue. Each  state  resident  could receive  a                                                                    
sales  tax  rebate on  the  first  $10,000 thousand  dollars                                                                    
spent each year.                                                                                                                
                                                                                                                                
LARRY HACKLENMILLER,  CLUB MANCHU, FAIRBANKS,  testified via                                                                    
teleconference against  the legislation. He  maintained that                                                                    
federal grants would  be reduced to rural areas  due to [the                                                                    
cost  of] the  War  Against Terrorism.  He anticipated  that                                                                    
treatment funding would be reduced.  He pointed out that the                                                                    
majority of  the revenues  are assessed  in urban  areas but                                                                    
spent on  problems in  rural areas.  He questioned  if equal                                                                    
protection  laws would  apply.  He maintained  that the  tax                                                                    
would not solve the state's fiscal problems.                                                                                    
                                                                                                                                
LAURA SARCONE,  ALASKA NURSES ASSOCIATION,  ANCHORAGE, spoke                                                                    
in support  of the legislation.  She noted that  health care                                                                    
workers  see  daily  the  problems  resulting  from  alcohol                                                                    
abuse. She spoke  in support of the dedication  of funds for                                                                    
treatment and education.                                                                                                        
                                                                                                                                
LYNDA  ADAMS,  ALASKANS  FOR   DRUG  FREE  YOUTH,  KETCHIKAN                                                                    
TESTIFIED  VIA  TELECONFERENCE,  spoke  in  support  of  the                                                                    
legislation.  She   recounted  her  experience   in  alcohol                                                                    
related programs. She  expressed support for at  least a .10                                                                    
cent per glass tax on alcohol.                                                                                                  
                                                                                                                                
Vice-Chair Bunde  questioned if addicts are  price sensitive                                                                    
and if  the price of  alcohol would affect  consumption. Ms.                                                                    
Adams stressed  that prevention, intervention  and treatment                                                                    
work together and is the focus of the legislation.                                                                              
                                                                                                                                
JEFF JESSE,  EXECUTIVE DIRECTOR, ALASKA MENTAL  HEALTH TRUST                                                                    
AUTHORITY  testified  in  support  of  the  legislation.  He                                                                    
acknowledged  the concern  regarding  jobs.  He pointed  out                                                                    
that there are other ways  of creating jobs and stressed the                                                                    
cost  of alcohol  abuse. He  noted that  treatment jobs  are                                                                    
currently being reduced. He addressed  the issue of spending                                                                    
revenues on treatment and  prevention programs. He suggested                                                                    
that a  group of stakeholders  could recommend a  package to                                                                    
be presented to the legislature  by the Alaska Mental Health                                                                    
Trust Authority  for treatment and prevention  services. The                                                                    
legislature could  be required to write  a report indicating                                                                    
why they  are not  willing to spend  the money  on treatment                                                                    
and  prevention  services  if the  recommendations  are  not                                                                    
funded. He disagreed  with statements that the  tax would be                                                                    
300  percent higher  than  the highest  tax.  He noted  that                                                                    
Hawaii's tax on beer is 300 percent higher than Alaska's.                                                                       
                                                                                                                                
Mr. Jesse stated that he is  also involved in the state PTA.                                                                    
He thought that  the state PTA would come out  in support of                                                                    
the alcohol tax at their next meeting.                                                                                          
                                                                                                                                
Vice-Chair  Bunde asked  how if  mental  health clients  are                                                                    
price sensitive.  He stated  that he is  having a  hard time                                                                    
assessing the prohibition affect of the legislation.                                                                            
                                                                                                                                
Mr. Jesse  acknowledged the power  of alcohol  addition, but                                                                    
emphasized  that even  forced treatment  works. He  observed                                                                    
that  any   increase  in  the   cost  of  alcohol   will  be                                                                    
universally applied. A  fifth of Wild Turkey will  go up the                                                                    
same amount as  a fifth of Jack Daniels.  He maintained that                                                                    
cheap  alcohol consumed  by juveniles  wanting to  get drunk                                                                    
would incrementally  go up more than  more expensive liquors                                                                    
[as a percentage of cost].                                                                                                      
                                                                                                                                
Representative Andrew  Halcro questioned if support  for the                                                                    
tax increase by the PTA is  tied to the desire that money go                                                                    
to treatment. Mr. Jesse agreed.  He clarified that the state                                                                    
PTA has  not taken  a position on  the issue.  The Anchorage                                                                    
PTA  and   other  local  PTA's  have   taken  positions  [in                                                                    
support]. The  Anchorage Council's resolution states  that a                                                                    
significant  portion should  go to  treatment and  education                                                                    
programs.                                                                                                                       
                                                                                                                                
Representative  Hudson  questioned  what percentage  of  the                                                                    
mental  health client  base is  a result  of abusive  use of                                                                    
alcohol or  the use of  alcohol by their parents.  Mr. Jesse                                                                    
stated  that the  combined rate  would be  very substantial.                                                                    
Chronic use  would be  about 25  percent of  the beneficiary                                                                    
base.  He  observed that  90  percent  of the  persons  with                                                                    
mental  illness  admitted  to Alaska  Psychiatric  Institute                                                                    
have a  serious alcohol problem. He  emphasized that alcohol                                                                    
abuse among the elderly has been overlooked.                                                                                    
                                                                                                                                
Representative  Harris spoke  in support  of increasing  the                                                                    
support  to  treatment  programs without  putting  an  undue                                                                    
burden on the alcohol industry.  He noted that 80 percent of                                                                    
the  users who  are  not  problem drinkers  pay  for the  20                                                                    
percent of those that have problems related to alcohol.                                                                         
                                                                                                                                
Mr. Jesse  spoke in  support of  allowing the  Alaska Mental                                                                    
Health Trustees to  design a package of  services that would                                                                    
augment the health and social  services budget in areas that                                                                    
already exist.  It's difficult to  provide treatment  to all                                                                    
of  those  that suffer  from  alcohol  related problems.  He                                                                    
emphasized the  extent of the  problem. If funding  is taken                                                                    
from other areas  of the mental health budget  to fund these                                                                    
programs  other areas  will suffer.  He maintained  that all                                                                    
Alaskans  should  share the  burden  of  caring for  alcohol                                                                    
related problems. He pointed out  that the cost of treatment                                                                    
is greater than  the amount raised through  the alcohol tax.                                                                    
He  noted  that a  program  in  Fairbanks designed  to  take                                                                    
chronic  alcoholics  off  the   street  folded  because  the                                                                    
community withdrew  its local match.  He stated that  he did                                                                    
not  understand the  argument that  the tax  would devastate                                                                    
the  alcohol  industry  but  not   make  any  difference  to                                                                    
consumption. He  argued that there  would not be a  net loss                                                                    
in jobs  because instead of  paying people to  serve alcohol                                                                    
the state would be paying  people to help stop alcohol abuse                                                                    
through treatment.                                                                                                              
                                                                                                                                
Co-Chair  Mulder questioned  how  much is  spent on  alcohol                                                                    
treatment  programs. Mr.  Jesse thought  that basic  alcohol                                                                    
grants  were approximately  $20 million  dollars in  general                                                                    
funds. There is another  approximately $4 million dollars in                                                                    
mental health trust funds. Co-Chair  Mulder pointed out that                                                                    
there are also substantial  federal funds. He estimated that                                                                    
$40  to $50  million dollars  in  funds are  being spent  on                                                                    
alcohol related  problems and  questioned how  this compares                                                                    
to other states.                                                                                                                
                                                                                                                                
Mr. Jesse did  not know how the state's  spending on alcohol                                                                    
treatment related  to that of  other states,  but emphasized                                                                    
that Alaska  has the highest  ratio of alcohol  problems per                                                                    
capita.  Co-Chair Mulder  suggested  that  something is  not                                                                    
working and questioned  why "is more money going  to make it                                                                    
better". Mr. Jesse  responded that it is  impossible to take                                                                    
any problem to  zero. He emphasized that the  issue is "what                                                                    
measure of adequacy  do we want to set as  a state for where                                                                    
we want to  be and are we satisfied today  that the level of                                                                    
the consequences of  alcohol abuse [is] where we  want it to                                                                    
be. If we are satisfied with  the measure of pain that comes                                                                    
with alcohol today, then putting  more money toward it isn't                                                                    
a very good investment. If you  think we are paying too much                                                                    
in that  respect [then] we  do have programs that  can drive                                                                    
those  numbers  down." He  emphasized  the  need for  better                                                                    
data.                                                                                                                           
                                                                                                                                
Co-Chair Mulder  stated that he  wanted to cure  the problem                                                                    
but  questioned  if it  was  the  time  to look  into  other                                                                    
alternatives  before  making  more  investments.  Mr.  Jesse                                                                    
agreed that  a real initiative  is needed to assess  what is                                                                    
trying to be accomplished  in concrete numbers, how programs                                                                    
would be  evaluated and to  develop a database to  track the                                                                    
programs.  He  maintained  that  the  request  for  proposal                                                                    
process  should include  the measured  outcome before  being                                                                    
funded.                                                                                                                         
                                                                                                                                
Co-Chair  Mulder  stated  that  he was  concerned  with  the                                                                    
emotional  aspect of  the issue  versus a  well thought  out                                                                    
process such as: "Here is  a well thought out defined policy                                                                    
that will  be effective;  that will  produce the  results we                                                                    
want; this  is what  it is  going to cost;  this is  what we                                                                    
need to  raise; [and] this is  what we are going  to do". He                                                                    
stated that  he is concerned that  there not be a  knee jerk                                                                    
reaction.                                                                                                                       
                                                                                                                                
Mr.  Jesse  acknowledged   Co-Chair  Mulder's  concerns  and                                                                    
emphasized that intelligent public  policy has been designed                                                                    
through working  with the legislature and  stressed the need                                                                    
to  continue to  develop intelligent  public policy  and not                                                                    
just  respond to  people that  want  to throw  money on  the                                                                    
problem.                                                                                                                        
                                                                                                                                
Representative  Harris  stated that  [as  the  Chair of  the                                                                    
House Finance Subcommittee for the  Department of Health and                                                                    
Social  Services] he  is trying  to defined  and measure  if                                                                    
programs are  working, identify which programs  are failures                                                                    
and  why they  are  failures: are  programs failing  because                                                                    
they  do not  have sufficient  funding or  for a  variety of                                                                    
other  reasons?  [The  House Finance  Subcommittee  for  the                                                                    
Department of Health and Social  Services'] focus will be to                                                                    
try to  help those  programs that are  working and  that are                                                                    
making  a  definable  difference.   Programs  that  are  not                                                                    
working for  reasons other than  funding may not  receive as                                                                    
much money.  The intent is  to use missions and  measures to                                                                    
target and emphasize programs that truly work.                                                                                  
                                                                                                                                
Mr.  Jesse  identified  one problem  with  the  mission  and                                                                    
measures approach. He stated that  this approach tends to be                                                                    
"big picture"  on the  department level,  such as  to reduce                                                                    
binge drinking or DWI's. He  emphasized that the focus needs                                                                    
to  penetrate  down  to   the  grant  manager/grantee  level                                                                    
because  that   is  where   individual  programs   are  held                                                                    
accountable. He pointed  out that if half  the programs were                                                                    
reducing binge  drinking by  50 percent  and the  other half                                                                    
contributed to the problem that  there would be no reduction                                                                    
in the overall numbers for  binge drinking. He stressed that                                                                    
grantees  must   step  up  to   the  plate  and   not  avoid                                                                    
responsibility and accountability.                                                                                              
                                                                                                                                
Vice-Chair Bunde  pointed out that  100 percent  of Alaskans                                                                    
do not  pay for  these problems.  He expressed  concern that                                                                    
taxes  are being  fragmented. Mr.  Jesse responded  that all                                                                    
Alaskans pay for the consequence of alcohol abuse.                                                                              
                                                                                                                                
WES LOE, NEWTOWN LIQUOR,  PRESIDENT, KETCHIKAN CABARET HOTEL                                                                    
AND   RESTAURANT  RETAIL   ASSOCIATION  (CHARR),   KETCHIKAN                                                                    
testified  via teleconference  against  the legislation.  He                                                                    
maintained  that the  tax  would  devastate the  hospitality                                                                    
industry in Ketchikan.  He pointed out that a  $10 bottle of                                                                    
whiskey would be $21.49 dollars.  He suggested that he would                                                                    
have to reduce  his staff by 2.5  positions. The hospitality                                                                    
industry  is the  second largest  industry in  Ketchikan. He                                                                    
argued   that  an   increase  in   cost  would   not  reduce                                                                    
consumption.                                                                                                                    
                                                                                                                                
Vice-Chair Bunde  referred to  statements that  the increase                                                                    
on cheap liquor  would be greater than the  increase on more                                                                    
expensive alcohol. Mr. Loe did  not think that the lower end                                                                    
would be affected.                                                                                                              
                                                                                                                                
TAPE CHANGE, HFC 01 - 120, Side A                                                                                             
                                                                                                                                
Representative Hudson questioned if  there are programs that                                                                    
work to reduce  heavy consumption. Mr. Loe  thought that the                                                                    
Wellness Court was having a  good effect. He emphasized that                                                                    
different   programs   work   for   different   people.   He                                                                    
acknowledge the  benefit of treatment  but stressed  that if                                                                    
someone has  a serious  problem that  it doesn't  matter how                                                                    
expensive is the alcohol.                                                                                                       
                                                                                                                                
ELMER  LINDSTROM, SPECIAL  ASSISTANT,  DEPARTMENT OF  HEALTH                                                                    
AND   SOCIAL   SERVICES    provided   information   on   the                                                                    
legislation. He pointed  out that there is  an enormous cost                                                                    
to the  state of Alaska from  the use and abuse  of alcohol.                                                                    
Significant  portions  of  those   costs  are  born  by  the                                                                    
Department  of Health  and Social  Services. Welfare  reform                                                                    
was initiated  in 1997  in Alaska.  Since that  time welfare                                                                    
rolls have  decreased dramatically.  Those that  remained on                                                                    
assistance are  beginning to  reach their  60-month lifetime                                                                    
benefit limit. He questioned what  is keeping these families                                                                    
from going to work and  becoming self-sufficient. One of the                                                                    
most common reasons is alcohol  abuse. Several years ago the                                                                    
legislature  passed  reform  of the  child  welfare  system.                                                                    
Alcohol abuse in  the family is frequently  sighted in child                                                                    
neglect and abuse  cases and is an  impediment in successful                                                                    
resolution of  many cases  under the  new law.  Many persons                                                                    
with mental  illness also have a  recurring alcohol problem.                                                                    
Alcohol is also a factor  in many juvenile related crime and                                                                    
delinquency  cases.  All  of these  issues  fall  under  the                                                                    
purview of  the Division of  Alcohol and Drug Abuse  and the                                                                    
agency  charged with  providing alcohol  treatment for  low-                                                                    
income persons.  The Division of  Alcohol and Drug  Abuse is                                                                    
unable to  met the  demand for  services. Waiting  lists for                                                                    
alcohol  treatment  exists  in  many  areas  of  the  state.                                                                    
Persons  referred for  treatment by  the Division  of Family                                                                    
and   Youth  Services,   Division   of  Public   Assistance,                                                                    
Community  Mental  Health   Programs,  Corrections  and  the                                                                    
Courts  may   have  to  wait  months   before  they  receive                                                                    
treatment, if they  receive it at all. In many  areas of the                                                                    
state there are no treatment  programs. The inability to get                                                                    
treatment  at the  time when  clients are  most amenable  to                                                                    
treatment  make  them  less   likely  to  be  successful  in                                                                    
achieving sobriety.  The ultimate  result will be  more cost                                                                    
to  other   systems,  whether  it   is  the   revocation  of                                                                    
probation,  failure  to  identify  a  family  in  the  child                                                                    
protection  system,  or  the committing  of  a  new  alcohol                                                                    
related offense.                                                                                                                
                                                                                                                                
Mr.  Lindstrom stated  that the  department  feels that  the                                                                    
increase of the  alcohol tax is one concrete  thing that can                                                                    
be done to defray costs to the state.                                                                                           
                                                                                                                                
Mr. Lindstrom pointed out that  the 20 percent of those that                                                                    
have  chronic  alcohol related  problems  come  from the  80                                                                    
percent that  are occasional drinkers. He  doubted that many                                                                    
people  chose  to  become  alcoholics.  The  nature  of  the                                                                    
disease  is that  it is  a gradual  progressive and  chronic                                                                    
condition.  Many of  those  that do  not  see themselves  as                                                                    
alcoholic may be in the future.                                                                                                 
                                                                                                                                
Vice-Chair  Bunde questioned  how much  the state  of Alaska                                                                    
should  invest   to  address  the  problem.   Mr.  Lindstrom                                                                    
responded that  further data would  be provided  in January.                                                                    
He noted  that the department  is looking at those  that are                                                                    
on the  various waiting  lists to identify  how they  can be                                                                    
reduced.  He observed  that  in the  past  budget cycle  the                                                                    
department  requested  an  additional  $4  million  dollars,                                                                    
which it felt would make a  good faith effort to address the                                                                    
issue.                                                                                                                          
                                                                                                                                
Representative  Harris  clarified  that  the  Department  of                                                                    
Health  and  Social   Services  receives  approximately  $40                                                                    
million dollars  for alcohol related programs  for a variety                                                                    
of services.                                                                                                                    
                                                                                                                                
Representative   Davies   noted    that   there   has   been                                                                    
privatization in the Governor's budget.                                                                                         
                                                                                                                                
DON GRASSE,  ALASKA WINE AND SPIRITS  WHOLESALE ASSOCIATION,                                                                    
ANCHORAGE testified against the legislation.                                                                                    
                                                                                                                                
KACCH  MCDOWELL, EXECUTIVE  DIRECTOR,  ALASKA CABARET  HOTEL                                                                    
AND  RESTAURANT  RETAIL   ASSOCIATION,  ANCHORAGE  testified                                                                    
against   the  legislation.   She  noted   that  there   are                                                                    
approximately 26,000 persons in the Association.                                                                                
                                                                                                                                
KAREN   ROGINA,  ALASKA   HOSPITALITY  ALLIANCE,   ANCHORAGE                                                                    
testified  against  the  legislation.  She  noted  that  the                                                                    
Alliance  includes the  Alaska Hotel  and Motel  Association                                                                    
and the Alaska Hotel and Beverage Association.                                                                                  
                                                                                                                                
Mr. Grosse Read the  Hospitality Industry's position against                                                                    
HB 225:                                                                                                                         
                                                                                                                                
     Alaska has  a serious  and growing fiscal  problem. The                                                                    
     Department  of Revenue  projects  that  by fiscal  year                                                                    
     2005,  the state's  budget  gap will  be  more than  $1                                                                    
     billion  and  the  Constitutional Budget  Reserve  Fund                                                                    
     will  be  depleted.  We  in  the  hospitality  industry                                                                    
     appreciate the need  to develop a fiscal  plan to solve                                                                    
     this  growing  threat.  Alaska's  hospitality  industry                                                                    
     also  believes  it  can  play a  part  in  the  overall                                                                    
     solution, but that  arbitrarily singling out individual                                                                    
     sectors  of  the  economy for  enormous  tax  increases                                                                    
     without addressing  the underlying issues  necessary to                                                                    
     balance the state's budget is unfair and unwarranted.                                                                      
                                                                                                                                
     It   is,   therefore,   the   consensus   of   Alaska's                                                                    
     hospitality  industry   that  legislative   efforts  to                                                                    
     increase excise taxes on alcohol  products by more than                                                                    
     three  hundred   percent  (300%)   are  discriminatory,                                                                    
     unreasonable and  will do nothing  to cure  the state's                                                                    
     alcohol problems.                                                                                                          
                                                                                                                                
     Beverage  alcohol is  already  the  most heavily  taxed                                                                    
     consumer  product in  the  United  States and  Alaskans                                                                    
     currently  pay some  of  the  highest beverage  alcohol                                                                    
     taxes in  the nation.  The hospitality  industry stands                                                                    
     ready  to discuss  our role  in supporting  a fair  and                                                                    
     equitable tax  policy for our industry,  but only under                                                                    
     condition   that  the   discussions   be   part  of   a                                                                    
     comprehensive  legislative  package designed  to  solve                                                                    
     the  state's   fiscal  problems.  While   the  industry                                                                    
     realizes that  state revenues cannot be  dedicated, the                                                                    
     legislature  should  be   prepared  to  identify  which                                                                    
     social  programs would  benefit  from these  additional                                                                    
     revenues and how the effectiveness  of the programs and                                                                    
     the use of the funds would be evaluated.                                                                                   
                                                                                                                                
     We are very concerned that  the tax increases in HB 225                                                                    
     will  seriously jeopardize  the  future  of many  small                                                                    
     businesses,  which play  a vital  role  in our  state's                                                                    
     economy.  The hospitality  industry is  already reeling                                                                    
     from the  current economic slow down  and the aftermath                                                                    
     of the events of September  11, 2001 as fewer Americans                                                                    
     travels,  dine  out  or  entertain  outside  the  home.                                                                    
     Adding significantly  to the cost of  doing business at                                                                    
     this juncture could cause  many of these establishments                                                                    
     to fail thus worsening the current economic situation.                                                                     
                                                                                                                                
     Accordingly, Alaska's  hospitality industry  opposes HB
     225  until  a  comprehensive solution  to  the  state's                                                                    
     fiscal problems is adopted by the legislature.                                                                             
                                                                                                                                
Representative Davies asked that the hospitality industry                                                                       
express their support when a comprehensive fiscal policy is                                                                     
proposed.                                                                                                                       
                                                                                                                                
Ms. McDowell thought that the  profit margin not consumption                                                                    
would be  reduced. She explained  that the loss  in business                                                                    
would be the result of the reduced profit margin.                                                                               
                                                                                                                                
Mr.  Grosse acknowledged  that 20  percent  of the  drinkers                                                                    
drink 80 percent of the alcohol.  He clarified that only 1 -                                                                    
2 percent of  the drinkers in the United  States are abusers                                                                    
and  chronic problems.  Just because  someone consumes  more                                                                    
than  the  average  doesn't  mean  that  they  are  creating                                                                    
problems.                                                                                                                       
                                                                                                                                
Ms. McDowell  pointed out that  the hospitality  industry is                                                                    
facing a variety of legislation  that could adversely affect                                                                    
it, such as  increases in the minimum  wage and unemployment                                                                    
tax. She noted  that things that affect  the state's tourism                                                                    
marketing dollars also affect  the hospitality industry. She                                                                    
asked  the Committee  to  consider the  impacts  of the  big                                                                    
picture on their industry when making decisions.                                                                                
                                                                                                                                
SUSAN   FISCHETTI,  ALASKANS   FOR  TAX   REFORM,  ANCHORAGE                                                                    
testified in opposition to the legislation.                                                                                     
                                                                                                                                
     Proposals to raise alcohol taxes constitute a                                                                              
     political  statement of  social policy,  not a  serious                                                                    
     solution  to budget  problems. Legislators  who suggest                                                                    
     that  higher  alcohol  taxes  will  solve  the  current                                                                    
     spending  shortfall  are  using political  rhetoric  to                                                                    
     hide  the fact  that  they want  to discourage  alcohol                                                                    
     consumption  by raising  taxes. Raising  taxes in  this                                                                    
     manner  will  not  solve   either  drinking  or  budget                                                                    
     problems.                                                                                                                  
                                                                                                                                
     Solving spending shortfall problems requires fiscal                                                                        
     discipline.   Legislators   should  cut   spending   in                                                                    
     response  to shortfall  projections rather  than commit                                                                    
     to  surplus-era   spending  promises  that   cannot  be                                                                    
     enacted without raising taxes.                                                                                             
                                                                                                                                
     Especially during  an economic downturn,  raising taxes                                                                    
     on    brewers,    distillers,   bottlers,    retailers,                                                                    
     wholesalers,  and  manufacturers will  further  depress                                                                    
     the ability  of these businesses to  conduct profitable                                                                    
     and   productive   commercial   transactions.   Raising                                                                    
     alcohol taxes hurts businesses  that employ and service                                                                    
     Alaskans.                                                                                                                  
                                                                                                                                
                                                                                                                                
Ms. Fischetti  noted that she  has alcoholics in  her family                                                                    
that do  not want treatment.  Persons that cannot  afford to                                                                    
feed themselves or families will still drink.                                                                                   
                                                                                                                                
Representative  Davies pointed  out  that it  would take  $1                                                                    
billion dollars  in cuts  over the next  5 years  to balance                                                                    
the budget.                                                                                                                     
                                                                                                                                
TIM  SCHRAGE,  ANCHORAGE  testified  in  opposition  to  the                                                                    
legislation.  He  pointed  out  that  the  alcohol  industry                                                                    
supported the  1983 increase in the  alcohol beverage excise                                                                    
tax  with  the  caveat  that it  would  fund  treatment  and                                                                    
education programs.  The programs were funded  but they have                                                                    
not been  evaluated. He  maintained that  the cart  is being                                                                    
put before the horse. He  pointed out that industry is being                                                                    
taxed instead  of the average  Alaskan through a  sales tax.                                                                    
He maintained that the proposed  tax is even more regressive                                                                    
than a sales tax. He  spoke in support of accountability and                                                                    
a long-term fiscal plan.                                                                                                        
                                                                                                                                
BOB  BAILEY, ANCHORAGE  spoke  against  the legislation.  He                                                                    
spoke  in  support of  a  broad  based comprehensive  fiscal                                                                    
plan.  He stressed  that there  should  be no  new taxes  or                                                                    
increases in  existing taxes  until there  is a  broad based                                                                    
comprehensive fiscal  plan. Targeted taxes  treat individual                                                                    
industries unfairly  and their  additional revenues  go into                                                                    
the "black hole" of the  general fund with no accountability                                                                    
and no  meaningful contribution to  an Alaskan  solution. He                                                                    
stated that he  would consider a reasonable  increase in the                                                                    
alcohol  tax when  a  comprehensive fiscal  plan  is on  the                                                                    
table  for  discussion.  A comprehensive  fiscal  plan  must                                                                    
include   further  cuts   in  spending,   and  broad   based                                                                    
individual taxes,  citizens of the state  must become assets                                                                    
instead of liabilities.  A  broad based comprehensive fiscal                                                                    
plan must also  include some portion of the  earnings of the                                                                    
Permanent  Fund. Permanent  Fund  earnings  are the  largest                                                                    
single source of income.                                                                                                        
                                                                                                                                
Representative Hudson  pointed out that each  law introduced                                                                    
must be  a single subject.  He noted that he  has introduced                                                                    
an income tax. He emphasized  that the state is $500 million                                                                    
dollars  in  deficient.  Just  because  there  is  only  one                                                                    
subject before  the Committee does  not mean that it  is the                                                                    
only part of the solution.                                                                                                      
                                                                                                                                
Mr. Bailey  stated that the  comfort factor in  the industry                                                                    
would be greater  if there were a collection  of bills being                                                                    
considered at the same time.                                                                                                    
                                                                                                                                
OBED NELSON, PRESIDENT, COUNCIL  ON ALCOHOL ABUSE AND PUBLIC                                                                    
SAFETY, ANCHORAGE  testified in support of  the legislation.                                                                    
The   reduction   in   consumption  is   the   only   factor                                                                    
contributing to  their support. He stressed  that youths are                                                                    
most affected  by price in  sales. The greatest  strategy in                                                                    
prevention is  the reduction of  the per  capita consumption                                                                    
of alcohol, particularly in youth.  He expressed support for                                                                    
the  legislation  as  a measure  to  reduce  consumption  in                                                                    
youth.                                                                                                                          
                                                                                                                                
Vice-Chair Bunde questioned if  he would support legislation                                                                    
that would prohibit  sale of any item that is  less than $10                                                                    
dollars in  order to reduce  the sale of cheap  liquors. Mr.                                                                    
Nelson stated  that he would  support anything  that reduced                                                                    
consumption. He pointed  out that death by  cirrhosis of the                                                                    
liver   was  the   lowest  in   the  United   States  during                                                                    
prohibition.                                                                                                                    
                                                                                                                                
Co-Chair  Mulder asked  for statistics  on the  reduction of                                                                    
consumption based on price.                                                                                                     
                                                                                                                                
HB  225  was  heard  and   HELD  in  Committee  for  further                                                                    
consideration.                                                                                                                  
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 3:35 p.m.                                                                                          

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