Legislature(2003 - 2004)

05/18/2003 11:20 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                        May 18, 2003                                                                                            
                          11:20 AM                                                                                              
                                                                                                                                
TAPE HFC 03 - 101, Side A                                                                                                       
TAPE HFC 03 - 101, Side B                                                                                                       
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Williams called the House  Finance Committee meeting                                                                   
to order at 11:20 AM.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative John Harris, Co-Chair                                                                                            
Representative Bill Williams, Co-Chair                                                                                          
Representative Kevin Meyer, Vice-Chair                                                                                          
Representative Ethan Berkowitz                                                                                                  
Representative Mike Chenault                                                                                                    
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Beth Kerttula                                                                                                    
Representative Carl Moses                                                                                                       
Representative Bill Stoltze                                                                                                     
Representative Jim Whitaker                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Senator  Con Bunde,  Sponsor; Senator  Gary Wilken,  Sponsor;                                                                   
Senator  robin   Taylor,  Sponsor;  Johanna  D.   Bales,  Tax                                                                   
Auditor,  Department   of  Revenue;  Tom  McKay,   Sr.,  Vice                                                                   
President,  Costco  Wholesale;  Eddy  Jeans,  Manger,  School                                                                   
Finance and  Facilities Section, Department of  Education and                                                                   
Early Development;  Carl Rose,  Association of Alaska  School                                                                   
Boards;  John  Alcantra, National  Education  Association  of                                                                   
Alaska;  Jim Foster,  Assistant  Superintendent, Galena  City                                                                   
School  district;   Kelly  Huber,   Staff,  Senator   Taylor,                                                                   
Sponsor.                                                                                                                        
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Mike   Elerding,  Northern   Sales;   John  Ayers,   Keystone                                                                   
Distribution  Services,  Anchorage;   Chris  Mish,  Forester,                                                                   
Department of Natural Resources.                                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
                                                                                                                                
CSSB 149(RES)                                                                                                                   
     "An Act  relating to  timber, to the  sale of  timber by                                                                   
    the state, and to the management of state forests."                                                                         
                                                                                                                                
     CSSB 149 (RES) was REPORTED  out of Committee with a "do                                                                   
     pass" recommendation  and one zero fiscal  note from the                                                                   
     Department of Natural Resources.                                                                                           
                                                                                                                                
CS SB 168(FIN) am                                                                                                               
     "An Act relating to issuance  and revocation of licenses                                                                   
     for the importation, sale,  distribution, or manufacture                                                                   
     of cigarettes  and tobacco  products; relating to  a tax                                                                   
     refund or credit for unsaleable,  returned, or destroyed                                                                   
     tobacco  products;  relating   to  restrictions  on  and                                                                   
     penalties  for  shipping   or  transporting  cigarettes;                                                                   
     relating to  records concerning the sale  of cigarettes;                                                                   
     amending  and adding definitions  relating to  cigarette                                                                   
     taxes;  relating  to  the payment  of  cigarette  taxes;                                                                   
     relating  to penalties  applicable  to cigarette  taxes;                                                                   
     relating  to the  definition of the  wholesale  price of                                                                   
     tobacco  products;  relating  to  payment  of  cigarette                                                                   
     taxes through the use of  cigarette tax stamps; relating                                                                   
     to provisions  making certain cigarettes  contraband and                                                                   
     subject to  seizure and forfeiture; relating  to certain                                                                   
     crimes,  penalties,  and   interest  concerning  tobacco                                                                   
     taxes  and  stamps;  relating to  cigarette  sales;  and                                                                   
     providing for an effective date."                                                                                          
                                                                                                                                
     CSSB 168 (FIN)  (am) was REPORTED out of  Committee with                                                                   
     "no  recommendation"  and two  fiscal  notes:   one  new                                                                   
     fiscal impact  note from  the Department of  Revenue and                                                                   
     zero fiscal note #2 from the Department of Law.                                                                            
                                                                                                                                
CSSB 202 (RES)                                                                                                                  
     "An Act  relating to school transportation;  relating to                                                                   
     the  base student  allocation  used in  the formula  for                                                                   
     state funding of public education;  and providing for an                                                                   
     effective date."                                                                                                           
                                                                                                                                
     CSSB  202 (FIN)  was  heard and  HELD  in Committee  for                                                                   
     further consideration.                                                                                                     
CS FOR SENATE BILL NO. 168(FIN) am                                                                                            
                                                                                                                                
     "An Act relating to issuance  and revocation of licenses                                                                   
     for the importation, sale,  distribution, or manufacture                                                                   
     of cigarettes  and tobacco  products; relating to  a tax                                                                   
     refund or credit for unsaleable,  returned, or destroyed                                                                   
     tobacco  products;  relating   to  restrictions  on  and                                                                   
     penalties  for  shipping   or  transporting  cigarettes;                                                                   
     relating to  records concerning the sale  of cigarettes;                                                                   
     amending  and adding definitions  relating to  cigarette                                                                   
     taxes;  relating  to  the payment  of  cigarette  taxes;                                                                   
     relating  to penalties  applicable  to cigarette  taxes;                                                                   
     relating  to the  definition of the  wholesale  price of                                                                   
     tobacco  products;  relating  to  payment  of  cigarette                                                                   
     taxes through the use of  cigarette tax stamps; relating                                                                   
     to provisions  making certain cigarettes  contraband and                                                                   
     subject to  seizure and forfeiture; relating  to certain                                                                   
     crimes,  penalties,  and   interest  concerning  tobacco                                                                   
     taxes  and  stamps;  relating to  cigarette  sales;  and                                                                   
     providing for an effective date."                                                                                          
                                                                                                                                
SENATOR CON  BUNDE, SPONSOR,  provided information  about the                                                                   
bill.  He  noted   that  the  bill  is  not   "anti  tobacco"                                                                   
legislation, nor  was it the intent to address  taxation. The                                                                   
genesis  was  a  radio  spot by  an  Eastern  company,  which                                                                   
advertised the sale of tax-free  cigarettes that would not be                                                                   
reported to the state [for tax  purposes].  The Department of                                                                   
Revenue has been  trying to address the leakage  in the state                                                                   
of  Alaska's  tax  law  on  cigarettes.  The  Department  has                                                                   
indicated that  they cannot enforce  the tax law  effectively                                                                   
without  a tobacco  tax  stamp.  The Department  of  Revenue,                                                                   
during litigation  proceedings, was able to obtain  a list of                                                                   
companies that do pay their tax.  The federal government will                                                                   
not  join  the  state  in  the  enforcement  of  federal  law                                                                   
[Jenkins Act] without a tobacco  tax stamp. He referenced the                                                                   
state of  Michigan, which also  has a tobacco tax,  and noted                                                                   
that tax revenues  in Michigan increased 9 percent  when they                                                                   
added a  tax stamp. Hawaii saw  a 25 percent increase  with a                                                                   
tax stamp.  He stated  that for  every one  percent that  tax                                                                   
revenues  increase,  Alaska  would  gain  $400  thousand.  He                                                                   
stated that  distributors acknowledged  that the  increase in                                                                   
tobacco  price  decreases  use  by  youth.  Distributors  are                                                                   
concerned with fair  business practices and have  asked for a                                                                   
minimum  price,  which  would  prevent  sales  to  youth  and                                                                   
undercutting prices. He concluded  that selling tobacco below                                                                   
price was poor public policy.                                                                                                   
                                                                                                                                
Senator  Bunde  noted  that the  Heart  Association  and  the                                                                   
Alaska Tobacco Distributors both supported the bill.                                                                            
                                                                                                                                
Vice-Chair Meyer  expressed support  for the legislation  but                                                                   
questioned  if it  were possible  to  put the  burden on  the                                                                   
distributor.  Representative Bunde  noted  that other  states                                                                   
have forced  the industry to bear  the full tax burden.   The                                                                   
legislation  allows  the  industry  to deduct  the  costs  of                                                                   
collecting  the  tax,  for example  investment  in  equipment                                                                   
needed to stamp the cigarettes.                                                                                                 
                                                                                                                                
Vice-Chair  Meyer observed  that  even though  the bill  will                                                                   
cost the  state some money,  it would increase  tax revenues.                                                                   
Representative  Bunde  predicted a  $3  million  net gain  or                                                                   
more.                                                                                                                           
                                                                                                                                
Representative  Hawker asked if  the bill changed  the timing                                                                   
of the tax collection.  Representative  Bunde speculated that                                                                   
it did not.                                                                                                                     
                                                                                                                                
JOHANNA  D.   BALES,  TAX  AUDITOR,  DEPARTMENT   OF  REVENUE                                                                   
testified  via teleconference.   She noted  that she  was the                                                                   
auditor  for the state  cigarette excise  tax. She  confirmed                                                                   
that  the tax  would  continue to  be  collected monthly.  In                                                                   
response to  a question by  Representative Hawker,  Ms. Bales                                                                   
noted   that  the  stamp   would  be   purchased  up   front.                                                                   
Distributors  could   post  a   bond,  which  is   what  most                                                                   
distributors  do, to put  the actual payment  of the  tax off                                                                   
for a month and  a half. This is the current  practice of the                                                                   
reporting system. The tax payment  is due about a month and a                                                                   
half after cigarettes are imported.                                                                                             
                                                                                                                                
In  response   to  a  question  by  Representative   Stoltze,                                                                   
Representative  Bunde noted  that his  motivation is  to make                                                                   
tobacco  less  assessable  to teenagers.  The  motivation  of                                                                   
tobacco distributor is to ensure a fair playing field.                                                                          
                                                                                                                                
Representative Stoltze asked if  using tools for unfair trade                                                                   
practices might  be a more  appropriate vehicle,  rather than                                                                   
focusing  on  a  particular  industry.  Representative  Bunde                                                                   
maintained  that a  great number  of under-priced  cigarettes                                                                   
would be sold before another tool would be effective.                                                                           
                                                                                                                                
Representative  Berkowitz  noted  that  Hawaii  and  Michigan                                                                   
achieved  different  revenue  results,  and  asked  if  their                                                                   
statutes were  different.   Representative Bunde  stated that                                                                   
Hawaii had an aggressive enforcement program.                                                                                   
                                                                                                                                
Ms.  Bales confirmed  that  Hawaii hired  eleven  enforcement                                                                   
individuals. She  stated that  the proposed bill  was modeled                                                                   
after the  state of Hawaii's.   She added that the  amount of                                                                   
tax collected  in Hawaii resulted  in an initial  increase of                                                                   
25 percent, the  final numbers showed a 50  percent increase,                                                                   
from $40 million to $61 million in tax.                                                                                         
                                                                                                                                
Co-Chair Harris noted his support  of the bill, but reference                                                                   
complaints by wholesalers.  Representative  Bunde stated that                                                                   
smaller companies  complained  that larger wholesalers,  like                                                                   
Costco, could  sell tobacco under cost. He  acknowledged that                                                                   
every  business  wants  to  preserve   their  advantage,  but                                                                   
emphasized  that  every  carton   sold  below  cost  promotes                                                                   
smoking,  since  it  has  been   proven  that  price  affects                                                                   
consumption, especially by young  people.  He also noted that                                                                   
imposing a minimum might affect fairness across the market.                                                                     
                                                                                                                                
Co-Chair  Harris stated  that wholesalers  had threatened  to                                                                   
close   their  stores   in  Alaska   if   the  bill   passes.                                                                   
Representative Bunde  speculated that a company  whose profit                                                                   
margins were so narrow might not be doing viable business.                                                                      
                                                                                                                                
Representative  Kerttula  asked  if  the  tax  was  the  same                                                                   
regardless of price. Representative  Bunde noted that the tax                                                                   
was  $1 per  pack,  regardless of  price.  He clarified  that                                                                   
companies would now have to meet the minimum price.                                                                             
                                                                                                                                
Ms.  Bales  explained  that the  minimum  price  stated  that                                                                   
cigarettes  could not  be sold  for less  than the  wholesale                                                                   
purchase  price,  plus  tax, plus  cost  of  doing  business.                                                                   
Companies could use a 4.5 percent  for wholesale or 6 percent                                                                   
at retail above  wholesale to determine price.   The price is                                                                   
not a dollar figure.                                                                                                            
                                                                                                                                
BOBBY  SCOTT, JAN'S  DISTRIBUTING,  ANCHORAGE, testified  via                                                                   
teleconference  in support of  the bill.   He noted  that his                                                                   
company had worked on the bill  with Representative Bunde and                                                                   
Ms. Johanna D. Bales, Tax Auditor, Department of Revenue.                                                                       
                                                                                                                                
MIKE ELERDING,  NORTHERN SALES, testified  via teleconference                                                                   
in support of the bill.  He summarized  his written testimony                                                                   
(copy on  file.) He  discussed the history  of the  bill, and                                                                   
noted  favorable   testimony  received  along   the  way.  He                                                                   
concluded that  the legislation:  provides  increased revenue                                                                   
with  no new  taxes,  provides  a reasonable  profit  margin,                                                                   
creates a level  playing field for Alaskan  distributors, and                                                                   
ends predatory  pricing that  attracts youth consumption.  He                                                                   
pointed out that 25 other states have similar laws.                                                                             
                                                                                                                                
JOHN  AYERS,   KEYSTONE  DISTRIBUTION  SERVICES,   ANCHORAGE,                                                                   
testified  via  teleconference   in  support  of  an  amended                                                                   
version  of the  bill.  He noted  that  his company  provides                                                                   
storage  and distribution  for tobacco  companies.  He  asked                                                                   
that the  bill be  amended to  remove the  requirement  for a                                                                   
customs bonded  warehouse. He stated  that it would  cost his                                                                   
company $100 thousand  to become a customs  bonded warehouse.                                                                   
He maintained  that the requirement would result  in products                                                                   
being distributed from Seattle.   He also questioned the need                                                                   
for a  minimum price.  He asked  what would  happen if  other                                                                   
products were sold  at a loss, whether legislation  would fix                                                                   
those  prices.  He  also  noted  that  tribal  entities  were                                                                   
exempted  and questioned  what  would happen  to the  revenue                                                                   
stream if tribal status were enlarged.                                                                                          
                                                                                                                                
TOM MCKAY,  SR., VICE  PRESIDENT, COSTCO WHOLESALE  expressed                                                                   
concerns regarding  minimum pricing and discounts  for fixing                                                                   
stamps. He noted  that he was responsible for  the operations                                                                   
and purchasing  for the three  Alaskan stores. He  noted that                                                                   
Costco had been unaware of the  attachments regarding minimum                                                                   
pricing. He referred to page 9,  line 22, which would allow a                                                                   
discount to some for fixing stamps.  He noted that Costco did                                                                   
not oppose tax stamps, but questioned  the need for discounts                                                                   
for  certain   distributors.  He   stated  that   under  this                                                                   
provision,  those   distributing  through  Costco   would  be                                                                   
penalized, and asked that this be addressed.                                                                                    
                                                                                                                                
Mr. McKay  referred to the  wholesale level of  distribution,                                                                   
and stated that Costco was a wholesaler  as well as retailer.                                                                   
He  stated that  they supplied  small  operations, and  noted                                                                   
that the price affected where  these businesses chose to buy.                                                                   
He noted that if this provision  were enacted, there would be                                                                   
a loss of 68 jobs in Anchorage,  and a great loss of business                                                                   
in Juneau.  He observed  that Costco has  a strict  policy of                                                                   
never selling  goods below cost.  He maintained  that tobacco                                                                   
is not  generally sold  below cost by  anyone. He  noted that                                                                   
markups  range   around  14  percent.  The   marketplace  and                                                                   
efficiency  in sales  determine  price. The  cost of  selling                                                                   
tobacco is below other products.                                                                                                
                                                                                                                                
Mr. McKay explained that the cost  for a carton of cigarettes                                                                   
was $2  thousand; on this they  are discounted 2  percent for                                                                   
paying in a prompt fashion, which  is built into their price,                                                                   
as they do with  all products. Under the bill,  these savings                                                                   
cannot  be  passed on.  He  referred  to  page 20,  line  21,                                                                   
Section 3,  and quoted: "exempts  the customary  discount for                                                                   
cash".  He  explained that he  must now take a markup  of $90                                                                   
for this exemption.  He contrasted this to lower  markups for                                                                   
other products, and stressed that  the State was now going to                                                                   
monitor these markups.                                                                                                          
                                                                                                                                
Mr. McKay noted  a provision that might also  force Costco to                                                                   
prove a  higher cost  of doing business.  He stated  that his                                                                   
labor costs were 4 percent, rent  was 1 percent, depreciation                                                                   
and  selling  costs  (which he  stated  was  ambivalent)  and                                                                   
licenses,  and taxes,  were all  included in  costs of  doing                                                                   
business.  He noted  that  their costs  were  80 percent.  He                                                                   
concluded  that the  bill was  onerous and  difficult from  a                                                                   
business  standpoint.   He  maintained  that   to  discourage                                                                   
smoking, the tax  should simply be raised. He  stated that he                                                                   
was aware  of only  one other  state has  minimum pricing  on                                                                   
tobaccos:  Montana.  He  suggested that  the  legislation  be                                                                   
changed to state that the product  cannot be sold below cost,                                                                   
and allow cost to be set in a fair fashion.                                                                                     
                                                                                                                                
Representative  Berkowitz observed  that a rational  business                                                                   
response  might   be  to  set  up  a  subsidiary   to  handle                                                                   
exclusively tobacco products.  Mr. McKay acknowledged that it                                                                   
would be  a possibility, but  questioned the implications  of                                                                   
such a practice.                                                                                                                
                                                                                                                                
Vice-Chair Meyer  asked if the competitors were  retailers or                                                                   
wholesalers.  Mr. McKay  noted  that wholesalers  were  their                                                                   
competitors, and  noted that they  handled 15 percent  of the                                                                   
cigarettes  distribution market.  Vice-Chair Meyer  asked how                                                                   
Alaska would  differ from Hawaii  and Washington.   Mr. McKay                                                                   
noted  that  these  states  did  not  have  a  minimum  price                                                                   
requirement.                                                                                                                    
                                                                                                                                
TAPE HFC 03 - 101, Side B                                                                                                     
                                                                                                                                
In response  to a  question by  Representative Whitaker,  Mr.                                                                   
McKay  clarified  that  they  purchase  from  RJR  and  Brown                                                                   
Williamson through a bonded warehouse  in Alaskan, which is a                                                                   
different class than a distributor.                                                                                             
                                                                                                                                
Representative  Whitaker  observed  that  there  would  be  a                                                                   
sliding scale paid for stamps  based on volume, and asked the                                                                   
effect on  Costco.  Mr. McKay  noted that they would  not get                                                                   
the  discount  due to  their  volume  and observed  that  the                                                                   
sliding scale was inverse of the normal economy of scale.                                                                       
                                                                                                                                
Representative  Hawker clarified  that in  large volumes  for                                                                   
significant   distributors;  there   would  be  no   discount                                                                   
available for those purchasers  at lesser levels. He referred                                                                   
to Page 9, Line 27:                                                                                                             
                                                                                                                                
     The discount  under this subsection is equal  to the sum                                                                   
     of   the   amounts  calculated   using   the   following                                                                   
     percentages of denominated  value of stamps purchased by                                                                   
     a licensee under this section in a calendar year:                                                                          
                                                                                                                                
          (1)  $1,000,000 or less, three percent;                                                                               
          (2) The amount that is more than $1,000,000 but                                                                       
          not more than  $2,000,000, two percent;                                                                               
          (3)  The  amount  that  is  over  $2,000,000,  zero                                                                   
          percent.,  regarding the  discount, and  speculated                                                                   
          that  all distributors  were  availed  of the  same                                                                   
          discount.                                                                                                             
                                                                                                                                
Representative Hawker summarized  that everyone is availed of                                                                   
an   equal   discount.   Mr.   Kay   acknowledged   that   he                                                                   
misunderstood    the   provisions.   Representative    Hawker                                                                   
concluded that there is no objection.                                                                                           
                                                                                                                                
Representative  Hawker refuted  the statement  that only  one                                                                   
other  state   has  minimum  pricing  on   tobacco  products.                                                                   
According to  the Minnesota House of Representative  Research                                                                   
Department  there are  25 states  that prohibit  the sell  of                                                                   
cigarettes  below  cost.  An  additional  seven  states  have                                                                   
general fair trade law that prohibits  the sell of cigarettes                                                                   
below cost.  Mr. McKay reiterated  that he was only  aware of                                                                   
the state of Montana.                                                                                                           
                                                                                                                                
Representative Hawker  MOVED to report CSSB 168  (FIN) am out                                                                   
of  Committee   with  individual   recommendations   and  the                                                                   
accompanying fiscal note. There  being NO OBJECTION it was so                                                                   
ordered.                                                                                                                        
                                                                                                                                
CSSB 168  (FIN) (am) was REPORTED  out of Committee  with "no                                                                   
recommendation" and two fiscal  notes:  one new fiscal impact                                                                   
note from the  Department of Revenue and zero  fiscal note #2                                                                   
from the Department of Law.                                                                                                     
CS FOR SENATE BILL NO. 202(FIN)                                                                                               
                                                                                                                                
     "An Act relating to school transportation; relating to                                                                     
     the base student allocation used in the formula for                                                                        
     state funding of public education; and providing for an                                                                    
     effective date."                                                                                                           
                                                                                                                                
SENATOR GARY  WILKEN, SPONSOR,  spoke in  support of  SB 202.                                                                   
The legislation raises the Base  Student Allocation (BSA) and                                                                   
addresses pupil  transportation through  a grant system.   He                                                                   
noted that learning  opportunity grants that  had accumulated                                                                   
over the  last three  years were  converted into the  student                                                                   
dollar, which  added $2.2 million  [to the BSA].  He provided                                                                   
members with  a chart of  pupil transportation costs  from FY                                                                   
97 to FY 04 (copy on file).  Pupil  transportation was funded                                                                   
at  $32.8 million  in FY97.  The  request for  FY04 is  $58.1                                                                   
million. The  cost of pupil  transportation has  increased 77                                                                   
percent; the  increase in student  population, over  the same                                                                   
time,  has increased  by  5 percent.  The  Anchorage Cost  of                                                                   
Living has gone up 14 percent.                                                                                                  
                                                                                                                                
Senator Wilken  gave a brief  history of attempts  to address                                                                   
pupil transportation.  In 2000,  Senator Torgerson,  while he                                                                   
was the Co-Chair of the Senate  Finance Committee, proposed a                                                                   
grant program, which was not accepted  by the Administration.                                                                   
A second approach was developed  to split the increase, which                                                                   
was not  agreed on  by the school  districts. So  nothing was                                                                   
done.  The next  Administration  issued cuts  of 20  percent,                                                                   
which  held. The  current  grant proposal  is  a response  to                                                                   
those  reductions. He  maintained that  the issue  is one  of                                                                   
managing money.  He observed that school districts  have been                                                                   
asked to  manage pupil  transportation costs, but  maintained                                                                   
that because  the school districts  have not had  their "toes                                                                   
held to  the fire"  that there  was no  motivation to  reduce                                                                   
costs.  Under  the legislation,  school  districts  would  be                                                                   
asked to present  their bills. The rates would  be calculated                                                                   
based  on their  costs  and the  number  of students.  School                                                                   
districts would be  able to keep any savings,  which could be                                                                   
used for other district funding.                                                                                                
                                                                                                                                
EDDY JEANS,  MANGER, SCHOOL  FINANCE AND FACILITIES  SECTION,                                                                   
DEPARTMENT  OF  EDUCATION  AND   EARLY  DEVELOPMENT  provided                                                                   
information on  the legislation. He explained  that the costs                                                                   
are being passed on to the state  of Alaska under the current                                                                   
reimbursable  system.  Providers   know  that  the  state  is                                                                   
holding  the checkbook.  He felt  that  contractors would  be                                                                   
more disposed to  bargain if they knew that  school districts                                                                   
had a limited amount of funding.                                                                                                
                                                                                                                                
Vice-Chair  Meyer  asked  how  the formula  would  take  into                                                                   
account  special needs  children.  Mr. Jeans  explained  that                                                                   
districts  are currently  being reimbursed  for these  routes                                                                   
and maintained that they would continue to be reimbursed.                                                                       
                                                                                                                                
Representative  Berkowitz asked  how the  goods and  services                                                                   
that go into  cost increases would differ from  the basket of                                                                   
group of  goods and  services that go  into a consumer  price                                                                   
index.   Mr. Jeans observed that  the Anchorage CPI  is built                                                                   
into every transportation contract.  Contracts are negotiated                                                                   
on a  five-year cycle  and contractors are  aware that  it is                                                                   
100 percent  reimbursable by the  state. He pointed  out that                                                                   
insurance and fuel  costs were built into contracts  over the                                                                   
five-year period.                                                                                                               
                                                                                                                                
Representative  Berkowitz noted that  there was a  77 percent                                                                   
increase  in  costs,  with  only  a  5  percent  increase  in                                                                   
students.  Mr.  Jeans responded that the  five-year contracts                                                                   
contain a reimbursement for new  buses, which were not offset                                                                   
later.                                                                                                                          
                                                                                                                                
CARL ROSE, ASSOCIATION OF ALASKA  SCHOOL BOARDS, testified in                                                                   
support of  the current  version of the  bill, as  opposed to                                                                   
the March 6 Governor's proposal.  He emphasized that adequacy                                                                   
was not  enough, and  stated that  every school district  was                                                                   
currently reducing  programs and opportunities  for children.                                                                   
He pointed  to the No  Child Left Behind  Act and  the Alaska                                                                   
Quality  Initiative  and  urged legislators  to  support  the                                                                   
educational system.  He stressed that the future  of Alaska's                                                                   
young citizens are at stake.                                                                                                    
                                                                                                                                
JOHN  ALCANTRA,  NATIONAL EDUCATION  ASSOCIATION  OF  ALASKA,                                                                   
spoke in  support of the  legislation. He noted  that putting                                                                   
funding into  the BSA allows  districts stability  of funding                                                                   
and  helps  them  meet  some of  the  requirements  of  state                                                                   
standards. He  observed that NEA-Alaska  has advocated  for a                                                                   
BSA of $4,280 per student since July of last year.                                                                              
                                                                                                                                
Mr.  Alcantra  maintained  that   $4,280  is  a  conservative                                                                   
estimate. It asks for one year  of inflationary costs and one                                                                   
year of  unmet needs as  identified by business  leaders such                                                                   
as  Roger  Con,  Jim  Palmer  and  Carl  Marrs  in  a  report                                                                   
published  two  years ago.  These  leaders  asked for  a  BSA                                                                   
increase of about $365 per pupil  over 5 years plus increases                                                                   
to deal with  the erosion caused by inflation.  He noted that                                                                   
NEA  recognizes  the  budgetary   situation  of  Alaska,  but                                                                   
pointed out  that there is  a constitutional mandate  to fund                                                                   
education. He concluded that the  legislation is another step                                                                   
closer to the  goal of adequately funding K-12  education for                                                                   
FY 04.                                                                                                                          
                                                                                                                                
Mr. Alcantra observed that the  budget for FY 03 was based on                                                                   
$20.50/barrel  oil  and  a CBR  draw  of  approximately  $950                                                                   
million.  Oil  averaged  over  $28/barrel for  the  first  10                                                                   
months of this Fiscal Year, which  means the CBR draw will be                                                                   
about $400-450 million less than  anticipated. He pointed out                                                                   
that K-12  education needs just  $28 million or 6  percent of                                                                   
the CBR savings.                                                                                                                
                                                                                                                                
Mr. Alcantra stressed  that the increase in  the Base Student                                                                   
Allocation is a short term, one-year  fix. He noted that NEA-                                                                   
Alaska  believes  the  education community  should  take  the                                                                   
remainder of  the school year  to identify pupil  needs under                                                                   
the state  standards and the No  Child Left Behind  law. This                                                                   
data would  be the  basis for  a long-term  fix to  education                                                                   
funding. He suggested an addition  of $23 million to increase                                                                   
the pupil  allocation.   He suggested that  the CBR  draw had                                                                   
been decreased  due to increased  oil prices,  and emphasized                                                                   
this  might provide  the  short-term  fix to  the  foundation                                                                   
formula. He  summarized that  the bill  would add only  about                                                                   
$2.2 million in  new funding for K-12 education in  FY 04 and                                                                   
observed that  it would fall short  of the needs of  the next                                                                   
year.                                                                                                                           
                                                                                                                                
JIM  FOSTER,  ASSISTANT SUPERINTENDENT,  GALENA  CITY  SCHOOL                                                                   
DISTRICT  addressed the  affects of  the bill  on his  school                                                                   
district.  The Galena  City School District  would lose  $459                                                                   
thousand   [if   the   legislation   were   enacted   without                                                                   
amendment]. There  are twelve  losers in under  the proposal.                                                                   
The next largest  loser is the Valdez School  District, which                                                                   
loses $60  thousand. There were  41 "winners". He  noted that                                                                   
learning opportunity grants in  his district pay for a number                                                                   
of  important  programs. He  requested  a provision  to  hold                                                                   
districts that  would stand to  lose harmless.  He maintained                                                                   
that a hold  harmless provision would have a  minimal cost to                                                                   
the state.                                                                                                                      
                                                                                                                                
Co-Chair   Harris  asked   what  would   happen  if   student                                                                   
allocation  were  increased  and   the  learning  opportunity                                                                   
grants were eliminated  in the next year.   Mr. Foster stated                                                                   
that the problem would still exist.  He noted that Galena had                                                                   
3,600 children in the Correspondence  Program, outside of the                                                                   
foundation  formula. They  would only  receive 80 percent  of                                                                   
this funding if  it were rolled into the formula,  which is a                                                                   
considerable loss,  especially in view  of the timing  of the                                                                   
action.  He  noted that  they  were  not informed  about  the                                                                   
change until  May 14, after  planning and contracts  had been                                                                   
implemented.                                                                                                                    
                                                                                                                                
Co-Chair  Williams  stated  that  they would  work  on  these                                                                   
provisions with Mr. Jeans.                                                                                                      
                                                                                                                                
CSSB   202  (FIN)   was  HELD   in   Committee  for   further                                                                   
consideration.                                                                                                                  
CS FOR SENATE BILL NO. 149(RES)                                                                                               
                                                                                                                                
     "An Act relating to timber, to the sale of timber by                                                                       
    the state, and to the management of state forests."                                                                         
                                                                                                                                
KELLY  HUBER,   STAFF,  SENATOR  TAYLOR,   SPONSOR,  provided                                                                   
information on  the bill. She  observed that the  legislation                                                                   
promotes  resource  development   for  timber  management  in                                                                   
Alaska's  two state  forests.  There is  a  zero fiscal  note                                                                   
attached.                                                                                                                       
                                                                                                                                
CHRIS  MISH,   FORESTER,  DEPARTMENT  OF   NATURAL  RESOURCES                                                                   
testified via  teleconference. He  provided a brief  overview                                                                   
of  the  bill. He  noted  that  Section  2 would  delete  the                                                                   
reference to  considerations under  the forest land  use plan                                                                   
section,  and  place  them  in a  section  under  the  forest                                                                   
management  plan, which  is a broader  planning document.  He                                                                   
noted  that the  document for  forest timber  sales would  be                                                                   
biennial  rather than  annual.  Timber sales  would still  be                                                                   
required to appear  in at least one five-year  schedule prior                                                                   
to sale.  Individual sales  would still  be reviewed  through                                                                   
the  forest  planning  process.  Sections  8  and  9  address                                                                   
management  plans within  the Haines  State Forest.  Sections                                                                   
11,  12 and  15,  would  change  the management  emphasis  in                                                                   
legislatively  designated  state   forests:  Haines  (270,000                                                                   
acres) and  Tanana State Forest  (1.8 million).  The emphasis                                                                   
on timber management  would allow for other  beneficial uses,                                                                   
which  are compatible  with timber.  The  primary purpose  of                                                                   
state forests would be changed  from multiple uses to "timber                                                                   
management that provides for the  production, utilization and                                                                   
replenishment  of  timber  resources   while  allowing  other                                                                   
beneficial uses".                                                                                                               
                                                                                                                                
Mr. Mish observed that they are  currently required to review                                                                   
plans every five years. The legislation  would allow plans to                                                                   
be reviewed  as necessary.   He added  that Section  10 would                                                                   
only  allow  more  stringent   standards  [than  those  under                                                                   
section (a)] if they were in the state's interest.                                                                              
                                                                                                                                
Representative Berkowitz questioned  what would happen in the                                                                   
case of  a conflict  between fishing  and timber.   Mr.  Mish                                                                   
noted that  they would  refer to  the state Forest  Practices                                                                   
Act,  which  establishes  minimum  protection  standards  for                                                                   
different  stream  standards.   He  speculated  that  if  the                                                                   
conflict was not  related to commerce, it might  place timber                                                                   
on  a higher  level of  consideration. He  stressed that  all                                                                   
parties agreed  that the standards would protect  habitat and                                                                   
clean water.                                                                                                                    
                                                                                                                                
Representative  Kerttula  summarized   that  the  bill  would                                                                   
prioritize  timber. Mr.  Mish noted that  the priority  would                                                                   
only  occur  in time  of  conflict.  Representative  Kerttula                                                                   
asked  what burden  would  have  to be  proved  to show  that                                                                   
timber is  not the first use in  a conflict.  Mr.  Mish noted                                                                   
it would  depend on the merits  of each use, but  that timber                                                                   
would  be  weighted  more  heavily.  Representative  Kerttula                                                                   
questioned  the reason  for the  bill. Mr.  Mish stated  that                                                                   
other conflicts had arisen and been resolved.                                                                                   
                                                                                                                                
Representative  Kerttula asked if  the legislation  would aid                                                                   
more timber  development. Mr.  Mish acknowledged that  he had                                                                   
heard that justification from the timber industry.                                                                              
                                                                                                                                
Representative  Kerttula asked  about impact  on other  uses.                                                                   
Mr. Mish predicted no additional  impact on other uses in the                                                                   
short-term.  He speculated  that  there would  have  to be  a                                                                   
great  increase  in harvest  levels  before it  would  impact                                                                   
other uses.                                                                                                                     
                                                                                                                                
Vice-Chair  Meyer  MOVED to  report  CSSB  149 (RES)  out  of                                                                   
Committee   with    individual   recommendations    and   the                                                                   
accompanying fiscal  note.  There  being NO OBJECTION  it was                                                                   
so ordered.                                                                                                                     
                                                                                                                                
CSSB  149 (RES)  was REPORTED  out  of Committee  with a  "do                                                                   
pass"  recommendation  and  one  zero fiscal  note  from  the                                                                   
Department of Natural Resources.                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 1:08 PM                                                                                            
                                                                                                                                
                                                                                                                                

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