Legislature(2003 - 2004)

05/07/2003 09:00 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                        May 07, 2003                                                                                            
                         9:00 A.M.                                                                                              
                                                                                                                                
TAPE HFC 03 - 80, Side A                                                                                                        
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Williams called the House  Finance Committee meeting                                                                   
to order at 9:00 A.M.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative John Harris, Co-Chair                                                                                            
Representative Bill Williams, Co-Chair                                                                                          
Representative Kevin Meyer, Vice-Chair                                                                                          
Representative Mike Chenault                                                                                                    
Representative Eric Croft                                                                                                       
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Carl Moses                                                                                                       
Representative Bill Stoltze                                                                                                     
Representative Jim Whitaker                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Reggie Joule                                                                                                     
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Chris  Knauss,  Staff,  Representative   Pete  Kott;  Barbara                                                                   
Bitney, Staff,  Representative  Bill Stoltze; Larry  Persily,                                                                   
Deputy Commissioner, Department of Revenue                                                                                      
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Shane Herr,  Wolverine Farms, Palmer; River  Bean, President,                                                                   
Alaska   Organic   Association,  Palmer;   Gerald   DeVibiss,                                                                   
Wolverine  Farms,  Palmer;  River   Bean,  President,  Alaska                                                                   
Organic Association, Palmer                                                                                                     
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 174    An   Act   relating   to  the   state   centralized                                                                   
          correspondence   study  program,  to   funding  for                                                                   
          educational  programs that occur  primarily outside                                                                   
          school  facilities,  and to  the  duties of  school                                                                   
          boards  of borough  and city  school districts  and                                                                   
          regional   educational    attendance   areas;   and                                                                   
          providing for an effective date.                                                                                      
                                                                                                                                
          HB 174 was POSTPONED.                                                                                                 
HB 205    An Act relating to service in the peace corps as                                                                      
          an  allowable absence from  the state  for purposes                                                                   
          of eligibility for permanent  fund dividends and to                                                                   
          the  period   for  filing  an  application   for  a                                                                   
          permanent    fund    dividend;   authorizing    the                                                                   
          Department  of  Revenue   to  issue  administrative                                                                   
          orders     imposing    sanctions     for    certain                                                                   
          misrepresentations   or  other  actions  concerning                                                                   
          eligibility  for  a  permanent  fund  dividend  and                                                                   
          providing   for  administrative  appeal   of  those                                                                   
          orders; and providing for an effective date.                                                                          
                                                                                                                                
          HB 205 was POSTPONED.                                                                                                 
                                                                                                                                
HB 226    An Act relating to the sale, offer for sale,                                                                          
          representation,  and  labeling  of  food  or  other                                                                   
          agricultural products  as organic, and to the state                                                                   
          organic  certification program;  and providing  for                                                                   
          an effective date.                                                                                                    
                                                                                                                                
          HB 226 was reported out of Committee with a "do                                                                       
          pass" recommendation  and with a new fiscal note by                                                                   
          the Department of Natural Resources.                                                                                  
                                                                                                                                
HB 271    An Act levying and providing for the collection                                                                       
          and  administration of an  excise tax  on passenger                                                                   
          vehicle  rentals; and  providing  for an  effective                                                                   
          date.                                                                                                                 
                                                                                                                                
          CS HB 271 (FIN) was reported out of Committee with                                                                    
          a "do  pass" recommendation  and with a  new fiscal                                                                   
          note by the Department of Revenue.                                                                                    
                                                                                                                                
SB 109    An Act repealing the statute that sets priorities                                                                     
          for  the Department of  Health and Social  Services                                                                   
          to   apply  to   administration   of  the   medical                                                                   
          assistance  program  when  there  are  insufficient                                                                   
          funds  allocated  in  the  state  budget  for  that                                                                   
          program;  authorizing the  department to  make cost                                                                   
          containment  decisions that  may include  decisions                                                                   
          about  eligibility of  persons and availability  of                                                                   
          services under the medical  assistance program; and                                                                   
          providing for an effective date.                                                                                      
                                                                                                                                
          SB 109 was POSTPONED.                                                                                                 
                                                                                                                                
HOUSE BILL NO. 271                                                                                                            
                                                                                                                                
     An Act levying and providing for the collection and                                                                        
     administration of an excise tax on passenger vehicle                                                                       
     rentals; and providing for an effective date.                                                                              
                                                                                                                                
Co-Chair Harris  MOVED to  ADOPT work draft  #23-23-LS0936\X,                                                                   
Kurtz, 5/6/03, as  the version of the legislation  before the                                                                   
Committee.   Representative Croft  OBJECTED in order  to hear                                                                   
the difference between the two versions.                                                                                        
                                                                                                                                
CHRIS  KNAUSS,  STAFF, REPRESENTATIVE  PETE  KOTT,  explained                                                                   
that the  Department of  Revenue had  requested changes  from                                                                   
the Ways  and Means  Committee version  to the House  Finance                                                                   
Committee version of the bill.                                                                                                  
                                                                                                                                
LARRY PERSILY,  DEPUTY COMMISSIONER,  DEPARTMENT OF  REVENUE,                                                                   
classified the changes as mostly technical:                                                                                     
                                                                                                                                
     ·         The original draft of the bill referred to                                                                       
               rentals made in the State.  The words "made                                                                      
               out" were removed.                                                                                               
     ·         The Department wanted to make it clear that                                                                      
               the tax must be stated separately on the                                                                         
               rental invoice for the consumers and for the                                                                     
               business.                                                                                                        
     ·         Any rental of a motor vehicle by a State,                                                                        
               municipal for federal employee for official                                                                      
               business would be exempt from the tax.                                                                           
     ·         The Finance version clearly spells out that                                                                      
               the tax should not be charged on top of other                                                                    
               taxes.                                                                                                           
                                                                                                                                
Mr. Persily noted that the substance  of the bill remains the                                                                   
same and  would place  a 10%  tax on  passenger vehicles  and                                                                   
pick-up trucks  and a 3% tax  on recreational vehicles.   The                                                                   
                                  st                                                                                            
bill would  take effect on  July 1,   2003.  The  fiscal note                                                                   
estimates  that in  FY04,  approximately  $4 million  dollars                                                                   
would  be  generated  and  in  the  following  fiscal  years,                                                                   
approximately $6 million dollars generated revenue.                                                                             
                                                                                                                                
Representative Croft WITHDREW  his OBJECTION.  There being NO                                                                   
further OBJECTION, the work draft was adopted.                                                                                  
                                                                                                                                
Representative  Croft  MOVED  to  ADOPT  Amendment  #1,  #23-                                                                   
LS0936\U.1, Kurtz, 4/25/01.  (Copy on File).                                                                                    
                                                                                                                                
Co-Chair Williams OBJECTED.                                                                                                     
                                                                                                                                
Representative   Croft   explained   that   essentially   the                                                                   
amendment would  not place  the State tax  "on top"  of local                                                                   
taxes already in  place.  Adding the proposed  tax to already                                                                   
high  taxes makes  it prohibitive.   Mr.  Knauss pointed  out                                                                   
that action would cut the State's  projected revenue from 50%                                                                   
to  75%  since the  largest  use  is  in Anchorage  and  they                                                                   
already have  an 8% tax.   Co-Chair Williams agreed  with the                                                                   
sponsor that the amendment would not work well.                                                                                 
                                                                                                                                
Co-Chair Harris asked if the intent  of the amendment was not                                                                   
to penalize local communities  that already impose the rental                                                                   
car tax  and instead allow them  to keep their  current fees.                                                                   
Representative Croft agreed that was the intent.                                                                                
                                                                                                                                
Discussion  followed  between  Representative Croft  and  Co-                                                                   
Chair  Harris   regarding  the   maximum  that  a   community                                                                   
currently can  keep.   Representative Croft informed  members                                                                   
that there would  be a 10% original car tax  across the State                                                                   
that  might  be  shared  differently  between  municipalities                                                                   
depending upon  their tax rates.   Co-Chair Harris  commented                                                                   
that under  the premise of Amendment  #1, it would be  to the                                                                   
advantage of a community to place  a 10% local community tax,                                                                   
keeping  it for  themselves.   Representative  Croft  agreed.                                                                   
Co-Chair Harris  pointed out  that the  bill indicates  a 10%                                                                   
rental car tax on every rental car in the State.                                                                                
                                                                                                                                
Co-Chair Harris  asked if  there was a  "drop dead"  date for                                                                   
imposing the  tax.  Representative  Croft responded  that the                                                                   
State already shares revenue with  the municipal governments.                                                                   
He stressed that an 18% tax is  excessive.  Co-Chair Williams                                                                   
disagreed.                                                                                                                      
                                                                                                                                
Vice-Chair Meyer  voiced his opposition to Amendment  #1.  He                                                                   
pointed  out  that under  the  amendment,  only 2%  would  be                                                                   
collected from the  Anchorage area noting that  nearly 60% of                                                                   
the rental cars  come from that area.  Without  the Anchorage                                                                   
revenue, the bill would not generate  much assistance for the                                                                   
State general  fund.  He pointed  out that there are  ways in                                                                   
which  local people  can  avoid paying  the  airport fees  by                                                                   
renting  their  cars  in  town  or  anywhere  away  from  the                                                                   
airport.                                                                                                                        
                                                                                                                                
Representative  Stoltze acknowledged  that he understood  the                                                                   
intent of the amendment, however, that he would oppose it.                                                                      
                                                                                                                                
Representative Hawker stated that  in other states throughout                                                                   
the nation, he  was accustomed to paying a 25%  to 30% tax on                                                                   
car rentals and  maintained that the legislation  would bring                                                                   
Alaska  in  line  with  the  average  national  levels.    He                                                                   
stressed  that this  would  be a  tax  on business  corporate                                                                   
users.   "Less is  not more" when  attempting to  balance the                                                                   
overall budget.   He  stated that  he would oppose  Amendment                                                                   
#1.                                                                                                                             
                                                                                                                                
Co-Chair  Harris  clarified  that  the bill  does  not  allow                                                                   
charges to  State employees.   Mr.  Persily advised  that the                                                                   
House Finance  version exempts  State, municipal  and federal                                                                   
employees when on official business.                                                                                            
                                                                                                                                
Representative  Croft referenced the  charts provided  by the                                                                   
Department of Revenue.   He noted that it combines  the State                                                                   
and  local taxes  with the  rental  car rates.   Without  the                                                                   
amendment  in  place,  Alaska  would be  ranked  #5  for  the                                                                   
highest   paying   state  in   the   Nation.     Right   now,                                                                   
incorporating the  tax would raise the  tax to a 29%  tax fee                                                                   
at the  Anchorage Airport.   He noted  that at present  time,                                                                   
there  is no  sales tax  but eventually  that  would also  be                                                                   
added to the tax base.                                                                                                          
                                                                                                                                
A roll call vote  was taken on the motion to  adopt Amendment                                                                   
#1.                                                                                                                             
                                                                                                                                
IN FAVOR:      Moses, Croft                                                                                                     
OPPOSED:       Meyer, Stoltze, Whitaker, Chenault, Foster,                                                                      
               Hawker, Harris, Williams                                                                                         
                                                                                                                                
Representative Joule was not present for the vote.                                                                              
                                                                                                                                
The MOTION FAILED (2-8).                                                                                                        
                                                                                                                                
Representative  Croft  MOVED  to  ADOPT  Amendment  #2,  #23-                                                                   
LS0936\U.2, Kurtz, 4/25/03.                                                                                                     
                                                                                                                                
Co-Chair Williams OBJECTED.                                                                                                     
                                                                                                                                
Representative   Croft    explained   that   part    of   the                                                                   
justification for the bill was  that it is needed for tourism                                                                   
marketing  funding.   Amendment  #2  stipulates  that if  the                                                                   
appropriate  level of $10  million dollars  has not  been met                                                                   
then the tax could be collected, otherwise it could not be.                                                                     
                                                                                                                                
Mr. Knauss  referenced Page 2,  Lines 22-26, noting  that the                                                                   
sponsor's intent  was to establish an account  in the general                                                                   
fund for tourism and marketing,  but not a dedicated account.                                                                   
                                                                                                                                
Representative  Hawker   discussed  his  concerns   regarding                                                                   
designating  funds.    He  noted   that  there  would  be  an                                                                   
arbitrary   $10    million   dollar   general    fund   money                                                                   
appropriated.  The purpose of  the bill results from concerns                                                                   
regarding Alaska's  fiscal issues.   To place a  provision in                                                                   
the  bill which  makes it  automatically  a net  loss to  the                                                                   
general fund "does not fly" with  the intent.  He stated that                                                                   
he opposed the amendment.                                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:      Croft                                                                                                            
OPPOSED:       Meyer, Moses, Stoltze, Whitaker, Foster,                                                                         
               Hawker, Williams, Harris                                                                                         
                                                                                                                                
Representative Joule was not present for the vote.                                                                              
                                                                                                                                
The MOTION FAILED (1-9).                                                                                                        
                                                                                                                                
Co-Chair  Harris MOVED  to  report  CS HB  271  (FIN) out  of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal  note.  There being NO  OBJECTION, it was                                                                   
so ordered.                                                                                                                     
                                                                                                                                
CS HB  271 (FIN)  was reported  out of  Committee with  a "do                                                                   
pass"  recommendation  and with  a  new  fiscal note  by  the                                                                   
Department of Revenue.                                                                                                          
                                                                                                                                
HOUSE BILL NO. 226                                                                                                            
                                                                                                                                
     An   Act  relating   to  the  sale,   offer  for   sale,                                                                   
     representation,   and   labeling   of  food   or   other                                                                   
     agricultural  products  as  organic,  and to  the  state                                                                   
     organic  certification  program;  and providing  for  an                                                                   
     effective date.                                                                                                            
                                                                                                                                
                                                                                                                                
Representative  Stoltze introduced the  bill noting  that Co-                                                                   
Chair  Harris staff  had done  a lot  of work  on this  issue                                                                   
during the past two legislative sessions.                                                                                       
                                                                                                                                
BARBARA BITNEY,  STAFF, REPRESENTATIVE  BILL STOLTZE,  stated                                                                   
that HB 226  was a measure to  bring Alaska in line  with the                                                                   
federal definition  of "organic".   In  2001, the final  rule                                                                   
for the federal definition of  "organic" was adopted; the law                                                                   
allowed  for a transition  period from  mid-2001 to  October,                                                                   
2002,  giving states  14 months  to come into  line with  the                                                                   
federal  definition of  organic.   HB 432  was introduced  in                                                                   
April 2002 with  the language needed to make the  change.  It                                                                   
                          nd                                                                                                    
did not pass before the 22 Legislative session adjourned.                                                                       
                                                                                                                                
HB 226 is back this year, making  it a very simple measure to                                                                   
bring   the  State   of   Alaska's  definition   of   organic                                                                   
agricultural  products in line  with the federal  definition.                                                                   
It  will  create  an  Alaska  organic  certification  program                                                                   
providing  in-state  certification for  organic  agricultural                                                                   
producers, processors and handlers.                                                                                             
                                                                                                                                
At  this time,  operators  are  paying to  fly  certification                                                                   
specialists to Alaska whose fees  may be as high as $1,500 to                                                                   
$3,000 dollars  to verify Alaskan operations  comply with the                                                                   
federal  organic   standards.    With  passage   of  HB  226,                                                                   
qualified inspectors  would complete the  inspection process,                                                                   
with the  final certification  process  being performed  by a                                                                   
designated State official.                                                                                                      
                                                                                                                                
Representative Stoltze  voiced concern with the  fiscal note.                                                                   
He was  not sure  that the  amount was  justified.   He noted                                                                   
that  there  is  a  large  presence  of  United  States  Drug                                                                   
Administration  (USDA) officials,  whom the  State should  be                                                                   
able to  rely upon  for technical  assistance.  Whatever  the                                                                   
decision of the Committee regarding  the note, Representative                                                                   
Stoltze indicated that he wanted  to get the bill through the                                                                   
House.   He added that  Senator Green  was in support  of the                                                                   
bill on the Senate side and that  it was her intent to "trim"                                                                   
the note.                                                                                                                       
                                                                                                                                
Co-Chair Williams asked the responsibilities  associated with                                                                   
the requested position.  Ms. Bitney  explained that the State                                                                   
would continue  to bring outside  inspectors to Alaska.   The                                                                   
State will need  to review all documentation and  sign off on                                                                   
the certification  for it.   It would  be a ½ time  position.                                                                   
She believed that the fiscal note was minimal.                                                                                  
                                                                                                                                
Co-Chair  Harris noted  that he  would like  to zero out  the                                                                   
note.   He asked  if a  part time  person would  be hired  or                                                                   
would they be  using someone already in the  Department.  Ms.                                                                   
Bitney  responded  that  it  would   be  someone  within  the                                                                   
Department.                                                                                                                     
                                                                                                                                
Co-Chair  Harris asked  if  there was  a  program within  the                                                                   
Department where a fee could be  associated with the costs to                                                                   
pay  that   amount.    Ms.   Bitney  responded  that   was  a                                                                   
possibility that had not yet been explored.                                                                                     
                                                                                                                                
Co-Chair  Harris interjected  that  through regulations,  the                                                                   
Department could  impose a  fee for the  users.   He proposed                                                                   
that the  Committee modify  the fiscal  note, taking  the $37                                                                   
thousand  dollars from  general funds  and put  it under  $37                                                                   
thousand dollars from program  receipts, which would zero out                                                                   
the general fund draw.                                                                                                          
                                                                                                                                
Representative Stoltze  commented that it had  been difficult                                                                   
to  get a  "straight answer"  from  the federal  bureaucracy.                                                                   
Co-Chair Williams  encouraged that Co-Chair Harris  work with                                                                   
Representative  Stoltze  and  the Department  on  the  fiscal                                                                   
note.  Co-Chair  Harris advised that it would  be appropriate                                                                   
to  move  the bill  out  with  the fiscal  note  changed  and                                                                   
placing the $37  thousand dollars under general  fund program                                                                   
receipts.                                                                                                                       
                                                                                                                                
Co-Chair  Harris   MOVED  that   MOTION.    There   being  NO                                                                   
OBJECTION, the fiscal note was revised.                                                                                         
                                                                                                                                
Representative Hawker  inquired if that change  would need to                                                                   
be reflected in the bill.                                                                                                       
                                                                                                                                
RIVER  BEAN,   (TESTIFIED  VIA  TELECONFERENCE),   PRESIDENT,                                                                   
ALASKA  ORGANIC ASSOCIATION,  PALMER, commented  that in  the                                                                   
past, his  company had been  certifying organic farms  in the                                                                   
State of Alaska.  Under the organic  program rule, they could                                                                   
no longer do that.  The federal  government took that over as                                                                   
of October  22, 2002.  The State  can no longer use  the word                                                                   
"organic"  without  certification,   which  affects  a  large                                                                   
number of farmers in the State.   These farmers cannot afford                                                                   
to go to  the State of Washington  to certify.  On  behalf of                                                                   
all  the organic  farmers in  the State,  Mr. Bean  requested                                                                   
support  for  coming  in line  with  the  federal  government                                                                   
standards so  that Alaska can  call their produce  "organic".                                                                   
Mr. Bean  agreed to pay  a user fee  to maintain  the organic                                                                   
status.                                                                                                                         
                                                                                                                                
Representative Croft asked about  the federal criteria and if                                                                   
each state  had to  separately meet the  criteria.   Mr. Bean                                                                   
replied  that  anyone  that  applies  for  accreditation  can                                                                   
certify.  The Alaska Organic Association  cannot afford to be                                                                   
accredited with  the federal government.   There are  over 30                                                                   
states  that have  state  programs and  a  number of  private                                                                   
companies that  are accredited  with the federal  government.                                                                   
The  federal government  does not  provide the  certification                                                                   
but rather the accreditation.                                                                                                   
                                                                                                                                
Representative Croft  asked if that needed to  be done either                                                                   
through  private industry  or  through the  government.   Mr.                                                                   
Bean  stated that  was  correct.   He  reiterated that  their                                                                   
association couldn't afford to do it on their own.                                                                              
                                                                                                                                
GERALD  DEVILBISS,  (TESTIFIED  VIA  TELECONFERENCE),  ALASKA                                                                   
ORGANIC  ASSOCIATION,  WOLVERINE  FARMS,  PALMER,  encouraged                                                                   
Committee   members  to   pass  the   bill.    He   supported                                                                   
implementing a  user fee to help  cover costs.   He mentioned                                                                   
that  there is  a  big part  of  Alaska agriculture  that  is                                                                   
getting "swept  under the rug".   He voiced his  appreciation                                                                   
to  Representative Stoltze  for  bringing this  issue to  the                                                                   
State Legislature's awareness.                                                                                                  
                                                                                                                                
SHANE HERR,  (TESTIFIED VIA  TELECONFERENCE), ALASKA  ORGANIC                                                                   
ASSOCIATION,   ORGANIC  FARMER,   WOLVERINE  FARMS,   PALMER,                                                                   
encouraged  passage of  the bill.   He stressed  it would  be                                                                   
advantageous  to the  State of  Alaska.   Mr. Herr  commented                                                                   
that  tourism  capitalizes on  Alaskan  grown  products.   He                                                                   
believed  that there could  be federal  funding available  to                                                                   
help  the  State  with  the receipts.    The  farmers  cannot                                                                   
support  the entire  tab but would  be supportive  of a  user                                                                   
fee.                                                                                                                            
                                                                                                                                
Representative  Stoltze  voiced  his appreciation  for  those                                                                   
people  that testified.   He recognized  how labor  intensive                                                                   
the work they do is.                                                                                                            
                                                                                                                                
Representative  Stoltze  MOVED   to  report  HB  226  out  of                                                                   
Committee with  individual recommendations  and with  the new                                                                   
adjusted fiscal  note.  There  being NO OBJECTION, it  was so                                                                   
ordered.                                                                                                                        
                                                                                                                                
HB  226  was  reported  out  of   Committee  with  "do  pass"                                                                   
recommendation  and  with  a   revised  fiscal  note  by  the                                                                   
Department of Natural Resources.                                                                                                
                                                                                                                                
AT EASE:       9:40 A.M.                                                                                                      
RECONVENE:     9:45 A.M.                                                                                                      
                                                                                                                              
                                                                                                                                
Co-Chair Harris noted that the  Committee would adjourn until                                                                   
the scheduled afternoon  meeting.  He voiced  his concern for                                                                   
House  Finance Committee  member Representative  Joule  for a                                                                   
quick and safe recovery.                                                                                                        
                                                                                                                                
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 9:47 A.M.                                                                                          
                                                                                                                                
                                                                                                                                

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