Legislature(1997 - 1998)

02/24/1997 01:37 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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                     HOUSE FINANCE COMMITTEE                                   
                        February 24, 1997                                      
                            1:37 P.M.                                          
                                                                               
  TAPE HFC 97-38, Side 1, #000 - end.                                          
  TAPE HFC 97-38, Side 2, #000 - end.                                          
  TAPE HFC 97-39, Side 1, #000 - #624.                                         
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Co-Chair  Therriault  called  the  House  Finance  Committee                 
  meeting to order at 1:37 p.m.                                                
                                                                               
  PRESENT                                                                      
                                                                               
  Co-Chair Hanley               Representative Kelly                           
  Co-Chair Therriault           Representative Kohring                         
  Representative Davies         Representative Martin                          
  Representative Foster         Representative Moses                           
  Representative Grussendorf    Representative Mulder                          
                                                                               
  Representative Davis was absent from the meeting.                            
                                                                               
  ALSO PRESENT                                                                 
                                                                               
  Representative  Al  Vezey;  Representative  Con  Bunde;  Tom                 
  Wright, Staff, Representative Ivan; Bill Rolfzen, Department                 
  of Community  and  Regional Affairs;  Lamar  Cotten,  Deputy                 
  Commissioner, Department of Community  and Regional Affairs;                 
  Robert Bartholomew,  Assistant Director,  Income and  Excise                 
  Audit Division, Department of Revenue; Pat Carr, Division of                 
  Public Health, Department of Health & Social Services; Elmer                 
  Lindstrom,  Special  Assistant,  Department  of  Health  and                 
  Social  Services; George  Taft,  Crime  Lab,  Department  of                 
  Public   Safety;   Rod   Stamler,   Forensic   Investigative                 
  Associates.                                                                  
                                                                               
  SUMMARY                                                                      
                                                                               
  HB 1      "An  Act  relating  to  taxes  on  cigarettes  and                 
            tobacco products; and  providing for an  effective                 
            date."                                                             
                                                                               
            HB   1  was   HELD   in  Committee   for   further                 
            consideration.                                                     
                                                                               
  HB 69     "An Act relating to designating flunitrazepam as a                 
            schedule  IA  controlled substance;  and providing                 
            for an effective date."                                            
                                                                               
                                                                               
                                1                                              
                                                                               
                                                                               
            SSHB  69 was reported out  of Committee with a "do                 
            pass" recommendation  and  with  two  zero  fiscal                 
            notes;  one  by  the   Department  of  Law  (dated                 
            2/13/97),  and one  by  the Department  of  Public                 
            Safety (dated 2/13/97).                                            
                                                                               
  HB 86     "An Act relating to the payments  in lieu of taxes                 
            program for cities in the unorganized borough; and                 
            providing for an effective date."                                  
                                                                               
            HB  86  was  reported out  of  Committee  with "no                 
            recommendation" and with a zero fiscal note by the                 
            Department of Community and Regional Affairs.                      
  HOUSE BILL NO. 69                                                            
                                                                               
       "An  Act relating  to  designating  flunitrazepam as  a                 
       schedule IA controlled substance; and providing for  an                 
       effective date."                                                        
                                                                               
  REPRESENTATIVE AL VEZEY testified  in support of HB 69.   He                 
  stated that HB 69 would add the benzodiazepine, Rohypnol, to                 
  the list  of controlled  substances.   The  generic name  of                 
  Rohypnol is flunitrazepam.  He observed that there is a case                 
  pending  which  involves the  extradition  of a  person from                 
  Portland to Alaska on  charges of drug induced rape.   There                 
  have been 1,800  arrests in  Florida over the  past two  and                 
  one-half years involving Rohypnol.                                           
                                                                               
  Representative  Vezey  discussed current  statutes regarding                 
  sexual assault penalties.  He emphasized that Alaska already                 
  has laws against  sexual assault.  Sexual  assault involving                 
  the induced use of drugs is a more serious crime and carries                 
  a  heavier  penalty.   Alaskan sexual  assault laws  are not                 
  being  amended.   He  explained that  by  making Rohypnol  a                 
  controlled substance an  attempt is being made  to intercept                 
  perpetrators before they have a chance to commit a crime.                    
                                                                               
  Representative Vezey explained that Rohypnol is not the only                 
  benzodiazepine drug used for sleeping  disorders.  All other                 
  benzodiazepines  except  Rohypnol  are  listed  as  Class  A                 
  controlled substances.  He noted that Rohypnol is similar to                 
  Valium but ten times  as strong.  Rohypnol is  classified by                 
  HB 69  as a Class  A substance  to be consistent  with other                 
  similar  controlled  substances.    While  Rohypnol  can  be                 
  screened it is  not part of  the current screening  process.                 
  An additional test would be required.                                        
                                                                               
  Representative  Vezey  observed that  a person  was recently                 
  arrested in  Anchorage with 272  tablets of Rohypnol.   This                 
  person cannot  be prosecuted under  state law.   Rohypnol is                 
  too complicated for a  street laboratory to make.   Although                 
                                                                               
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  Rohypnol  is  not  for sale  in  the  United  States, it  is                 
  available over-the-counter  in  Mexico  and  Latin  America.                 
  There  have been several  deaths where Rohypnol  was used in                 
  connection with  heroin or cocaine.  He  reiterated that the                 
  intent is to intercept the drug before a crime can occur.                    
                                                                               
  In   response   to  a   question  by   Co-Chair  Therriault,                 
  Representative Vezey stressed that rape is a crime where the                 
  victim is victimized by the enforcement process.                             
                                                                               
  Representative   Grussendorf  spoke   in   support  of   the                 
  legislation.                                                                 
                                                                               
  Representative Kohring spoke in support  of the legislation.                 
  He MOVED to report SSHB 69  out of Committee with individual                 
  recommendations and with the accompanying fiscal notes.  Co-                 
  Chair  Therriault   OBJECTED   for   purposes   of   further                 
  discussion.                                                                  
                                                                               
  GEORGE  TAFT,  DIRECTOR,  CRIME  LABORATORY,  DEPARTMENT  OF                 
  PUBLIC  SAFETY, ANCHORAGE  testified via  the teleconference                 
  network in support of HB 69.   He reiterated that there is a                 
  case  pending  for  possession  of   272  tablets  that  was                 
  submitted with heroin.                                                       
                                                                               
  Representative Davies  asked what  penalties are  associated                 
  with  possession.     Representative  Vezey  explained  that                 
  possession  of  more than  25  tablets  would be  a  Class C                 
  felony, attempting to contribute to a minor would be a Class                 
  B  felony,  use  without consent  would  be  an Unclassified                 
  felony, and possession  of less than  25 tablets would be  a                 
  misdemeanor.  He  observed that  the drug is  not legal  for                 
  sale in the United States.                                                   
                                                                               
  Representative Davies asked  if there  are other classes  of                 
  drugs that have the  same street utility.  Mr.  Taft replied                 
  that  there is another  drug, gamma-Hrdroxybutyrate, that is                 
  causing problems.   Representative  Vezey noted  that gamma-                 
  Hrdroxybutyrate  is a street  drug.  He  observed that there                 
  are lots of chemical variations.  He noted that this drug is                 
  the subject of discussions for additional legislation.                       
                                                                               
  Representative  Kohring restated  his  motion  to  MOVE  the                 
  legislation.  There being NO OBJECTION, it was so ordered.                   
                                                                               
  SSHB  69  was reported  out of  Committee  with a  "do pass"                 
  recommendation and  with two zero  fiscal notes; one  by the                 
  Department of Law (dated 2/13/97), and one by the Department                 
  of Public Safety (dated 2/13/97).                                            
  HOUSE BILL NO. 86                                                            
                                                                               
                                                                               
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       "An  Act  relating to  the  payments in  lieu  of taxes                 
       program for  cities  in the  unorganized  borough;  and                 
       providing for an effective date."                                       
                                                                               
  TOM WRIGHT, STAFF, REPRESENTATIVE  IVAN testified in support                 
  of HB 86.   He noted that  HB 86 establishes the  Payment In                 
  Lieu  of  Taxes  program  (PILT)  within the  Department  of                 
  Community and  Regional Affairs   for home rule  and general                 
  law  cities  located  in  the  unorganized   borough  within                 
  federally designated areas of Alaska.                                        
  This  program  is  financed  by  funds  the  state  receives                 
  annually from the federal government under 31  U.S.C. 6901 -                 
  31 U.S.C. 6902. An amendment,  sponsored by Senator Stevens,                 
  was passed as  part of  the Omnibus Parks  and Public  Lands                 
  Management Act  of 1996 (P.L.  104-333, sec. 1033)  to allow                 
  cities in the unorganized borough to receive payment.                        
                                                                               
  Mr. Wright observed that the main purpose of this bill is to                 
  provide  a  method  for  the  Department  of  Community  and                 
  Regional Affairs to distribute this funding and to establish                 
  criteria to determine whether a city is  eligible to receive                 
  payment under the program  as intended by federal law.   The                 
  amount of money to be distributed to each eligible home rule                 
  and  general law  city in  the unorganized  borough will  be                 
  based upon the population  of the city, as certified  by the                 
  commissioner  of the  Department of  Community and  Regional                 
  Affairs, for  the fiscal  year preceding the  year in  which                 
  payment is made to the city.  The bill establishes an annual                 
  payment date of November 1.  Money received from the program                 
  may  be used  for any general  purpose for  which a  city is                 
  authorized under federal, state or local law.  Finally,  the                 
  bill is given an  immediate effective date in order  to meet                 
  the first year's application and payment schedule set out in                 
  the bill.                                                                    
                                                                               
  In  response  to a  question  by Representative  Davies, Mr.                 
  Wright clarified that there are  eleven federal census areas                 
  within the unorganized borough.  The legislation pertains to                 
  federally entitled  lands within each  federal census  area.                 
  Payment will be based on the formula that is currently used,                 
  the  amount of  acres divided  by the population  within the                 
  federal census area.                                                         
                                                                               
  In  response  to a  question  by Representative  Martin, Mr.                 
  Wright stated  that  there  has  not  been  an  analysis  of                 
  revenues  unorganized  communities  receive  through  school                 
  districts  or  their  relationship   to  the  PILT  Program.                 
  Representative  Martin   asked  if  the   legislation  would                 
  discourage organization.                                                     
                                                                               
  Co-Chair  Therriault  noted   that  boroughs  receive  money                 
  through similar programs.   He  acknowledged that access  to                 
                                                                               
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  federal   funds  could   take   the   pressure   away   from                 
  organization.                                                                
                                                                               
  Co-Chair  Hanley asked  the  dollar  amount  per area.    He                 
  suggested that  the legislation  may offer  an incentive  to                 
  incorporate.  Mr.  Wright explained  that funds are  divided                 
  among incorporated communities.  Unorganized communities are                 
  counted but do not receive this funding.                                     
                                                                               
  Co-Chair  Therriault  noted  that  the  Southeast  Fairbanks                 
  Census  District  has  a  population  of just  under  6,000.                 
  Within this area  only Delta Junction (population,  828) and                 
  Eagle  (population 146)  are eligible.   Based on  the total                 
  area population (5,913)  the estimated PILT payment  is $278                 
  thousand dollars.  This amount  would be split between Eagle                 
  and Delta Junction.  If other  areas incorporated they would                 
  receive a share of this amount.                                              
                                                                               
  BILL  ROLFZEN, PROGRAM  MANAGER, DIVISION  OF MUNICIPAL  AND                 
  REGIONAL ASSISTANCE,  DEPARTMENT OF  COMMUNITY AND  REGIONAL                 
  AFFAIRS agreed  that  the State's  payment is  based on  the                 
  total population and entitlement area  in the federal census                 
  area.  Once  the State  receives the check  for the  federal                 
  census area  they pay  only the  incorporated municipalities                 
  within the area.                                                             
                                                                               
  In  response  to a  question  by Representative  Davies, Mr.                 
  Rolfzen clarified that  the check will  not be based on  the                 
  amount of people  living in the  incorporated areas.  It  is                 
  based on the total population in the federal census area.                    
                                                                               
  Co-Chair  Hanley  explained  that  the  payment is  made  on                 
  property that could be taxed.   In response to a question by                 
  Co-Chair Hanley, Mr.  Rolfzen noted that  municipalities can                 
  use the money for any governmental purpose.                                  
                                                                               
  In  response  to a  question  by Representative  Martin, Mr.                 
  Rolfzen observed that  the federal  calculation is based  on                 
  federal  census   numbers.    The   State's  calculation  to                 
  municipalities  utilizes  the  Department  of Labor  figures                 
  based supllied by the Permanent Fund Division.                               
                                                                               
  Representative   Martin   questioned  if   federal  resource                 
  payments are subtracted.   Mr. Rolfzen explained  that there                 
  are two options (used by the  Bureau of Land Management) for                 
  calculating PILT payments.  Federal census areas can receive                 
  $.93  cents  per acre,  after  subtracting the  prior year's                 
  federal payments in forest receipts  or $.13 cents per  acre                 
  without the subtraction of forest receipts.  The method that                 
  provides the  greater payment is used.  (Each federal census                 
  area  is  calculated  separately.)     He  argued  that  the                 
  legislation  is   an  incentive  to  local   governments  to                 
                                                                               
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  incorporate or remain incorporated.                                          
                                                                               
  Co-Chair  Therriault observed  that  if  Tok organized  they                 
  would be eligible  for $154 thousand  dollars.  Mr.  Rolfzen                 
  recounted  that   there  are   other  programs   that  offer                 
  incorporated cities greater support.                                         
                                                                               
  Co-Chair Hanley noted that second  class cities receive more                 
  money through Municipal Assistance and  Revenue Sharing.  He                 
  asked  the  responsibilities of  second  class cities.   Mr.                 
  Rolfzen replied that second class cities are responsible for                 
  raising  revenues  and  providing services.    Incorporation                 
  allows  greater  control  over local  affairs.    State laws                 
  provide guidelines for municipal functions.                                  
                                                                               
  In  response  to  a  question  by Co-Chair  Therriault,  Mr.                 
  Rolfzen  explained  that  federal law  provides  that,  if a                 
  school  district  is  completely  independent  of  the local                 
  government and forest receipts are  passed through the local                 
  government, forest receipts do not have  to be deducted.  He                 
  clarified that school districts in Alaska are not considered                 
  to  be  independent of  local  government because  taxes are                 
  generated to pay  for school  districts.  Therefore,  forest                 
  receipts going to  a school district in  Alaska are deducted                 
  from PILT payments.                                                          
                                                                               
  Co-Chair  Hanley referred to  SB 29.   Mr. Rolfzen clarified                 
  that  SB  29  would  raise  the minimum  entitlement,  after                 
  deductions,  for   Municipal  Assistance  to   $40  thousand                 
  dollars.                                                                     
                                                                               
  Co-Chair  Hanley  asked  if  administrative  costs  could be                 
  deducted from federal funds.  Mr. Rolfzen did not think that                 
  federal funds  could be  used  for administration  purposes.                 
  There are no federal provisions for administrative costs.                    
                                                                               
  Representative Grussendorf observed that PILT funds are more                 
  general and less restrictive than  forest receipt funds.  He                 
  asked for the Department's position.                                         
                                                                               
  LAMAR COTTEN,  DEPUTY COMMISSIONER, DEPARTMENT  OF COMMUNITY                 
  AND  REGIONAL  AFFAIRS   testified  via  the  teleconference                 
  network.  He  stated that  the Department  of Community  and                 
  Regional Affairs supports HB 86.                                             
                                                                               
  In  response  to a  question  by Representative  Mulder, Mr.                 
  Rolfzen  noted that  estimates are  based on  the best  case                 
  scenario.    He pointed  out that  the  program has  been in                 
  existence  for 20 to 50 years.   He expected funding for the                 
  program to continue.                                                         
                                                                               
  Representative Foster MOVED to report HB 86 out of Committee                 
                                                                               
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  with individual  recommendations and  with the  accompanying                 
  fiscal note.  There being NO OBJECTION, it was so ordered.                   
                                                                               
  HB 86 was reported out of Committee with "no recommendation"                 
  and with a zero  fiscal note by the Department  of Community                 
  and Regional Affairs.                                                        
  HOUSE BILL NO. 1                                                             
                                                                               
       "An Act  relating to  taxes on  cigarettes and  tobacco                 
       products; and providing for an effective date."                         
                                                                               
  REPRESENTATIVE CON BUNDE, SPONSOR testified in support of HB
  1.  He maintained  that the tobacco tax increase  will serve                 
  as an  economic barrier  in the  prevention of  young people                 
  from  smoking.   He  emphasized  that nicotine  is  a highly                 
  addictive drug.  Testimony  in previous committees indicated                 
  that tobacco is more addictive than alcohol and cocaine.  He                 
  maintained  that the only way  young people can be protected                 
  from the ravages  of nicotine  is to encourage  them to  not                 
  begin smoking.                                                               
                                                                               
  Representative Bunde described HB 1 as user fee legislation.                 
  He observed the  state cost associated with  tobacco related                 
  health care.  He estimated that  tobacco related health care                 
  costs state residents $360 dollars per person per year.                      
                                                                               
  (Tape Change, HFC 97-38, Side 1)                                             
                                                                               
  Representative Bunde emphasized  that HB  1 responds to  the                 
  demands of the  majority of residents.   Every poll that  he                 
  reviewed showed that 60  to 75 percent of Alaskan  residents                 
  support the tax.                                                             
                                                                               
  Representative Bunde  discussed  the  impacts  of  cigarette                 
  smoking.  He asked members to imagine a head on crash of two                 
  fully loaded 747 airplanes.  He maintained that the national                 
  deaths contributed to  tobacco use  is equal to  a crash  of                 
  this magnitude every day.                                                    
                                                                               
  Representative  Bunde  recounted  that  his  mother  started                 
  smoking  when she was 16  years old.   At that time, smoking                 
  was promoted by  doctors.   It was  considered patriotic  to                 
  smoke.    His  mother died  at  55  from  a tobacco  related                 
  condition.                                                                   
                                                                               
  Representative Bunde  recalled testimony  by a  parent in  a                 
  previous  committee.    The  parent  suggested that  a  four                 
  pronged  approach is  needed.  He  agreed with  the parent's                 
  remarks and summarized them for the Committee:  Parents must                 
  do their job as  role models; schools must continue  to work                 
  with children; laws  must be  enforced; and HB  1 should  be                 
                                                                               
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  passed to increase  the tobacco tax.   He observed that  the                 
  nicotine industry needs  to recruit new addicts  because the                 
  old  ones  have  a  habit  of  dying.   He  emphasized  that                 
  enforcement  costs  money.    He  acknowledged  that Eastern                 
  Canada had  a huge crime  problem when they  increased their                 
  tobacco tax.   He suggested that  the proximity to New  York                 
  City may have  influenced the  Canadian problem.   He  noted                 
  that there was not  a huge crime problem in  Western Canada.                 
  He observed that there is  concern regarding Indian country.                 
  He  emphasized  that smuggling  will  not occur  between the                 
  United States  and Canada  because cigarettes  cost more  in                 
  Canada.  He stated that it is hard for him to imagine people                 
  going  to Igiugig or Fort Yukon  to buy cigarettes.  He said                 
  it was  unfair to assume  that rural residents  would become                 
  black marketeers.                                                            
                                                                               
  Representative  Bunde referred  to  smokeless  tobacco.   He                 
  maintained  that smokeless tobacco is one of the most abused                 
  drugs in rural  communities, with kids  as young as 5  and 6                 
  years of age  consuming.   He did not  think that  smokeless                 
  tobacco should  be  exempt from  any  attempt to  create  an                 
  economic barrier.   He acknowledged  that the health  impact                 
  from cigar use  is only  one-third that of  cigarettes.   He                 
  stressed  that  an  exception  for  cigars would  allow  the                 
  industry to create a  cigar that for all intent  and purpose                 
  would be the same as a cigarette.                                            
                                                                               
  Representative Bunde expressed  concern for small  specialty                 
  shops.  He  noted that mail  order businesses could have  an                 
  unfair advantage over local businesses.  He stated that this                 
  concern should be  addressed in legislation.   He maintained                 
  that no mail order business should  have an advantage over a                 
  local business.                                                              
                                                                               
  Representative  Bunde  discussed  the  social  and  economic                 
  consequence of tobacco  use.  He maintained that  the health                 
  care expenditure  for  tobacco related  illnesses costs  all                 
  Alaskans a great  deal of money.   He referred to  arguments                 
  that a tax on tobacco would lead to a tax  on sugar or other                 
  unhealthy  food.   He  stressed  that  tobacco is  the  only                 
  product, when used  exactly as prescribed, is  guaranteed to                 
  cause health problems.                                                       
                                                                               
  Representative Bunde  countered arguments  that the  tobacco                 
  tax will not  work by  pointing to lobbying  efforts by  the                 
  tobacco  industry.    He  maintained  that the  industry  is                 
  fighting for its right to make a profit.  He maintained that                 
  profit should not come at the expense of the citizens of the                 
  State of Alaska.                                                             
                                                                               
  In   response  to  a   question  by  Representative  Mulder,                 
  Representative Bunde  stated that he has  introduced another                 
                                                                               
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  bill that would  restrict youth access.  The legislation was                 
  originally  introduced  to  comply  with  federal law.    He                 
  suggested that the  penalties for people who  illegally sell                 
  tobacco should be raised.  He  noted that an Anchorage study                 
  demonstrated  that  attempts  by underage  children  to  buy                 
  tobacco products were successful 60 percent of the time.                     
                                                                               
  Representative  Mulder   spoke   in   support   of   greater                 
  enforcement.     He  observed  that  there  is  a  built  in                 
  escalator.  Representative Bunde clarified that the tax will                 
  increase  $.24 cents  every three  years, in  an attempt  to                 
  address inflation.                                                           
                                                                               
  Representative Bunde discussed the enforcement  problem.  He                 
  recounted concerns by a mother whose  15 year old son bought                 
  chewing  tobacco  at a  Quick  Stop.   After  contacting the                 
  police, she  was  informed  that  they store  could  not  be                 
  prosecuted because police did not witness the purchase.  She                 
  offered  to send  her younger  son and  video  his purchase.                 
  Police told her that her son would be liable for a charge of                 
  possession and she would be  liable for contributing to  the                 
  delinquency  of  a minor.    He maintained  that enforcement                 
  alone would not work.                                                        
                                                                               
  Representative Mulder spoke in support of controlled access.                 
  He clarified that  there are  no other taxes  with built  in                 
  escalators.                                                                  
                                                                               
  In  response  to  a   question  by  Representative   Davies,                 
  Representative  Bunde discussed revenues.   He observed that                 
  revenues from  the sale of cigarettes would  be dedicated to                 
  the School Construction  and Maintenance  Fund.  Taxes  from                 
  other  tobacco products  will enter  the General  Fund.   He                 
  explained that  a severability  clause is  contained if  the                 
  dedicated  portion is found to be  unconstitutional.  If the                 
  severability clause is  activated the  tax revenues will  be                 
  deposited into the General Fund.                                             
                                                                               
  Representative   Therriault   expressed  concern   with  the                 
  escalator  provisions.    He   expressed  a  preference  for                 
  legislative control over the level of taxation.                              
                                                                               
  Co-Chair Hanley noted that under current  law, 2.5 mills are                 
  dedicated  to the School  Construction and  Maintenance Fund                 
  and  12  mills are  deposited into  the  General Fund.   The                 
  legislation  will increase  the  dedicated portion  to  52.5                 
  mills.   If the dedication  is found to  be unconstitutional                 
  the legisltion will increase the general fund  portion to 62                 
  mills.                                                                       
                                                                               
  Representative Davies  summarized that, in  current statute,                 
  there is a 25 percent tax on the wholesale price  of tobacco                 
                                                                               
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  products.      Representative   Bunde  clarified  that   the                 
  legislation provides an Anchorage CPI escalator on the total                 
  tax.    He  added  that  the  escalator  is  an  attempt  to                 
  acknowledge the reality of inflation.  He observed that  the                 
  Legislature has worked on the issue  for the past two years.                 
  He agreed that the Legislature should be involved.                           
                                                                               
  Co-Chair Therriault noted  that there  is a national  debate                 
  regarding  the inflation assumptions  contained in  the CPI.                 
  He  maintained that  major  spending  and taxation  programs                 
  should not be on an autopilot mechanism.                                     
                                                                               
  Representative Moses  observed that  vessels departing  from                 
  Washington  State  have  access  to   tax  free  cigarettes.                 
  Representative Bunde pointed out that they are not available                 
  for resale.                                                                  
                                                                               
  Representative Martin  recounted concerns by  a citizen that                 
  the high cost of tobacco will increase the use of marijuana.                 
  Representative  Bunde observed that statistics show that the                 
  number one  gateway  drug used  by all  addicts is  tobacco.                 
  Representative  Bunde stressed  that  drugs  should  not  be                 
  legalized because of enforcement problems.                                   
                                                                               
  Representative Martin maintained that smoking  is one of the                 
  few things that  poor people can  enjoy.  He suggested  that                 
  permanent fund dividends should be withheld from minors that                 
  smoke illegally.   Representative Bunde  clarified that  the                 
  intent is  to prevent  children from  smoking.   He stressed                 
  that poor people  also die  from cancer.   He observed  that                 
  tobacco  related  health  problems account  for  $21  to $25                 
  million dollars  of the Medicaid budget.  He emphasized that                 
  the tax is voluntary.  "No one  has to pay it, all they have                 
  to do is not smoke."                                                         
                                                                               
  ROD   STAMLER,   FORENSIC  INVESTIGATIVE   ASSOCIATES  (FIA)                 
  discussed his credentials.  Mr. Stamler worked for the Royal                 
  Canadian  Mounted Police  and  headed  the drug  enforcement                 
  program.    He  is  a  consultant  to  the  United  Nations.                 
  Forensic Investigative Associates investigates smuggling and                 
  organized crime.  He maintained that if government restricts                 
  or increases the price of any product to the point where the                 
  public want a cheaper price there is a consensual crime.  He                 
  maintained that if  the public is  willing to pay the  price                 
  for illicit drugs, there will be  a supplier and money made.                 
  Mr. Stamler observed  that his organization has  carried out                 
  studies demonstrating that if the  public wants a product at                 
  a certain price that organized crime and enterprising people                 
  will get involved in delivering those products.                              
                                                                               
  Mr. Stamler outlined findings from studies  his organization                 
  has conducted regarding illicit sales.  He maintained that a                 
                                                                               
                               10                                              
                                                                               
                                                                               
  serious situation  occurs when  approximately 30 percent  of                 
  the market is contraband.  He  alleged that studies by anti-                 
  smoking groups do not measure some of the contraband market.                 
  He noted that  legal sales  were reduced in  Michigan by  30                 
  percent.  His  study showed that  22 percent of that  market                 
  was from contraband sales.  He  maintained that in this kind                 
  of situation a parallel illegal market comes into place.  He                 
  stated that the issue  is the profit on a  contraband carton                 
  of cigarettes.                                                               
                                                                               
  Mr. Stamler discussed potential profit in illegal sales.  He                 
  stressed  that  containers  of  generic  cigarettes  can  be                 
  purchased  in Seattle at $300 dollars  a case.  There are 50                 
  cartons in a case.  The total cost would be $7 to $8 dollars                 
  a carton.  There is a profit margin of $17 dollars a carton.                 
  He observed that  the product is  light and easy to  handle.                 
  He  alleged  that  there  are  sophisticated   international                 
  organizations  that are  involved  in the  distributions  of                 
  illegal cigarettes.  He reiterated  that vessels can deliver                 
  cigarettes.    He  maintained  that  street  gangs  will  be                 
  involved.                                                                    
                                                                               
  Mr.  Stamler  stated  that  cigarettes  were distributed  in                 
  schools by dealers in  Canada.  He maintained that  the same                 
  type of distribution system,  as is in place  for marijuana,                 
  will become involved.                                                        
                                                                               
  Mr. Stamler  observed that  those that  have special  status                 
  have  the  potential for  involvement.    He noted  that  80                 
  percent  of contraband cigarettes  in Michigan  come through                 
  Indian reservations in the Northern United States.                           
                                                                               
  Mr. Stamler maintained  that store owners will  be forced to                 
  participate in the  contraband market or  lose profits.   He                 
  added that  money from the  sale of illegal  cigarettes will                 
  have  to be  laundered.   He  asserted that  corruption will                 
  occur in Alaska if the tax is approved.                                      
                                                                               
  Representative Davies ascertained that Mr. Stamler is funded                 
  by  the   National  Coalition  Against  Crime   and  Tobacco                 
  Contraband.  He observed  that the Coalition is composed  of                 
  people and organizations that benefit  from the distribution                 
  of tobacco.  The Coalition also  funded the studies referred                 
  to by Mr. Stamler and his travel to Alaska.                                  
                                                                               
  Co-Chair Hanley  asked what  level of  taxation could  occur                 
  without a significant  increase in  smuggling.  Mr.  Stamler                 
  stated that the  "flash point" would occur  at approximately                 
  $.36  to $.38 a package.  He  suggested that another $.05 or                 
  $.06  cents could  be added  on to  the flash  point due  to                 
  Alaska's location.  He estimated  that the flash point would                 
  be approximately $.40 cents.                                                 
                                                                               
                               11                                              
                                                                               
                                                                               
  In  response  to a  question  by Representative  Mulder, Mr.                 
  Stamler noted  that  Canada raised  the tobacco  tax by  122                 
  percent.   A tax of approximately $18 dollars was added to a                 
  carton of  cigarettes in  Canada.   He  noted that  Canadian                 
  cigarettes are made from Virginia tobacco.                                   
                                                                               
  Representative Martin asked if there has been an increase in                 
  sales at military bases.                                                     
                                                                               
  (Tape Change, HFC 97-39, Side 1)                                             
                                                                               
  Representative Martin suggested that  military personnel may                 
  purchase a greater percentage of their cigarettes on base to                 
  save  money.   He  emphasized  that  this could  affect  tax                 
  revenues.                                                                    
                                                                               
  Representative  Martin   pointed  out  that   Mr.  Stamler's                 
  organization works on  other issues.   Mr. Stamler  stressed                 
  that  his   organization performs  forensic work  in a  wide                 
  range of areas.                                                              
                                                                               
  Discussion   ensued  regarding   the   cost  of   purchasing                 
  cigarettes in Washington for shipment to Alaska.  Cartons of                 
  generic cigarettes could  be purchased for  as little as  $3                 
  dollars.  There are 10 packages in a carton.  Representative                 
  Davies noted  that there  is already  a $2  dollar per  pack                 
  differential  on  generic  cigarettes.    He  asked  if  the                 
  existing  $2   dollar  differential   a  pack  has   created                 
  underground sales.  Mr. Stamler observed that  if the public                 
  is satisfied  with the current price of  cigarettes that the                 
  average person will  not turn  to a contraband  market.   He                 
  emphasized  that it  is "the  straw that  breaks the  camels                 
  back."    He noted  that generic  cigarettes do  not satisfy                 
  every smoker.                                                                
                                                                               
  Representative  Kelly  summarized  that  the additional  tax                 
  would be $500 dollars per case.  There are approximately 860                 
  cases per container.   A container could result in  an extra                 
  profit of approximately $40 thousand dollars.                                
                                                                               
  ELMER LINDSTROM, SPECIAL ASSISTANT, DEPARTMENT OF HEALTH AND                 
  SOCIAL SERVICES shared  an advertisement from the  1940's to                 
  demonstrate  change in  public  view of  tobacco  use.   The                 
  advertisement stressed the use of tobacco by doctors.                        
                                                                               
  PATRICIA  CARR, DIVISION  OF  PUBLIC  HEALTH, DEPARTMENT  OF                 
  HEALTH  AND SOCIAL SERVICES  testified in  support of  HB 1.                 
  She noted that:                                                              
                                                                               
       *    Tobacco   usage  is  the   number  one   cause  of                 
            preventable   death   and  disease   in   the  US,                 
                                                                               
                               12                                              
                                                                               
                                                                               
            accounting for more than 419,000 deaths each year;                 
            and                                                                
                                                                               
       *    23% of deaths of Alaskans 35 years of age or older                 
            in 1991 were attributable to smoking.                              
                                                                               
  Ms. Carr observed  that there  were 418,690 thousand  deaths                 
  contributed  to cigarette  smoking  in  the  United  States.                 
  There  were 1,416 thousand  deaths contributed  to cigarette                 
  smoking in Alaska.   In  both cases there  were more  deaths                 
  contributed to  cigarettes smoking than  from fires, illegal                 
  drugs, homicides,  Aids, suicides, motor  vehicle accidents,                 
  and alcohol combined.  She also stated that:                                 
                                                                               
       *    83%  of  adult  smokers report  that  they started                 
            smoking before the age of 20;                                      
                                                                               
       *    21% of Alaskan high school students reported  they                 
            regularly smoked in the last month;                                
                                                                               
       *    25%  of Alaskan  middle  school students  reported                 
            smoking at least one cigarette in the last month;                  
                                                                               
       *    64%  of  Alaska  tobacco merchants  complied  with                 
            tobacco restriction laws in 1996;                                  
                                                                               
       *    The federal government  mandates an 80% compliance                 
            rate by the year 2000 under the Synar Amendment;                   
                                                                               
       *    Tobacco vendors  refused to  sell to  14-15   year                 
            olds 71%  of the time,  while 16-17 year olds were                 
            refused 58% of the time;                                           
                                                                               
       *    Today  Alaska  Natives have  some  of the  highest                 
            rates of tobacco use in the world, 47% for men and                 
            39% for women;                                                     
                                                                               
       *    Alaska Natives account for 23 % of smoking related                 
            deaths while they account for 17 %  of the State's                 
            population;                                                        
                                                                               
       *    Alaska Natives  have the highest  cancer mortality                 
            rate of any Indian Health Service Area;                            
                                                                               
       *    The lung cancer  death rate among AK  Native women                 
            is three times the national average;                               
                                                                               
       *    Tobacco  use among  Alaska Native youth  is higher                 
            that non-native youth;                                             
                                                                               
       *    41% of Alaska Native boys and 32% of Alaska Native                 
            girls were using smokeless tobacco weekly;                         
                                                                               
                               13                                              
                                                                               
                                                                               
       *    Among  the boys, 45%  started using tobacco before                 
            the age of 8;                                                      
                                                                               
       *    Total  direct medical  costs  for smoking  related                 
            illnesses for Alaskans  aged 35 years or  older in                 
            1993 was $96.5 million;                                            
                                                                               
       *    $23 million of  the direct medical care  costs for                 
            smoking related  illness was  paid by  Medicaid in                 
            Alaska;                                                            
                                                                               
       *    Meanwhile, the state collected  only $15.6 million                 
            in  cigarette  tax revenues  in  1993    (excludes                 
            taxes on smokeless tobacco);                                       
                                                                               
       *    The  state  of  Alaska  has  taxed  tobacco  since                 
            territorial  days, when a 5 cents per pack tax was                 
            levied   on   cigarettes  to   help   fund  school                 
            construction;                                                      
                                                                               
       *    The  current tax  level of 29  cents per  pack has                 
            been in place since 1989;                                          
                                                                               
       *    In 1989 Alaska ranked 17th among the 50 states and                 
            District of Columbia on the  amount of tobacco tax                 
            levied;                                                            
                                                                               
       *    Currently Alaska is ranked  28th among the  states                 
            on tobacco taxes levied;                                           
                                                                               
       *    For every  10% increase in  tobacco prices,  youth                 
            tobacco consumption will fall by at least 10%;                     
                                                                               
       *    For every 10% increase in  tobacco prices, general                 
            consumption will fall by 4%;                                       
                                                                               
       *    At  current  adult  smoking  rates,  approximately                 
            18,000 of Alaskans  currently under the age  of 18                 
            will die prematurely of a tobacco related illness;                 
                                                                               
                                                                               
       *    A $1.00 per  pack tax increase would  reduce youth                 
            smoking in Alaska by an estimated 32%; and                         
                                                                               
       *    The  tobacco  tax  would  prevent 5,700  premature                 
            deaths among  Alaskans currently under the  age of                 
            18.                                                                
                                                                               
  Ms. Carr maintained  that the  groundwork is in   place  and                 
  that there is broad public  support.  She noted that 75%  of                 
  Alaskans  surveyed  support the  $1.00 per  pack tax.   This                 
                                                                               
                               14                                              
                                                                               
                                                                               
  included:  75% of  conservatives,  75% of moderates,  73% of                 
  liberals and 55% of smokers.                                                 
                                                                               
  Ms. Carr  observed that  the tax  is also  supported by:  C.                 
  Everett Koop, MD., former Surgeon  General,  280 individuals                 
  and over  50 organizations that  make up the  Alaska Tobacco                 
  Control Alliance including: the Alaska  Native Health Board,                 
  the  American  Cancer  Society,   and  the  American   Heart                 
  Association.                                                                 
                                                                               
  Ms. Carr referred to the Alaska Medicine Journal, Volume 38,                 
  Number 1 (copy  on file).   She  noted that  studies show  a                 
  substantial drop in youth and adult consumption in Canada.                   
                                                                               
  Representative Martin pointed out  that millions of  dollars                 
  are spent by the federal government to subsidize the tobacco                 
  industry.                                                                    
  Ms. Carr emphasized that a multi-faceted effort is needed to                 
  address tobacco use.                                                         
                                                                               
  Representative  Martin  expressed  opposition to  additional                 
  taxes.  In response to a question by Representative  Martin,                 
  Ms.  Carr observed  that  eduction  alone  has  not  been  a                 
  substantial deterrent  to use of  tobacco by children.   She                 
  emphasized that tobacco is an addictive substance.                           
                                                                               
  BOB  BARTHOLOMEW, DEPUTY  DIRECTOR, INCOME AND  EXCISE AUDIT                 
  DIVISION, DEPARTMENT OF  REVENUE discussed the  Department's                 
  fiscal note.  He observed  that the fiscal note is based  on                 
  an  additional  $1  dollar a  pack  tax.    The fiscal  note                 
  estimates that the  combined revenue to  the State would  be                 
  approximately $43  million dollars in the first full year of                 
  the tax.   This assumes an  18 percent drop in  consumption.                 
  He referred to a report entitled, "Estimated Revenue Affects                 
  of a Proposed $1  Dollar per Pack Increase in  the Cigarette                 
  Tax Rate in  Alaska" prepared by  Barents Group LLC of  KPNG                 
  Peat Marwick LLP, for the  Alaska Cabaret, Hotel, Restaurant                 
  and Retailers Association, dated 2/13/97 (copy on file).  He                 
  observed that  the  report has  errors.   The Department  of                 
  Revenue contacted the  firm that produced  the report.   The                 
  firm acknowledged that  their results,  which were based  on                 
  figures from industry sources, were dramatically overstated.                 
  The updated report assumes that consumption of cigarettes in                 
  the State of  Alaska will drop by  49 percent in the  next 5                 
  years.  The  Department of Revenue has based  its assumption                 
  on findings by the Surgeon General.  The report assumes that                 
  there will be a loss in state and local revenues due to a 49                 
  percent reduction in consumption.                                            
                                                                               
  Mr.  Bartholomew  discussed  potential  sales  on   military                 
  installations.  He noted that  the report, "Impact of Alaska                 
  Cigarette Tax" (copy  on file), distributed by  the National                 
                                                                               
                               15                                              
                                                                               
                                                                               
  Coalition Against  Crime and Tobacco Contraband asserts that                 
  45 percent of  all sales  in Alaska are  on military  bases.                 
  The Department  of Revenue  contacted military  officials to                 
  verify this assumption.   He  stressed that the  information                 
  provided by the  military indicates  that sales on  military                 
  installations represent 7.5  percent of the  total cigarette                 
  sales in Alaska.  The number  of Alaskans with privileges to                 
  make  purchases  at  military  installations  represent  9.7                 
  percent of the State's total population.  Military officials                 
  have  indicated  their willingness  to  work with  the State                 
  regarding the prevention of illegal sales.  He observed that                 
  military  officials  have stated  that  they have  rules and                 
  regulations in place for the appropriate sale of commodities                 
  on base.                                                                     
                                                                               
  Discussion ensued regarding the  ratio of sales on  bases in                 
  relationship to  the percentage  of military  in the  State.                 
  Mr. Bartholomew stressed that the Department is not aware of                 
  illegal sales on military installations.                                     
                                                                               
  Representative Davies  asked  if there  is  a limit  on  the                 
  purchase  of cigarettes  on  military  installations.    Mr.                 
  Bartholomew clarified that there  is no cap on purchases  on                 
  military  installations in  Alaska.   A  cap  was placed  on                 
  tobacco sales on military installations  in Hawaii when that                 
  state raised it's tobacco tax.                                               
                                                                               
  Co-Chair Therriault observed  that as the tax  increases the                 
  person selling the product would continue to deduct the same                 
  percentage  of  the tax  for  administrative purposes.   Mr.                 
  Bartholomew  recommended  that  the percentage  of  the  tax                 
  deducted to cover the cost of  filing with the Department of                 
  Revenue  be  lowered.    Wholesalers   who  filed  with  the                 
  Department in FY 97 retained $150  thousand dollars to cover                 
  their  costs.   If  the provision  is  not changed  the same                 
  individuals  would  receive   approximately  $550   thousand                 
  dollars.                                                                     
                                                                               
  In  response  to a  question  by Representative  Davies, Mr.                 
  Bartholomew noted that the Supreme Court ruled that a  state                 
  sales tax cannot be placed on a company that does not have a                 
  presence in the State.   He observed that one interpretation                 
  to  the  cigarette  tax is  that  the  person receiving  the                 
  product in the  State would be responsible for the  tax.  He                 
  acknowledged  that  it would  be  difficult to  enforce this                 
  interpretation.  There  have been  several court cases  that                 
  have precluded implementation  of a sales tax  on mail order                 
  purchases.  #                                                                
  ADJOURNMENT                                                                  
                                                                               
  The meeting adjourned at 3:53 p.m.                                           
                                                                               
                                                                               
                               16                                              

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