Legislature(2001 - 2002)

03/25/2002 09:27 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 25, 2002                                                                                           
                         9:27 A.M.                                                                                              
                                                                                                                                
TAPE HFC 02 - 64, Side A                                                                                                        
TAPE HFC 02 - 64, Side B                                                                                                        
TAPE HFC 02 - 65, Side A                                                                                                        
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Williams called the House  Finance Committee meeting                                                                   
to order at 9:27 A.M.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Bill Williams, Co-Chair                                                                                          
Representative Eldon Mulder, Co-Chair                                                                                           
Representative Con Bunde, Vice-Chair                                                                                            
Representative Eric Croft                                                                                                       
Representative John Davies                                                                                                      
Representative Richard Foster                                                                                                   
Representative John Harris                                                                                                      
Representative Bill Hudson                                                                                                      
Representative Ken Lancaster                                                                                                    
Representative Carl Moses                                                                                                       
Representative Jim Whitaker                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative Gary  Stevens; Representative  Lisa Murkowski;                                                                   
Representative   Peggy    Wilson;   Denny    Dewitt,   Staff,                                                                   
Representative Eldon Mulder                                                                                                     
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 229    An Act imposing a tax  on employment; and providing                                                                   
          for an effective date.                                                                                                
                                                                                                                                
          HB 229 failed to move out of Committee.                                                                               
                                                                                                                                
HB 303    An  Act relating to  the levy  and collection  of a                                                                   
          sales tax; and providing for an effective date.                                                                       
                                                                                                                                
          CS HB 303 (FIN) was reported out of Committee with                                                                    
          a "do not pass" recommendation and with a new                                                                         
         fiscal note by the Department of Revenue.                                                                              
                                                                                                                                
HB 304    An  Act relating  to disposition  of income  of the                                                                   
          permanent fund; and providing for an effective                                                                        
          date.                                                                                                                 
                                                                                                                                
          CS HB 304 (FIN) was reported out of Committee with                                                                    
          a "do pass" recommendation and a new fiscal note                                                                      
          by the Department of Revenue.                                                                                         
                                                                                                                                
#HB304                                                                                                                        
HOUSE BILL NO. 304                                                                                                            
                                                                                                                                
     An Act relating to disposition of income of the                                                                            
     permanent fund; and providing for an effective date.                                                                       
                                                                                                                                
Co-Chair  Mulder MOVED  to RESCIND previous  action taken  on                                                                   
moving  CS HB  304  (FIN) from  Committee.    There being  NO                                                                   
OBJECTION, action was rescinded.                                                                                                
                                                                                                                                
Co-Chair Mulder advised that an  amendment was being drafted.                                                                   
He  stated that  the  amendment for  next  year, FY03,  would                                                                   
limit the  draw on the permanent  fund.  The  amendment would                                                                   
provide for taking  language from HB 304 and  delaying action                                                                   
for one  year, which  would provide  a FY03 earnings  reserve                                                                   
draw in the amount of $300 million dollars.                                                                                     
                                                                                                                                
Representative  Davies  questioned what  the  "delay for  one                                                                   
year" meant.                                                                                                                    
                                                                                                                                
Co-Chair  Mulder explained  that the FY02  dividend would  be                                                                   
paid from  2003 earnings.  He  wanted to understand  that the                                                                   
mechanics were correct before he walked through the change.                                                                     
                                                                                                                                
Representative  Croft  inquired   if  the  percentage  amount                                                                   
discussed at the previous meeting would be changed.                                                                             
                                                                                                                                
Co-Chair  Mulder thought  that there could  be an  amendment,                                                                   
which would address percentages.                                                                                                
                                                                                                                                
Representative  Hudson asked if  the State would  be sticking                                                                   
with the 7%-6%-5% and then starting it a year later.                                                                            
                                                                                                                                
Co-Chair Mulder  replied that was  correct and that  the draw                                                                   
would be  $300 million  dollars.  It  would be consistent  to                                                                   
have  $300  million  dollars come  from  the  Permanent  Fund                                                                   
Earnings.  That was a decision made by the Majority caucus.                                                                     
                                                                                                                                
HB 304 was HELD in Committee for further consideration.                                                                         
                                                                                                                                
                                                                                                                                
RECESS:         9:30 A.M.                                                                                                       
RECONVENED     10:15 A.M.                                                                                                       
                                                                                                                                
HOUSE BILL NO. 229                                                                                                            
                                                                                                                                
     An Act imposing a tax on employment; and providing for                                                                     
     an effective date.                                                                                                         
                                                                                                                                
Co-Chair  Mulder MOVED  to  ADOPT work  draft,  #22-LS0842\O,                                                                   
Kurtz,  3/23/02,  as  the  version of  the  bill  before  the                                                                   
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Williams  stated that the  cruise ship head  tax had                                                                   
been removed  from the  proposed version.   He insisted  that                                                                   
was the only change made to the draft.                                                                                          
                                                                                                                                
CS  HB   229  (FIN)  was   HELD  in  Committee   for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
                                                                                                                                
RECESS:        10:17 A.M.                                                                                                       
RECONVENED:    10:23 A.M.                                                                                                       
                                                                                                                                
HOUSE BILL NO. 303                                                                                                            
                                                                                                                                
     An Act relating to the levy and collection of a sales                                                                      
     tax; and providing for an effective date.                                                                                  
                                                                                                                                
Co-Chair Mulder MOVED to ADOPT  Amendment #1, #22-LS1206\W.1,                                                                   
Kurtz, 3/25/01.   Representative  Lancaster OBJECTED  for the                                                                   
purpose of discussion.                                                                                                          
                                                                                                                                
Co-Chair  Mulder explained  that Amendment  #1 was a  trigger                                                                   
mechanism on  sales tax.  If  the applicable tax rate  was 3%                                                                   
                    th                                                                                                          
as of  September 30   of the  previous year  and the  Capital                                                                   
Budget  Reserve (CBR)  is less  than $2  billion dollars,  it                                                                   
would change  the amount to 2%.   If the CBR were  between $2                                                                   
and $2.5  billion dollars, then the  tax would be 1%;  if the                                                                   
CBR were between $2.5 and $3 billion  dollars, the percentage                                                                   
would  be zero.   Co-Chair  Mulder assured  members that  the                                                                   
trigger  mechanism  would  provide the  Alaskan  public  that                                                                   
should there be higher oil prices, tax would decrease.                                                                          
                                                                                                                                
Representative Lancaster  inquired if Amendment  #1 this year                                                                   
would be tied to the Earnings Reserve Account.                                                                                  
                                                                                                                                
Co-Chair Mulder  responded that there are many  moving parts,                                                                   
which need to be tied.  There  is a potential trigger drafted                                                                   
in Amendment  #3,  which ties  it to  the price  of oil.   He                                                                   
noted that  tying it to  the price of  oil would  not address                                                                   
the production of  oil and estimated that the  shock absorber                                                                   
would tie it to the CBR.                                                                                                        
                                                                                                                                
Representative Hudson acknowledged  that would be the correct                                                                   
tie   because    the   government   has    a   constitutional                                                                   
responsibility  to  pay any  draws  from the  CBR.   Any  new                                                                   
infusion  of revenue  has to  go to  the CBR.     If the  oil                                                                   
prices or  production increased, or  new oil was  struck, all                                                                   
the new  revenue would pile up  into the general fund  and at                                                                   
the end  of the year  would sweep back  over into  paying the                                                                   
CBR.  He noted his support that process.                                                                                        
                                                                                                                                
Representative  Davies  argued  that the  problem  with  that                                                                   
concept  is that  the  permanent fund  would  continue to  be                                                                   
depleted.  He  stated that the only revenue  measure would be                                                                   
the earnings from  the permanent fund and that  acceptance of                                                                   
the  trigger should  be  a similar  draw  from the  permanent                                                                   
fund.                                                                                                                           
                                                                                                                                
Representative Croft objected  because the total amount would                                                                   
be taken  out from  the permanent  fund.   He noted  that Ex-                                                                   
Governor Jay Hammond recommended  that there should be a pure                                                                   
dividend tax  bracket.   Representative Croft suggested  that                                                                   
Alaska  should rest  somewhere  between  those two  concepts.                                                                   
The entire  taxation picture  should now  be addressed.   The                                                                   
proposal  would  take  out  the only  tax  Alaska  has  left,                                                                   
removing it from the permanent  fund earnings.  There must be                                                                   
a  broad-based  tax  and  there  should  be  a  reestablished                                                                   
connection with  economic development.  Economic  development                                                                   
alone   would    do   nothing   for   the    State   coffers.                                                                   
Representative Croft objected to any tax triggers.                                                                              
                                                                                                                                
Representative Hudson  agreed with Representative  Croft.  He                                                                   
thought  if  possible  #4, Line  16,  should  be  eliminated:                                                                   
"Zero if, on September 30 of the  previous year, the unedited                                                                   
balance  in  the  budget  reserve  fund  created  by  art.IX,                                                                   
sec.17, Constitution  of the State  of Alaska, was  more than                                                                   
$3,000,000,000."  Making that  change would mean that the tax                                                                   
would never be  less than 1%, however, it could  be graduated                                                                   
down.    Leaving   it  at  1%  would   make  forever-combined                                                                   
collection requirements.                                                                                                        
                                                                                                                                
Representative Hudson recommended removing Section #4.                                                                          
                                                                                                                                
Co-Chair  Mulder   recommended  that  action   would  require                                                                   
deleting language in Section #3,  Line 15: "But not more than                                                                   
$3,000,000,000; or".                                                                                                            
                                                                                                                                
Representative  Hudson noted  that  then conceptually,  there                                                                   
would never be less than 1%, which  would always keep the tax                                                                   
enforced.                                                                                                                       
                                                                                                                                
Co-Chair  Mulder  restated  the  amendment.    Representative                                                                   
Whitaker OBJECTED in order to read it through.                                                                                  
                                                                                                                                
Recognizing  that the work  draft had  not yet been  adopted,                                                                   
Co-Chair Mulder WITHDREW his MOTION to adopt Amendment #1.                                                                      
                                                                                                                                
Co-Chair Mulder  MOVED to ADOPT the work  draft #22-LS1206\W,                                                                   
Kurtz,  3/23/02,  as  the  version of  the  bill  before  the                                                                   
Committee.   Representative Davies  OBJECTED for  purposes of                                                                   
discussion.                                                                                                                     
                                                                                                                                
Co-Chair Mulder  explained that the technical  amendments had                                                                   
been incorporated  into the work  draft and that  nothing had                                                                   
been included which was not previously  discussed, except for                                                                   
the  "small  vendor"  clause.     Everything  else  had  been                                                                   
proposed by the Department of Revenue.                                                                                          
                                                                                                                                
DENNY DEWITT, STAFF, REPRESENTATIVE  ELDON MULDER, listed the                                                                   
changes made to the work draft.                                                                                                 
                                                                                                                                
     ·         Page 2, Line 26, extensive discussion of the                                                                     
               boroughs ability to levy "special" taxes.                                                                        
                                                                                                                                
Representative  Lancaster  questioned  if  the  cities  would                                                                   
collect and retain that tax.                                                                                                    
                                                                                                                                
Mr.  DeWitt  replied  that  the intent  was  to  leave  those                                                                   
activities as they are today.                                                                                                   
                                                                                                                                
Representative Croft referenced  Sections 6 & 7, and asked if                                                                   
a borough  could levy a general  tax and then a  special tax.                                                                   
He thought that they could claim  any special exemptions such                                                                   
as utilities and then claim again that sales tax.                                                                               
                                                                                                                                
Mr. DeWitt  advised that they  would have to enact  a special                                                                   
sales  tax  relative  to  that specific  item.    They  could                                                                   
collect it themselves.   He added that another  example would                                                                   
be a bed tax, which would be a special tax.                                                                                     
                                                                                                                                
Representative Croft  understood that there will  be the same                                                                   
taxes  and exemptions  across the  State.   The way that  the                                                                   
language is  written, particularly in  Section 7, there  is a                                                                   
potential for a "patchwork" of taxes and exemptions.                                                                            
                                                                                                                                
Co-Chair Mulder  agreed that there  will be a  tax patchwork,                                                                   
however, the exemptions would be uniform.                                                                                       
                                                                                                                                
Representative Croft  discussed that the exemptions  could be                                                                   
removed by the special taxes.                                                                                                   
                                                                                                                                
Mr.  DeWitt acknowledged  that  there  is the  potential  for                                                                   
doing  that for the  exemption.   An additional  tax such  as                                                                   
alcohol  would be  allowed over  the general  sales tax  in a                                                                   
community.   He restated  that if there  was a general  sales                                                                   
tax, there could  be a special tax on alcohol.   In reference                                                                   
to  the  general  broad-based  sales  tax,  the  State  would                                                                   
collect it  and it would  be uniform  across the State.   The                                                                   
municipality buying  into it would  have the same  exemptions                                                                   
on the broad-based  sales tax that the State would  have.  It                                                                   
would also reserve  the opportunity for the  community to add                                                                   
and collect their own special taxes.                                                                                            
                                                                                                                                
Representative Croft asked if  alcohol was a "special" issue.                                                                   
He  advised  that   the  State  has  always   prohibited  the                                                                   
communities from doing that.                                                                                                    
                                                                                                                                
Mr. DeWitt  interjected that Juneau  currently has  a special                                                                   
alcohol tax.                                                                                                                    
                                                                                                                                
Representative  Davies  inquired  if current  language  would                                                                   
allow cities to enact special taxes.                                                                                            
                                                                                                                                
Mr.  DeWitt clarified  that it  would allow  cities to  enact                                                                   
special taxes  for places that  have the authorization  under                                                                   
Title 29 and that they would continue  to be able to do that.                                                                   
                                                                                                                                
Co-Chair  Mulder thought  that there was  confusion and  that                                                                   
the bill would  retain the cities and boroughs  ability to do                                                                   
what they are  now doing even with the implementation  of the                                                                   
proposed bill.                                                                                                                  
                                                                                                                                
Representative  Davies asked why  Section 7 referred  only to                                                                   
"boroughs" and not cities.                                                                                                      
                                                                                                                                
Mr.  DeWitt understood  that to  be a  drafting decision  and                                                                   
that it would accomplish the same thing.                                                                                        
                                                                                                                                
Mr. DeWitt discussed the changes made to the draft:                                                                             
                                                                                                                                
     ·         Section 8 - the power of the levy.                                                                               
     ·         Section 9 begins the use tax, dropping                                                                           
               language  on  Line 24,  "in  the  State".   He                                                                   
               added  that  Sections   (b)  &  (c)  had  been                                                                   
               reworded.   Section  2 was reworked on Line 15                                                                   
               to include  transportation and goods  that are                                                                   
               used  in connection  with or  would become  an                                                                   
               ingredient.                                                                                                      
     ·         Added in Section 7, "brokerage firms and                                                                         
               interested earned or paid".                                                                                      
     ·         Added a technical correction in sub-Section                                                                      
               (8), Page 6, Line  10, "sales and purchases by                                                                   
               governmental entities".                                                                                          
     ·         Referenced Page 8, collection of sales taxes,                                                                    
               adding language  to Line 7: "However, a seller                                                                   
               that  collects less  than $1,000  in tax  in a                                                                   
               calendar  quarter may remit the  tax within 30                                                                   
               days  following the last  day of  the calendar                                                                   
               quarter in which the tax was collected."                                                                         
     ·         Added "taxi cab" to sub-Section (d) on Page                                                                      
               8, Line 18.                                                                                                      
     ·         On   Line   25,    regarding   the   exemption                                                                   
               certificate now  indicates that the Department                                                                   
               should  provide an  exemption certificate  for                                                                   
               both buyers and sellers.                                                                                         
     ·         In Sections (a) & (b), language was added as                                                                     
               recommended by the Department.                                                                                   
                                                                                                                                
Representative Hudson  referenced Page 8, Line  7, commenting                                                                   
that the change  would indicate from a monthly  to a calendar                                                                   
quarter; it  would also address  the small vendor as  long as                                                                   
they collect less than $1,000  dollars in a calendar quarter.                                                                   
                                                                                                                                
Co-Chair  Mulder MOVED  to  ADOPT the  committee  substitute,                                                                   
#22-LS1206\W,   Kurtz,  3/23/02,   as  the  document   before                                                                   
Committee  members.    There   being  NO  OBJECTION,  it  was                                                                   
adopted.                                                                                                                        
                                                                                                                                
Co-Chair  Mulder noted  a language  change  in Amendment  #1,                                                                   
deleting language  from Line  15 following  "$2,500,000,000;"                                                                   
though Line 18.   Co-Chair Mulder MOVED to  ADOPT the changed                                                                   
Amendment #1.  Representative Croft OBJECTED.                                                                                   
                                                                                                                                
Representative  Croft stated  that when  the collection  goes                                                                   
down to 1%,  the amount collected would only  be $100 million                                                                   
dollars.  He  advised that would never reach  the anticipated                                                                   
50/50.   That number  moves further  from any parity  between                                                                   
what is  taken from the permanent  fund earnings and  what is                                                                   
taxed back.                                                                                                                     
                                                                                                                                
Representative  Croft noted that  most of the  proposals that                                                                   
the Fiscal  Policy Council  started with  recognized  some of                                                                   
the lessons learned in 1999:                                                                                                    
                                                                                                                                
     ·         By starting with substantial taxes; and                                                                          
     ·         Narrowing it to 1, now moving it to ½.                                                                           
                                                                                                                                
He  stressed that  a tax  rate  must be  established for  the                                                                   
appropriate economy.                                                                                                            
                                                                                                                                
A roll call vote  was taken on the motion to  adopt Amendment                                                                   
#1.                                                                                                                             
                                                                                                                                
IN FAVOR:      Foster, Harris, Hudson, Lancaster, Whitaker,                                                                     
               Bunde, Williams, Mulder                                                                                          
OPPOSED:       Davies, Moses, Croft                                                                                             
                                                                                                                                
The MOTION PASSED (8-3).                                                                                                        
                                                                                                                                
Co-Chair  Mulder advised  that  Amendment 3,  #22-LS1206\W.3,                                                                   
Kurtz, 3/25/02, would no longer  apply as it was triggered to                                                                   
the  price  of  oil.   Amendment  2,  #22-LS1206\W.2,  Kurtz,                                                                   
3/25/02, would make  the sales tax a seasonal sales  tax.  He                                                                   
stated that Amendment 2 would not be offered at this time.                                                                      
                                                                                                                                
                                                                                                                                
RECESS:        10:55 A.M.                                                                                                       
RECONVENED:     1:55 P.M.                                                                                                       
                                                                                                                                
                                                                                                                                
Co-Chair  Mulder reiterated  that  he would  not be  offering                                                                   
Amendment 2.                                                                                                                    
                                                                                                                                
Representative  Croft   spoke  to  the  seasonal   sales  tax                                                                   
provision.                                                                                                                      
                                                                                                                                
Co-Chair   Williams   interrupted,    requesting   that   the                                                                   
discussion be kept to the amendments before the Committee.                                                                      
                                                                                                                                
Representative  Davies  stated that  the  list of  exemptions                                                                   
should include unprepared  foods.  He MOVED to  ADOPT that as                                                                   
a conceptual amendment.  Co-Chair Mulder OBJECTED.                                                                              
                                                                                                                                
Representative  Davies stressed that  the proposed  sales tax                                                                   
disproportionably  affects  the  lower  income  person.    In                                                                   
particular,  that  tax  will   impact  their  necessities  as                                                                   
opposed  to discretionary  expenditures.    One  of the  most                                                                   
important expenditures is food.   He proposed that unprepared                                                                   
foods be exempt.                                                                                                                
                                                                                                                                
Representative Croft advised that  36 states have a sales tax                                                                   
and of those, 29 exempt food.   Only 9 states tax food at the                                                                   
same rate without other mitigating  measures.  Representative                                                                   
Croft voiced  support to exempt food.    He pointed  out that                                                                   
taxing  food  is   a  regressive  sales  tax   and  could  be                                                                   
interpreted as targeting the poor.                                                                                              
                                                                                                                                
Representative Lancaster spoke  against adding any additional                                                                   
exemptions.    He  stressed that  the  boroughs  are  already                                                                   
allowed so many  exemptions that the State will  end up where                                                                   
they started.                                                                                                                   
                                                                                                                                
Representative  Whitaker  spoke against  the  amendment.   He                                                                   
pointed out that  Page 5(b) exempts food coupons  and stamps.                                                                   
He claimed that allowance would  provide an exemption for the                                                                   
least fortunate  Alaskans by exempting  them from  paying tax                                                                   
on food.                                                                                                                        
                                                                                                                                
Representative  Croft  acknowledged  that  those  on  welfare                                                                   
would  be exempted,  but  emphasized  that the  working  poor                                                                   
would not be  exempted.  He referenced the  graph provided by                                                                   
the Legislative Finance Division.  [Copy on File].                                                                              
                                                                                                                                
Representative Davies  reiterated that the  enclosed language                                                                   
would impact  the working poor.   The nature of  the language                                                                   
is aggressive to the poor people of the State.                                                                                  
                                                                                                                                
Co-Chair Mulder clarified  for the record that  the sales tax                                                                   
collected for the State would be 3% not 5.6%.                                                                                   
                                                                                                                                
Representative  Whitaker  countered   and  asked  what  would                                                                   
happen  if  the  proposed  sales  tax were  as  high  as  the                                                                   
proposed income tax.  He pointed  out that the proposed sales                                                                   
tax was a lower  rate.  While the percentage  of income might                                                                   
be higher, the dollars involved are somewhat minimal.                                                                           
                                                                                                                                
Representative  Hudson asked  further  clarification of  what                                                                   
"unprepared foods" are.                                                                                                         
                                                                                                                                
                                                                                                                                
TAPE HFC 02 - 64, Side B                                                                                                      
                                                                                                                              
                                                                                                                              
Representative Davies replied  that milk would be included in                                                                   
the exemption.                                                                                                                  
                                                                                                                                
Vice-Chair Bunde  spoke against  the amendment.   He stressed                                                                   
how complicated it  would be for the sales clerks.   He added                                                                   
that  all  Alaskans  need  to have  ownership  of  the  State                                                                   
government and that by paying taxes, it would then be fair.                                                                     
                                                                                                                                
Representative Croft stated that  with a sales tax of 3%, the                                                                   
poor Alaskans  would be  paying 2% of  their income  and rich                                                                   
Alaskans would  be paying  less than 1%.   He referenced  the                                                                   
handout,   Chart  #2,   which   more  clearly   defines   the                                                                   
differences.    He stressed that the numbers  provided by the                                                                   
Division   of  Legislative  Finance   indicates  a   definite                                                                   
disproportionate impact on poor Alaskans.                                                                                       
                                                                                                                                
Representative  Whitaker asked  what  that percentage  meant.                                                                   
He  believed that  the  real numbers  indicate  how much  the                                                                   
working poor  would be charged with  a State income  tax.  He                                                                   
stated  that those  in  the upper  income  brackets would  be                                                                   
paying more.   Representative  Whitaker noted that  he quoted                                                                   
from  a statement  provided  by  the Department  of  Revenue.                                                                   
[Copy  on  File].   He  discredited  the  argument  that  the                                                                   
proposed tax was a regressive tax effort.                                                                                       
                                                                                                                                
Co-Chair Williams  requested that  the discussion be  kept to                                                                   
the amendment.                                                                                                                  
                                                                                                                                
Representative  Davies advised  that his "principle  concern"                                                                   
is regarding  whether the proposed  tax would  be regressive.                                                                   
The sales tax  is disproportionate to those  with less income                                                                   
as compared  to those with more  income.  The  proposed sales                                                                   
tax has  the property  of taxing  the people with  relatively                                                                   
less income, a  higher percentage of their income.   That, by                                                                   
definition is  regressive.  He  stressed that is  the meaning                                                                   
of "regressive".  He offered the  amendment because sales tax                                                                   
is  regressive and  it will  impact people's  ability to  buy                                                                   
food.                                                                                                                           
                                                                                                                                
Representative Croft  claimed that the key point  is that the                                                                   
amendment  addresses the  regressive nature  of the  proposed                                                                   
tax and that unprepared  food is the key point.   He stressed                                                                   
that  the argument  proposed  by Representative  Whitaker  is                                                                   
wrong.   The number he proposes  to use, the sales  tax would                                                                   
raise somewhere  around $250 million  dollars as  compared to                                                                   
an income  tax that  would raise $360  million dollars.   The                                                                   
statistics do not  tell an accurate story.  Also,  there is a                                                                   
Department   of   Revenue   proposal,   which   analyzes   it                                                                   
differently, indicating that the  numbers cannot be compared.                                                                   
There is a hole,  which needs to be filled,  and the question                                                                   
is about how to fill it most fairly.                                                                                            
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:      Croft, Davies, Harris, Hudson, Moses                                                                             
OPPOSED:       Foster, Lancaster, Whitaker, Bunde, Mulder,                                                                      
               Williams                                                                                                         
                                                                                                                                
The MOTION FAILED (5-6).                                                                                                        
                                                                                                                                
Representative Croft MOVED to  ADOPT Amendment 2, which would                                                                   
add an  exemption that would make  the tax, a  seasonal sales                                                                   
tax.  Vice-Chair Bunde OBJECTED.                                                                                                
                                                                                                                                
Representative  Croft explained that  many Alaskans  have the                                                                   
impression  that  the  fiscal  gap could  be  solved  with  a                                                                   
seasonal sales tax.  He admitted  that the seasonal sales tax                                                                   
would  most likely  not be  able to  fill the  gap, but  more                                                                   
importantly,  the seasonal nature  of the  tax does  not have                                                                   
all the consequences that people  assume.  He added that many                                                                   
constituents have  discussed the option as a  possible remedy                                                                   
to the State's dilemma.                                                                                                         
                                                                                                                                
Vice-Chair Bunde  testified in  opposition to the  amendment.                                                                   
He  stated that  the amendment  perpetuates  the notion  that                                                                   
someone  else can pay  for the  services of  this State.   He                                                                   
claimed that is a mythical concept.                                                                                             
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:      Moses, Croft, Mulder                                                                                             
OPPOSED:       Davies, Foster, Harris, Hudson, Lancaster,                                                                       
               Whitaker, Bunde, Williams                                                                                        
                                                                                                                                
The MOTION FAILED (3-8).                                                                                                        
                                                                                                                                
Co-Chair  Mulder MOVED  to  REPORT  CS HB  303  (FIN) out  of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal note.  Representative Davies OBJECTED.                                                                      
                                                                                                                                
Representative  Croft stated  that the  legislation would  be                                                                   
paired  with a reduction  to the  permanent  fund.  He  noted                                                                   
that the  proposed legislation  is regressive  and not  fair.                                                                   
The Committee  has rejected  amendments  that would make  the                                                                   
legislation more  progressive.  He  added that it  would pre-                                                                   
empt other communities that have  a sales tax, and that would                                                                   
provide  an additional  burden.   The  legislation will  hurt                                                                   
poor Alaskans  and Alaskan  communities  that already  have a                                                                   
sales tax.                                                                                                                      
                                                                                                                                
Representative   Davies   echoed   the   comments   made   by                                                                   
Representative  Croft.  He  emphasized that  the draw  on the                                                                   
permanent  fund   paired  with   the  legislation   makes  it                                                                   
extremely regressive.   The revenue  that would  be generated                                                                   
is  too  small  and  that  more   revenue  will  need  to  be                                                                   
determined.  He spoke in support of a broad-based tax.                                                                          
                                                                                                                                
Representative  Whitaker  commented  that the  two  proposals                                                                   
before the  Committee are for either  a 3% sales tax  or a 4%                                                                   
income tax.   He believed these were valid  comparisons.  The                                                                   
least fortunate Alaskans will  pay no tax on life essentials.                                                                   
The more wealthy  Alaskans will pay nine times  more than the                                                                   
least fortunate.   He agreed that  it is not the  perfect tax                                                                   
because every person in the State  will pay.  The perfect tax                                                                   
is the  one where someone  else pays.   He stressed  that the                                                                   
least  fortunate  will be  protected  and that  the  proposed                                                                   
legislation is "fair".                                                                                                          
                                                                                                                                
Co-Chair  Mulder  spoke in  favor  of  moving the  bill  from                                                                   
Committee.   He  added that  the  proposed legislation  would                                                                   
work well with the permanent fund  proposal.  He claimed that                                                                   
his basic objection  to having a permanent fund  dividend and                                                                   
an income tax would be that the  dividend would then become a                                                                   
welfare payment.   With implementing  a sales  tax provision,                                                                   
everyone pays.  He claimed that  the more a person makes, the                                                                   
more they spend.   The very nature of that  demonstrates that                                                                   
the wealthy will be paying more.                                                                                                
                                                                                                                                
Co-Chair Mulder  commented that the State would  be surprised                                                                   
at  the amount  received from  the  seasonal sales  tax.   He                                                                   
thought that  a sales  tax could  stand the "public  muster".                                                                   
He added  that a sales  tax has more  public support  than an                                                                   
income tax.                                                                                                                     
                                                                                                                                
Representative   Lancaster   supported    the   comments   of                                                                   
Representative Whitaker.   He indicated his  concern with the                                                                   
exemption process.   He noted that he would  support the bill                                                                   
so that the debate could occur on the House Floor.                                                                              
                                                                                                                                
Representative  Davies rejected  Co-Chair Mulder's  statement                                                                   
that the dividend has become a  welfare payment.  He stressed                                                                   
that the payment  of the dividend is related  to an ownership                                                                   
that Alaskans  have to the  State's resources.   Few Alaskans                                                                   
do much  to deserve  the dividend.   He  thought that  it was                                                                   
fair since all  Alaskans own that resource that  the dividend                                                                   
is distributed equally.                                                                                                         
                                                                                                                                
He  disagreed  with comments  made  by Co-Chair  Mulder  that                                                                   
there is  more acceptance  for a sales  tax versus  an income                                                                   
tax.  He  clarified that statement entered into  the category                                                                   
of a "big  lie" and that  most public's communication  to the                                                                   
legislator's office  has proven that.  More  people have come                                                                   
to the conclusion  that an income  tax would be a  better way                                                                   
to go  for Alaska over  a sales tax.   The impact of  a sales                                                                   
tax will be dramatic on the municipalities.                                                                                     
                                                                                                                                
Vice-Chair  Bunde noted  that  his constituents  do not  want                                                                   
taxes, however,  they would prefer  a sales tax to  an income                                                                   
tax.    He  explained  how  the  proposal  would  reduce  the                                                                   
dividend; next year,  the dividend would remain  the same and                                                                   
then in the future, the dividend would change.                                                                                  
                                                                                                                                
Co-Chair Mulder  commented on  the resale exemption  and that                                                                   
the  intent of  that  exemption was  not  to hurt  businesses                                                                   
which  have  "value added"  in  the  State  of Alaska.    The                                                                   
components  that go  into  a finished  product  would not  be                                                                   
taxed.                                                                                                                          
                                                                                                                                
Representative  Davies  asked  if that  would  include  sales                                                                   
outside the State of Alaska such as logs and fish.                                                                              
                                                                                                                                
Co-Chair Mulder understood that they would be taxed.                                                                            
                                                                                                                                
Representative Lancaster disagreed  with Co-Chair Mulder.  He                                                                   
stated that neither would be taxed.                                                                                             
                                                                                                                                
Representative Davies clarified  that it is not a question of                                                                   
whether the retail occurs within the State.                                                                                     
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:      Harris, Hudson, Lancaster, Whitaker, Bunde,                                                                      
               Williams, Mulder                                                                                                 
OPPOSED:       Foster, Davies, Moses, Croft                                                                                     
                                                                                                                                
The MOTION PASSED (7-4).                                                                                                        
                                                                                                                                
CS HB 303 (FIN) was reported out  of Committee with a "do not                                                                   
pass"  recommendation   and  with   a  new  fiscal   note  by                                                                   
Department of Revenue.                                                                                                          
                                                                                                                                
HOUSE BILL NO. 304                                                                                                            
                                                                                                                                
     An Act relating to disposition of income of the                                                                            
     permanent fund; and providing for an effective date.                                                                       
                                                                                                                                
Co-Chair Mulder MOVED to ADOPT  the work draft, #22-LS1207\B,                                                                   
Cook,   3/25/02.     Representative   Davies   OBJECTED   for                                                                   
discussion purposes.                                                                                                            
                                                                                                                                
Representative Davies  inquired the changes made  to the work                                                                   
draft.                                                                                                                          
                                                                                                                                
Co-Chair Williams outlined the  changes that had been made to                                                                   
the draft:                                                                                                                      
                                                                                                                                
     ·         Delay effective date for changing to POMV                                                                        
               until June 29, 2003.                                                                                             
     ·         Intend to transfer $300 million dollars from                                                                     
               the earnings reserve to the general fund in                                                                      
               2002 (for the FY03 budget).                                                                                      
     ·         Language referring to the dividend as being                                                                      
               $1540  this October, since  the State  will be                                                                   
               leaving  the current  formula in effect  until                                                                   
               next year.   He emphasized that  nothing would                                                                   
               change with this year's dividend.                                                                                
                                                                                                                                
Representative  Croft observed that  the changes  would delay                                                                   
it for a year  and the 7% would then be in effect.   He asked                                                                   
if it  would change the percent  of distribution from  45% to                                                                   
55% mix-government.                                                                                                             
                                                                                                                                
Co-Chair Mulder restated  the MOTION to ADOPT  the work draft                                                                   
"B" as the  working document before the Committee.   Co-Chair                                                                   
Williams OBJECTED.                                                                                                              
                                                                                                                                
Representative  Lancaster observed  that the  rate of  return                                                                   
had been changed  from 7.95% to 8.25%.  He  noted information                                                                   
listed on the spreadsheets.  [Copies on File].                                                                                  
                                                                                                                                
Discussion  followed  amongst   Committee  members  regarding                                                                   
information contained on the spreadsheet.                                                                                       
                                                                                                                                
Co-Chair  Williams  stated that  the  payout  7.65% would  be                                                                   
delayed starting in FY04.                                                                                                       
                                                                                                                                
Representative  Davies commented  on the  delay and  how that                                                                   
would affect  the Capital Budget  Reserve (CBR).  One  of the                                                                   
tests used was determining what  would be left in the CBR and                                                                   
what the impact would be.                                                                                                       
                                                                                                                                
Representative  Hudson  commented  that  this  is a  work  in                                                                   
progress.   The  Committee had  passed the  sales tax,  which                                                                   
would  generate  $250  million  dollars.   Taking  that  into                                                                   
consideration and the $300 million  proposed dollars from the                                                                   
legislation, the  State would  be about $250 million  dollars                                                                   
short.  He commented that with  all the pieces of legislation                                                                   
passed,  the State  would be down  to a  $300 million  dollar                                                                   
draw rather than $750 million dollar draw.                                                                                      
                                                                                                                                
Co-Chair  Williams WITHDREW  his  OBJECTION  to adopting  the                                                                   
work  draft.   There  being NO  further  OBJECTION, the  work                                                                   
draft was adopted.                                                                                                              
                                                                                                                                
Representative Hudson MOVED to  report CS HB 304 (FIN) out of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal note.  Representative Croft OBJECTED.                                                                       
                                                                                                                                
Representative Croft indicated  his concern that there is not                                                                   
a spreadsheet  available  regarding how  it would affect  the                                                                   
CBR and reiterated his concern  with how the legislation will                                                                   
affect poor Alaskans.                                                                                                           
                                                                                                                                
Co-Chair Williams  noted that the bill previously  passed had                                                                   
a pay  out of  7.65%, which  was agreed  to by the  Permanent                                                                   
Fund Corporation.   He  claimed, with  that amount,  there is                                                                   
enough  remaining in  the general  fund to  not have to  deal                                                                   
with  taxes of  any  kind.   He reiterated  that  he did  not                                                                   
support any taxation and believed  that the proposed solution                                                                   
would be appropriate.                                                                                                           
                                                                                                                                
Co-Chair  Williams  stated  that  the  manner  in  which  the                                                                   
original bill was written, there  was $258 million dollars in                                                                   
FY05 to  cover the  capital projects.   He  added that  those                                                                   
projects would  be cut back.   The State should not  be taxed                                                                   
economically  when the  State is depressed.   He  recommended                                                                   
keeping  the original  numbers.   He claimed  that it is  not                                                                   
right to  tax the  people of  the State  when there  exists a                                                                   
dividend.   Co-Chair Williams  emphasized that Alaska  is the                                                                   
largest,  socialist State  in the  world.   Alaska should  be                                                                   
able to manage  it finances.   He urged that the bill  not be                                                                   
passed.                                                                                                                         
                                                                                                                                
Co-Chair Mulder provided the idea  of the legislation and the                                                                   
spreadsheet.  With  CS HB 304 (FIN) and if HB  303 and HB 229                                                                   
were to be put  in place, the estimated $300  million from HB
304 and  $150 million  dollars additional  tax revenues,  the                                                                   
net  amount would  total $450  million  dollars.   Offsetting                                                                   
that is  the fact  that the oil  revenue spring forecast  for                                                                   
FY03, if  spending is  held in  line, the  oil market  is now                                                                   
healthier, the State would be  considering a draw estimate of                                                                   
about  $750 million  dollars absent  any new  revenues.   The                                                                   
$750 million minus the $450 million  dollars would be about a                                                                   
$300 million  dollar draw from the  CBR.  The balance  in the                                                                   
CBR would be in excess of $2 billion dollars.                                                                                   
                                                                                                                                
Representative  Davies claimed  that the only  way that  is a                                                                   
"healthy" outlook  for the  CBR is if  people are  willing to                                                                   
consider that  the State will not  be able to do  anything in                                                                   
the future to address infrastructure concerns.                                                                                  
                                                                                                                                
                                                                                                                                
TAPE HFC 02 - 65, Side A                                                                                                      
                                                                                                                                
                                                                                                                                
Representative  Davies stated  that is  not a "rosy"  picture                                                                   
for the State of Alaska.                                                                                                        
                                                                                                                                
Co-Chair  Mulder stated  that was  only a  "capsule" view  of                                                                   
where the  State would be at  the conclusion of FY03.   There                                                                   
will  be a  2%  growth allotment,  and  with  the percent  of                                                                   
market  value (POMV)  provisions  related  to permanent  fund                                                                   
earnings, as  well as the  additional revenue  generated from                                                                   
State  tax dollars,  those amounts  would  go a  long way  to                                                                   
filling that gap.                                                                                                               
                                                                                                                                
Co-Chair Mulder  asked if  a spreadsheet  would be  needed to                                                                   
move the bill from Committee.                                                                                                   
                                                                                                                                
Representative  Croft replied  that it was  not needed  as he                                                                   
assumed that  there were enough  votes to move the  bill from                                                                   
Committee.  He indicated for the  record that he did not want                                                                   
the proposal to move forward.                                                                                                   
                                                                                                                                
Representative  Whitaker   asked  about  the   infrastructure                                                                   
development in the capital budget.                                                                                              
                                                                                                                                
Co-Chair  Mulder responded  that in  relation to  HB 304  and                                                                   
because  it has been  delayed for  a year,  there will  be no                                                                   
effect on  the upcoming capital  budget.  He claimed  that in                                                                   
the  future, there  would  be a  $250  million dollar  stream                                                                   
moving  toward infrastructure  development.    He added  that                                                                   
there  would be  capital  to provide  more  than an  adequate                                                                   
stream  for   school  construction,   maintenance   and  road                                                                   
construction.                                                                                                                   
                                                                                                                                
Representative  Whitaker  asked  if  for  FY03,  the  capital                                                                   
budget would be  somewhere in the range of  $100-$150 million                                                                   
dollars.                                                                                                                        
                                                                                                                                
Co-Chair  Williams noted  that  the capital  budget would  be                                                                   
$114 million dollars,  which would be rolled  to $193 million                                                                   
dollars.  He thought that it would be a 50/50 split.                                                                            
                                                                                                                                
Representative Whitaker  asked if it were a  fair conclusion,                                                                   
that  given  the  adoption  of  HB  304,  there  would  be  a                                                                   
significant growth  in the capital  budget this year  for the                                                                   
State of Alaska.                                                                                                                
                                                                                                                                
Representative Davies  asked if that growth  would be general                                                                   
fund dollars.                                                                                                                   
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:      Foster, Harris, Hudson, Lancaster, Whitaker,                                                                     
               Bunde, Mulder                                                                                                    
OPPOSED:       Williams, Davies, Moses, Croft                                                                                   
                                                                                                                                
The MOTION PASSED (6-4).                                                                                                        
                                                                                                                                
CS HB  304 (FIN)  was reported  out of  Committee with  a "do                                                                   
pass" recommendation and a new  fiscal note by the Department                                                                   
of Revenue.                                                                                                                     
                                                                                                                                
HOUSE BILL NO. 229                                                                                                            
                                                                                                                                
     An Act imposing a tax on employment; and providing for                                                                     
     an effective date.                                                                                                         
                                                                                                                                
Representative Croft noted the  three amendments contained in                                                                   
the member's  packets.   He thought that  it would  make more                                                                   
sense to  move amendment  labeled #3  first, as Amendments  1                                                                   
and  2  make  technical  changes  to  the  income  tax.    If                                                                   
Amendment 3  passes, it  would not make  sense to  submit the                                                                   
other two amendments.                                                                                                           
                                                                                                                                
Co-Chair Williams  indicated that  all the amendments  should                                                                   
be  discussed.    He  welcomed  the  amendments  proposed  by                                                                   
Representative Croft.                                                                                                           
                                                                                                                                
Representative  Croft MOVED and  spoke to Amendment  #1, S22-                                                                   
LS0842\O.1,  Kurtz,  3/25/02.  He noted  that  his  amendment                                                                   
would make  technical changes  to the  income tax.   Co-Chair                                                                   
Williams OBJECTED for the purpose of discussion.                                                                                
                                                                                                                                
Representative  Croft  explained  that  the  amendment  would                                                                   
provide the necessary  technical changes.  He  indicated that                                                                   
he  had worked  with  Larry Persily  from  the Department  of                                                                   
Revenue to help address those technical concerns.                                                                               
                                                                                                                                
Co-Chair  Williams WITHDREW  his OBJECTION.   There  being NO                                                                   
OBJECTION, Amendment 1 was adopted.                                                                                             
                                                                                                                                
Representative  Croft  MOVED   to  ADOPT  Amendment  2,  #22-                                                                   
LS0842\O.2, Kurtz, 3/25/02.  Co-Chair Williams OBJECTED.                                                                        
                                                                                                                                
Representative  Croft  explained  that  the  amendment  would                                                                   
remove the "trigger"  provision.  He stated  that the clearer                                                                   
the language, the better it will be.                                                                                            
                                                                                                                                
Co-Chair  Mulder voiced  his OBJECTION.   He  stated that  he                                                                   
liked  the  trigger  mechanism  and  that  it  would  provide                                                                   
Alaskans some level  of assurance that if the  State does not                                                                   
need the  money, and if there  is more revenue from  a higher                                                                   
price  of oil  or more  production, then  Alaskans would  not                                                                   
need to be taxed.                                                                                                               
                                                                                                                                
Representative Lancaster asked if item #3 had been removed.                                                                     
                                                                                                                                
Co-Chair Mulder  responded that the  1% had been left  in the                                                                   
bill.                                                                                                                           
                                                                                                                                
Co-Chair Mulder spoke against  removing the trigger mechanism                                                                   
in the bill.   He believed  that the State should  have never                                                                   
gotten  rid of  the tax  so that  the mechanics  would be  in                                                                   
place.  He claimed that was what  the trigger mechanism would                                                                   
do.   He assumed that  Alaskans would  be frustrated  if that                                                                   
did not occur.  Co-Chair Mulder  believed that there would be                                                                   
a move to repeal any income tax.                                                                                                
                                                                                                                                
Representative Croft WITHDREW Amendment 2.                                                                                      
                                                                                                                                
Representative Whitaker WITHDREW Amendment 3.                                                                                   
                                                                                                                                
Representative Hudson MOVED to  report CS HB 229 (FIN) out of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal note.   Co-Chair Williams OBJECTED.                                                                         
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:      Hudson, Lancaster, Moses, Croft, Davies                                                                          
OPPOSED:       Whitaker, Bunde, Foster, Harris, Mulder,                                                                         
               Williams                                                                                                         
                                                                                                                                
The MOTION FAILED (5-6).                                                                                                        
                                                                                                                                
CS HB 229 (FIN) FAILED to move out of Committee.                                                                                
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 3:29 P.M.                                                                                          

Document Name Date/Time Subjects