Legislature(1997 - 1998)
04/02/1997 01:40 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
APRIL 2, 1997
1:40 P.M.
TAPE HFC 97 - 86, Side 1, #000 - end.
TAPE HFC 97 - 86, Side 2, #000 - #585.
CALL TO ORDER
Co-Chair Gene Therriault called the House Finance Committee
meeting to order at 1:40 P.M.
PRESENT
Co-Chair Hanley Representative Kelly
Co-Chair Therriault Representative Kohring
Representative Davies Representative Martin
Representative Davis
Representative Foster
Representatives Grussendorf, Moses and Mulder were not
present for the meeting.
ALSO PRESENT
Bob Bartholomew, Deputy Director, Income & Excise Audit
Division, Department of Revenue; Mark Necessary, TESORO,
Alaska, Kenai; Peter Ecklund, Staff, Representative Bill
Williams; Jack Shay, Mayor, Ketchikan Borough Assembly,
Ketchikan; Tom Williams, Facility Manager, Department of
Health and Social Services; Gregory Hayes, Dr., Chief,
Public Health Laboratories, Anchorage; Mike Probst, Dr.,
Anchorage.
SUMMARY
HB 63 An Act extending the motor fuel tax exemption for
fuel sold for use in jet propulsion aircraft to
fuel used in those aircraft for flights that
continue from a foreign country; and providing for
an effective date.
CS HB 63 (FIN) was reported out of Committee with
a "do pass" recommendation and with a new fiscal
note by the Department of Revenue.
HB 66 An Act giving notice of and approving the entry
into, and the issuance of certificates of
participation in, a lease-purchase agreement for a
centralized public health laboratory facility.
CS HB 66 (HES) was reported out of Committee with
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"no recommendation" and with fiscal notes by the
Department of Administration dated 2/5/97, the
Department of Health and Social Services dated
2/5/97, and the Department of Revenue dated
2/5/97, and a zero fiscal note by the Department
of Public Safety dated 2/5/97.
HOUSE BILL 63
"An Act extending the motor fuel tax exemption for fuel
sold for use in jet propulsion aircraft to fuel used in
those aircraft for flights that continue from a foreign
country; and providing for an effective date."
Co-Chair Therriault informed members that work draft #0-
LS0262\L, Chenoweth, 3/11/97, had been adopted at a previous
meeting.
Representative G. Davis MOVED to adopt Amendment #1. [Copy
on file]. Co-Chair Therriault OBJECTED for the purpose of
discussion.
Representative G. Davis explained that Amendment #1 would
delete the reference to passenger "water craft", which would
change the intent and would increase sales of bunker fuel.
Usage of "passenger" restricts sales to cruise ships who
utilize bunker fuel.
BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME & EXCISE AUDIT
DIVISION, DEPARTMENT OF REVENUE, spoke to the fiscal impact
of the amendment. He noted that currently, the marine motor
fuel tax is collected by the Department of Revenue and does
not provide a report in which the information is separated
between the amount of bunker fuel used. There would be $600
thousand dollars of lost tax revenue with passage of
Amendment #1.
Representative J. Davies questioned if non-passenger water
craft was currently fueling in Alaska. Mr. Bartholomew
understood that the tax would be placed on fuel purchased or
used by the company that actually produces it, selling it
then to others who export.
He continued, in 1994, a provision was adopted by the
Legislature that charged a full marine fuel tax on purchases
up to four million gallons. At that threshold, the tax
would be dropped from five cents a gallon to one cent a
gallon to encourage bunker fuel business outside of Alaska.
That action created a revenue increase in the first couple
of years, although, to date it has "fallen off".
MARK NECESSARY, TESORO, ALASKA, KENAI, noted that the
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majority of the bunker fuel used was on ships transporting
oil throughout the states. He added, the oil industry hopes
to attract "takers" who are currently using other sources.
Representative J. Davies asked if the amendment would be
expanding the exemption to "all" water craft. He inquired
if there would be an incentive to the vessels currently
fueling outside the State. Mr. Necessary ascertained that
bunker fuel sells at a low cost and that the tax is a
substantial portion of that amount. From TESORO's
perspective, inclusion of the proposed language will provide
an opportunity to develop that business.
Representative Martin questioned if ship carriers paid taxes
in other states. Mr. Necessary understood that they do not
which then places Alaska at a disadvantage. The objective
is to price the fuel to be competitive with other markets on
the West coast. Representative Martin suggested that being
"competitive" would be at the State's lost revenue expense.
Co-Chair Therriault clarified that royalty oil contracts are
not "sweetheart" deals; fair market price is paid.
Representative G. Davis added that the bunker fuel that
TESORO produces is residual waste product, suggesting that
it could be beneficial to major industry. He urged the
Committee's support of the amendment. Co-Chair Therriault
WITHDREW his OBJECTION. Representative Martin OBJECTED.
A roll call vote was taken on the MOTION.
IN FAVOR: G. Davis, Foster, Kelly, Kohring,
Hanley, Therriault
OPPOSED: J. Davies, Martin
Representatives Grussendorf, Moses and Mulder were not
present for the vote.
The MOTION PASSED (6-2).
Representative Foster MOVED to adopt Amendment #2. [Copy on
file].
PETER ECKLUND, STAFF, REPRESENTATIVE TOM WILLIAMS, provided
a historical background, pointing out that since 1990, the
State has lost over 60% of the jobs in the Tongess National
Forest and the timber industry. He stated that pulp mills
used to be a good "source" for using low end boards for
milling. The amendment would allow for the State to
participate in a new and emerging technology which would
produce ethanol derived from wood and wood wastes.
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Amendment #2 would provide a more narrow focus, keeping the
tax incentive in place but only for ethanol that is produced
from wood. Mr. Ecklund spoke to the many benefits that a
biomass ethanol industry could bring to Alaska:
* Create jobs for Alaskans;
* Save about $1.5 million dollars per year by
decreasing support payments;
* Help sustain the Alaskan timber industry;
* Help abate pollution from vehicles;
* Introduce new ethanol export markets for
Alaska to the Lower 48 and Japan; and
* Increase corporate taxes going into the
Alaskan treasury from the new industry.
Representative Martin asked if this would "wipe-out" the
ethanol made from other products. Mr. Ecklund replied that
corn, barley and other sources of ethanol would not qualify
for the tax exemption. Representative Martin questioned if
such a restriction would be legal. Mr. Ecklund understood
that it would be legal.
Co-Chair Hanley pointed out that the 10% ethanol is
currently being shipped from out-of-state; Alaska is loosing
all that revenue. He voiced concern for the future,
suggesting that at some point, producers in Alaska would
like to have that advantage. Co-Chair Hanley commented that
his preference was to either repeal such an incentive or use
a 1.5 cents credit for ethanol, which would be well over the
25% credit incentive. His concern was that with a 100%
credit, there would never be an incentive to raise taxes to
dedicate a fund. Co-Chair Hanley OBJECTED to adoption of
Amendment #2.
Ms. Bartholomew spoke to the fiscal impact of Amendment #2.
He pointed out that the Department is not opposed to
business incentives, although, he stressed the "magnitude"
of the incentive provided through Amendment #2. A complete
exemption would delete $6 to $8 million dollars annual
revenue for the State. The unknown issue is the size of the
plant being considered. A feasibility study was provided on
eight million gallons, which would meet about 80% of the
Anchorage market consumption. That would equate to 100
million gallons of tax free gas. Mr. Bartholomew indicated
that the Department did not know at this time, if there
would be an incentive to go statewide. He concluded that
the State should not loose one of the most standard tax
base.
Representative J. Davies asked what corporate taxes could be
realized through the amendment. Mr. Bartholomew noted that
the Department has not looked into that issue. At this
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time, there are 13,000 corporations in Alaska, although, the
largest proportion of revenue tax is provided from a few
companies.
Representative J. Davies commented that he was uncomfortable
with the approach proposed because of the impact on State
revenue. He believed that the State must maintain roads.
He suggested a 5 year "tax holiday" as an incentive to
establish the new business. Mr. Ecklund pointed out that
50-100 direct jobs would result from creating an ethanol
wood plant.
JACK SHAY, MAYOR, KETCHIKAN BOROUGH, KETCHIKAN, noted that
Ketchikan is currently in the throws of restructuring with
the close of the mill. Mayors throughout Southeast Alaska
have been pleading for the release of the Tongess Land Use
Management Plan. When that plan is released, it will
demonstrate that there is ample timber to operate any type
of producing ethanol facility. He urged the Committee to
seriously consider the usage of ethanol from wood products.
Representative J. Davies reiterated his support to the
Ketchikan community and proposed that by creating some sort
of direct "tax holiday" could provide the same incentive
that the amendment would. Mr. Shay requested that Ketchikan
be aided by the State in any capacity to initiate a
methodology to create the facility and eliminate competition
from other interests out side of the State.
Co-Chair Therriault charged that the State was being
requested to provide a "complete" exemption from the State's
tax base before the Borough Assembly of Ketchikan had even
made a determination if "they" would be willing to
contribute an incentive.
(Tape Change HFC 97-86, Side 2).
A roll call vote was taken on the MOTION.
IN FAVOR: G. Davis, Foster
OPPOSED: Kelly, Kohring, Martin, J. Davies,
Therriault, Hanley
Representatives Mulder, Moses and Grussendorf were not
present for the vote.
The MOTION FAILED (2-6).
Representative Martin asked if passage of the bill would
bring a gas increase to consumers in Anchorage. Mr.
Bartholomew replied that he did not know that market or the
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dynamics that affect it. People in the industry have
testified previously on those effects. Co-Chair Therriault
commented that there currently exists a 5.4 cents per gallon
tax break offered by the federal government.
Co-Chair Hanley MOVED to report CS HB 63 (FIN) out of
Committee with individual recommendations and the new
Revenue fiscal note. There being NO OBJECTION, it was so
ordered.
CS HB 63 (FIN) was reported out of Committee with a "do
pass" recommendation and with a new fiscal note by the
Department of Revenue.
HOUSE BILL 66
"An Act giving notice of and approving the entry into,
and the issuance of certificates of participation in, a
lease-purchase agreement for a centralized public
health laboratory facility."
GREGORY HAYES, DR., CHIEF, STATE PUBLIC HEALTH LABORATORIES,
ANCHORAGE, provided an overview of the handout. [Copy on
file]. He spoke to the proposition of a new public health
lab located in Anchorage which would include the medical
examiners lab and the functions of the Juneau and Anchorage
laboratories and would be designed and constructed through
debt financing.
The unique role of public health laboratories are to assess
infectious disease in partnership with private laboratories,
specializing in disease surveillance and recognition of new
and re-emerging diseases and applying critical state of the
art technology for rapid testing of large numbers of
specimens, in face of an epidemic.
Mr. Hayes provided examples of how public health labs have
historically benefited the public by addressing the epidemic
gastroenteritis and contamination of king crab, epidemic
gastroenteritis in the Tourism Industry-May 1992,
tuberculosis outbreaks in rural villages, and the rabies
expertise in Pilot Point exposure in 1995.
He explained the public health lab mission statement:
* Essential component of state and national
public health systems providing a different
purpose than private labs;
* To provide scientific and technical
information for disease prevention;
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* First line of defense in recognizing and
controlling spread of communicable diseases;
* Accomplish core public health functions and
responsibilities in partnership with private
and federal laboratories.
Dr. Hayes addressed the need to build a new facility. He
emphasized that it would save money while maintaining an
essential public service more cheaply and efficiently. To
have new advances requires new technologies and a modern,
well-designed, adaptable, safe laboratory, which is a 21st
Century necessity. He stressed that the status quo cannot
continue. The State can not afford nor does it need four
separate labs. The current arrangement for the medical
examiner is untenable.
Dr. Hayes pointed out that the Legislature almost approved
the new lab during the last session. That legislation would
have combined the Anchorage and Juneau public health labs
and medical examiner into a new lab in Anchorage, leaving
the Fairbanks public health lab operating.
The current labs spaces are inadequate and crowded,
consuming 15,000 square feet. The proposed architectural
and laboratory standards require 23,400 gross square feet.
Construction of this facility would be adequate for at least
fifty years. Construction would start in 1999 @ $482/square
foot. Costs would reflect:
* Special utility & ventilation requirements;
* Special containment;
* Explosion proof;
* Morgue;
* Security access; and
* High floor loading & floor ceiling heights.
Co-Chair Therriault asked what the building complex would
house. Dr. Hayes reiterated that there would be technical
area, a darkroom, shared storage, microbiological center,
immunology area, molecular diagnostic area, classroom
training, support areas, employee areas, specimen processing
unit; utility space and waste storage, bulk storage,
housekeeping, reception areas, technical administrative and
billing offices and a conference room. There also would be
an embalming room, shower room, body holding room, and a
place where the chief medical examiner, pathologist and
chief investigator would co-locate, a photo lab and
receiving area. This area would total 5,915 square feet.
In response to Co-Chair Therriault, Dr. Hayes informed
members that the library/conference room would be
technically for staff to keep their journals, whereas, the
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classroom would be an area for educating and training other
labatorians in the State.
In response to Co-Chair Therriault, Dr. Hayes noted that he
had answered all questions posed by the Senate Finance
Committee during his overview presentation.
MIKE PROBST, DR., ANCHORAGE, MEDICAL EXAMINER, ANCHORAGE,
explained that the medical examiner currently has space in
two buildings. The space occupied in the laboratory was not
designed as a morgue for people; it was designed to do post
morgue examinations on animals. Also, the demands to do DNA
testing technology by the crime laboratory has increased in
the past few years and the Department needs the space
currently being occupied by the medical examiner.
Representative J. Davies cited that construction cuts would
be around $12 million dollars. He inquired what the
remaining $6 million dollars would be budgeted for.
TOM WILLIAMS, FACILITY MANAGER, DEPARTMENT OF HEALTH AND
SOCIAL SERVICES, stated that the full cost would include not
only the construction cost but also the design and equipment
costs. There would be a savings of $200 thousand dollars
per year in comparison to the existing situation.
Currently, leased costs paid in Anchorage and Juneau would
be consolidated creating also a savings in personnel costs.
Over the life time of the building, those savings could
provide for the cost of the facility. The recommended space
is projected to cover the State's needs for up to a fifty
year time period.
Representative Martin MOVED to report CS HB 66 (HES) out of
Committee with individual recommendations and with the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CS HB 66 (HES) was reported out of Committee with a "no
recommendation" and with a fiscal note by the Department of
Administration dated 2/5/97, the Department of Health and
Social Services dated 2/5/97, the Department of Revenue
dated 2/5/97 and a zero fiscal note by the Department of
Public Safety dated 2/5/97. #
ADJOURNMENT
The meeting adjourned at 3:10 P.M.
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