Legislature(2015 - 2016)BARNES 124

02/13/2016 10:00 AM LABOR & COMMERCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Time Change From 3:15 p.m. --
+= HB 159 HEALTH CARE RETAINER; INSURANCE EXEMPT TELECONFERENCED
<Bill Hearing Canceled>
-- Public Testimony <Time Limit May Be Set> --
+= HB 194 AK SECURITIES ACT; PENALTIES; CRT. RULES TELECONFERENCED
<Bill Hearing Canceled>
-- Public Testimony <Time Limit May Be Set> --
+= HB 248 ELECTRONIC TAX RETURNS & ALCOHOL TAX TELECONFERENCED
Heard & Held
-- Public Testimony <Time Limit May Be Set> --
+= HB 252 ELCTRNC TAX RETURNS; VESSEL PASSENGER TAX TELECONFERENCED
Heard & Held
-- Public Testimony <Time Limit May Be Set> --
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                       February 13, 2016                                                                                        
                           10:02 a.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Chair                                                                                                
Representative Shelley Hughes, Vice Chair                                                                                       
Representative Cathy Tilton                                                                                                     
Representative Andy Josephson                                                                                                   
Representative Sam Kito                                                                                                         
Representative Mike Chenault (alternate)                                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Jim Colver                                                                                                       
Representative Gabrielle LeDoux                                                                                                 
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Dan Ortiz                                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 248                                                                                                              
"An Act  requiring the electronic  submission of a tax  return or                                                               
report with  the Department  of Revenue;  relating to  the excise                                                               
tax  on  alcoholic  beverages; and  providing  for  an  effective                                                               
date."                                                                                                                          
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
HOUSE BILL NO. 252                                                                                                              
"An  Act  requiring electronic  submission  of  a tax  return  or                                                               
report  with  the  Department  of   Revenue;  repealing  the  tax                                                               
reduction for  local levies for  the commercial  vessel passenger                                                               
excise tax;  amending the definition  of 'voyage';  and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
HOUSE BILL NO. 159                                                                                                              
"An Act exempting certain health  care agreements from regulation                                                               
as insurance."                                                                                                                  
                                                                                                                                
     - BILL HEARING CANCELED                                                                                                    
                                                                                                                                
HOUSE BILL NO. 194                                                                                                              
"An  Act  repealing and  reenacting  the  Alaska Securities  Act,                                                               
including   provisions   relating   to  exempt   securities   and                                                               
transactions; relating to registration  of securities, firms, and                                                               
agents  that  offer or  sell  securities  and investment  advice;                                                               
relating  to  administrative,  civil,  and  criminal  enforcement                                                               
provisions,  including   restitution  and  civil   penalties  for                                                               
violations; allowing  certain civil penalties  to be used  for an                                                               
investor  training fund;  establishing increased  civil penalties                                                               
for  harming  older  Alaskans;  retaining  provisions  concerning                                                               
corporations organized under the  Alaska Native Claims Settlement                                                               
Act; amending Rules  4, 5, 54, 65, and 90,  Alaska Rules of Civil                                                               
Procedure; and providing for an effective date."                                                                                
                                                                                                                                
     - BILL HEARING CANCELED                                                                                                    
                                                                                                                                
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 248                                                                                                                  
SHORT TITLE: ELECTRONIC TAX RETURNS & ALCOHOL TAX                                                                               
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/19/16       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/19/16       (H)       L&C, FIN                                                                                               
02/10/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
02/10/16       (H)       Heard & Held                                                                                           
02/10/16       (H)       MINUTE(L&C)                                                                                            
02/12/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
02/12/16       (H)       Heard & Held                                                                                           
02/12/16       (H)       MINUTE(L&C)                                                                                            
02/13/16       (H)       L&C AT 10:00 AM BARNES 124                                                                             
                                                                                                                                
BILL: HB 252                                                                                                                  
SHORT TITLE: ELCTRNC TAX RETURNS; VESSEL PASSENGER TAX                                                                          
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/19/16       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/19/16       (H)       L&C, FIN                                                                                               
02/10/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
02/10/16       (H)       Heard & Held                                                                                           
02/10/16       (H)       MINUTE(L&C)                                                                                            
02/12/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
02/12/16       (H)       Heard & Held                                                                                           
02/12/16       (H)       MINUTE(L&C)                                                                                            
02/13/16       (H)       L&C AT 10:00 AM BARNES 124                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
SUSSAN MOSSANEN, Founder                                                                                                        
Denali Brewing Company                                                                                                          
Talkeetna, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
BILL FRY                                                                                                                        
Bear Creek Winery                                                                                                               
Homer, Alaska                                                                                                                   
POSITION STATEMENT:  Proposed an amendment to HB 248.                                                                         
                                                                                                                                
STEPHEN GERTEISEN, Founder                                                                                                      
Arkose Brewery                                                                                                                  
Palmer, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
JEANNE KITAYANA, Co-Owner                                                                                                       
Haines Brewing Company                                                                                                          
Haines, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
GARY SUPERMAN, Board Member                                                                                                     
Alaska Cabaret, Hotel, Restaurant and Retailers Association                                                                     
Owner,  Hunger Hut Bar, Liquor Store and Motel                                                                                  
Kenai, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
BILL HOWELL                                                                                                                     
Kenai, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
CHRYSTAL SCHOENROCK, Secretary                                                                                                  
Kenai Cabaret, Hotel, Restaurant and Retailers Association                                                                      
Owner, Forelands Bar and Liquor Store                                                                                           
Nikiski, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
CARMEN LUNDE, Director                                                                                                          
Kodiak Cabaret, Hotel, Restaurant and Retailers Association                                                                     
Kodiak, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
CLAY MURPHY                                                                                                                     
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
TIFFANY HALL, Executive Director                                                                                                
Recover Alaska                                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 248.                                                                          
                                                                                                                                
MICHAEL JEFFERY                                                                                                                 
Barrow, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 248.                                                                          
                                                                                                                                
LARRY HACKENMILLER, Secretary                                                                                                   
Interior Cabaret, Hotel, Restaurant and Retailers Association                                                                   
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
ROBERT MCCORMICK, Board Member                                                                                                  
Alaska Cabaret, Hotel, Restaurant and Retailers Association                                                                     
Treasurer, Brewers Guild of Alaska                                                                                              
Chugiak, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
KIRSTEN MYLES, Executive Director                                                                                               
Cook Inlet Cabaret, Hotel, Restaurant and Retailers Association                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
DARWIN BIWER, Owner                                                                                                             
Darwin's Theory                                                                                                                 
Chairman, Statewide Cabaret, Hotel, Restaurant and Retailers                                                                    
Association                                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
DON GRASSE, President                                                                                                           
K and L Distributors                                                                                                            
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
MATT TOMTER, Owner                                                                                                              
Eagle River Alehouse/Palmer City Alehouse                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
JOEL KADARAUCH, Spokesperson                                                                                                    
Odom Corporation;                                                                                                               
Spokesperson                                                                                                                    
Alaska Wine & Spirits Wholesale Association                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
MIKE COONS                                                                                                                      
Palmer, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
MICHELE SHAPIRO, Director                                                                                                       
Mat-Su Cabaret, Hotel, Restaurant and Retailers Association                                                                     
Wasilla, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
KATE BURKHART, Executive Director                                                                                               
Advisory Board on Alcoholism and Drug Abuse;                                                                                    
Executive Director, Alaska Mental Health Board                                                                                  
Division of Behavioral Health                                                                                                   
Department of Commerce, Community & Economic Development                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 248.                                                                          
                                                                                                                                
BRANDON HOWARD                                                                                                                  
Amalga Distillery                                                                                                               
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
JACK MANNING, Owner                                                                                                             
Convenience and liquor store;                                                                                                   
President, Lynn Canal Cabaret, Hotel, Restaurant and Retailers                                                                  
Association                                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
CAROL FRASER, General Manager                                                                                                   
Lakefront Anchorage Hotel                                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 252.                                                                       
                                                                                                                                
GIDEAN GARCIA, Chief Operating Officer                                                                                          
CIRI Alaska Tourism Corporation                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 252.                                                                       
                                                                                                                                
PATTI MACKEY, President and CEO                                                                                                 
Ketchikan Visitors Bureau                                                                                                       
Ketchikan, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
BOB SIVERTSEN                                                                                                                   
Ketchikan, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
RYAN BINKLEY, President                                                                                                         
Riverboat Discovery                                                                                                             
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
STEVE HITES Co-owner                                                                                                            
Skagway Street Car Company                                                                                                      
Skagway, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in opposition to HB 248.                                                                       
                                                                                                                                
LAWRENCE GAFFNEY, CEO                                                                                                           
Huna Totem Corporation                                                                                                          
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to HB 252.                                                                       
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
10:02:15 AM                                                                                                                   
                                                                                                                                
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee  meeting to  order at  10:02  [a.m.].   Representatives                                                               
Olson,  Tilton,  Hughes,  Kito,   Josephson,  and  Chenault  were                                                               
present  at the  call to  order.   Representative Ortiz  also was                                                               
present.                                                                                                                        
                                                                                                                                
          HB 248-ELECTRONIC TAX RETURNS & ALCOHOL TAX                                                                       
                                                                                                                                
10:02:53 AM                                                                                                                   
                                                                                                                                
CHAIR OLSON announced  that the first order of  business would be                                                               
HOUSE BILL NO.  248, "An Act requiring  the electronic submission                                                               
of  a  tax return  or  report  with  the Department  of  Revenue;                                                               
relating to the excise tax  on alcoholic beverages; and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
CHAIR OLSON opened public testimony on HB 248.                                                                                  
                                                                                                                                
10:03:20 AM                                                                                                                   
                                                                                                                                
SASSAN MOSSANEN, founder of the  Denali Brewing Company, informed                                                               
the  committee that  his  brewery is  located  in the  Matanuska-                                                               
Susitna Borough,  and began production  in 2009.  In  seven years                                                               
the  brewery has  undergone five  expansions to  a 35,000  square                                                               
foot  building and  to twenty-five  year-around  employees.   The                                                               
brewery's growth  was supported  by its employees,  partners, and                                                               
the willingness of  the local lending institution.   Mr. Mossanen                                                               
explained that  the price  of beer is  set by  outside influences                                                               
and  by the  high  cost  of producing  beer  in  Alaska.   Denali                                                               
Brewing's  growth has  been  good for  employment  and for  local                                                               
business, but the  business is in a fragile position.   He said a                                                               
small  increase in  price could  lead his  customers to  purchase                                                               
beverages  produced  outside  of  Alaska,  or  to  lower  quality                                                               
products.   In that case, the  ability of the business  to create                                                               
jobs and  invest in  the community would  be diminished,  and its                                                               
ability to  make beer threatened.   The current $0.35  excise tax                                                               
is  among  the  highest  in  the nation  and  an  increase  would                                                               
directly affect his ability to stay in business.                                                                                
                                                                                                                                
10:06:05 AM                                                                                                                   
                                                                                                                                
BILL FRY said  he and his wife own and  operate Bear Creek Winery                                                               
in Homer.   The  winery opened  12 years ago  and last  year sold                                                               
over 92,000 bottles.  Mr. Fry  employs between 8 and 15 employees                                                               
and now has a new  bottling plant, warehouse, event pavilion, and                                                               
large  freezer.   The  winery  purchased  over 37,000  pounds  of                                                               
Alaska  fruit and  berries grown  in Cantwell  to Southeast,  and                                                               
buys from villagers and Native  corporations, spending $55,000 on                                                               
Alaska  fruit.   He  pointed out  that  unlike Alaska  breweries,                                                               
wineries  use more  than  just local  water,  but purchase  local                                                               
ingredients.   He said he  wants to pay  a fair share  to balance                                                               
the budget, and  agrees with the governor's plan; in  fact, he is                                                               
not opposed  to the bill  if it  is amended to  provide wineries,                                                               
distilleries, and distributors the  same exemption as is afforded                                                               
to breweries.   Currently,  the bill directs  wineries to  pay $5                                                               
per  gallon and  the breweries  pay $0.70  per gallon.   Wineries                                                               
cannot raise their prices to  cover this increase, as making wine                                                               
from  Alaska ingredients  is expensive;  his  business also  uses                                                               
American-made   bottles,  corks,   and  labels.     Without   the                                                               
exemption, his  options would be  to buy berries from  Canada and                                                               
Oregon, cut  back on employees, expansion,  and capital projects,                                                               
or  buy Chinese  bottles.    Mr.  Fry added  that over  2 million                                                               
gallons  of  wine  was  imported into  Alaska  last  year,  which                                                               
contributed $5 million in excise  tax, and 18,000 gallons of wine                                                               
from his winery contributed $45,000  in excise taxes, mostly paid                                                               
by  his  distributor.    Distributors should  also  be  given  an                                                               
exemption  for  Alaska-made products.    Mr.  Fry urged  for  the                                                               
committee to extend the exemption or remove it.                                                                                 
                                                                                                                                
10:09:29 AM                                                                                                                   
                                                                                                                                
STEPHEN GERTEISEN  said he  is the founder  of Arkose  Brewery in                                                               
Palmer.  Arkose  Brewery has been in business for  five years and                                                               
manufactures beer  in Palmer.   The brewery  is set to  expand in                                                               
the spring and  add full-time employees.  Although  in support of                                                               
balancing  the  budget,  and doing  its  fair  share,  successful                                                               
manufacturing  businesses  in  Alaska are  rare,  and  breweries,                                                               
wineries, and  distilleries are already contributing  by creating                                                               
jobs and products.   Furthermore, in the summer  tourists come to                                                               
visit the  brewery.  In  order to continue to  expand production,                                                               
he  said he  is opposed  to the  bill because  the increase  is a                                                               
burden.                                                                                                                         
                                                                                                                                
10:12:05 AM                                                                                                                   
                                                                                                                                
JEANNE KITAYANA,  co-owner, Haines  Brewing Company, said  she is                                                               
greatly concerned  with HB 248's  impact to small businesses.   A                                                               
successful  manufacturing business  in  a  small rural  community                                                               
already  is  economically  burdened  with  availability  and  the                                                               
shipping costs  of shipping  in raw  materials, and  shipping out                                                               
final products.   A  small population will  only support  a small                                                               
profit  margin,  and  the proposed  additional  taxes  will  work                                                               
against economic development in  Alaska communities.  Small craft                                                               
breweries are  based on community  support and  hometown loyalty.                                                               
Recently, Haines Brewing Company moved  to a new building on Main                                                               
Street,  which is  a sign  that  Haines is  progressing with  its                                                               
downtown   revitalization  movement.     Community   support  has                                                               
encouraged  further  business  development,  and  she  asked  the                                                               
committee to refrain from hindering small business in Alaska.                                                                   
                                                                                                                                
10:14:11 AM                                                                                                                   
                                                                                                                                
GARY SUPERMAN,  board member,  Alaska Cabaret,  Hotel, Restaurant                                                               
and Retailers  Association (CHARR), and  owner of the  Hunger Hut                                                               
bar, motel,  and liquor  store, said  he did  not agree  with the                                                               
governor that the  proposed increase is reasonable.   In 2002 and                                                               
2003, the  industry fought a  previous tax increase  that doubled                                                               
the tax.   Mr.  Superman directed attention  to a  spreadsheet in                                                               
the  committee packet  illustrating  taxation  levels across  the                                                               
nation.   After thirteen  years, Alaska  taxes are  already above                                                               
those of  other states.   Although many states have  raised their                                                               
taxes,  they are  not nearly  as high  as Alaska's  level.    The                                                               
enactment  of  this bill  will  have  a  stifling effect  on  his                                                               
businesses; he  has nine  employees and  built a  new store.   He                                                               
tries to  be competitive, which  is difficult  in his area.   Mr.                                                               
Superman  opined the  industry  cannot absorb  this increase  and                                                               
remain  viable; his  bar is  losing profits  and patronage  for a                                                               
variety of  reasons, and some of  the local pubs will  close.  In                                                               
addition, he  will not  continue to stock  local wine  because it                                                               
will  no longer  be  competitive.   There  is  a negative  impact                                                               
"across  the  board,"   and  he  expressed  his   hope  that  the                                                               
legislature will not support the bill.                                                                                          
                                                                                                                                
10:17:51 AM                                                                                                                   
                                                                                                                                
BILL HOWELL said he was representing  the consumer of Alaska.  He                                                               
has been a resident of Sterling  for twelve years and is retired,                                                               
and  teaches  as  adjunct faculty  at  Kenai  Peninsula  College.                                                               
Proposed HB  248 would  double the existing  excise tax  rates on                                                               
alcoholic  beverages in  Alaska, which  are already  some of  the                                                               
highest in  the U.S.   Currently, the  state collects  almost $40                                                               
million per  year from taxes paid  by the citizens of  the state;                                                               
producers,  distributors,  and  retailers   of  beer,  wine,  and                                                               
spirits will  pass the  cost of the  tax along  to end-consumers.                                                               
He said the  governor is directly targeting the  tax at Alaskans,                                                               
who are already  paying their fair share.   Mr. Howell questioned                                                               
why  the  liquor industry  and  consumers  are singled  out,  and                                                               
suggested that all  taxes should be doubled.  He  agreed that new                                                               
sources of  revenue need to  be found, after cutting  out another                                                               
$1 billion  from the  state budget,  including cuts  to education                                                               
and  health care.   Mr.  Howell said  the source  of new  revenue                                                               
should be a  statewide sales tax, and restated  his opposition to                                                               
the bill.                                                                                                                       
                                                                                                                                
10:21:21 AM                                                                                                                   
                                                                                                                                
CHRYSTAL  SCHOENROCK  said she  is  a  member  of CHARR  and  the                                                               
secretary  of  the  Kenai  Peninsula CHARR;  she  also  owns  the                                                               
Forelands Bar  and Liquor Store in  Nikiski.  She said  Alaska is                                                               
about  the "second  largest taxed  state," and  she has  laid off                                                               
employees  and  cut  employees'  hours  due  to  layoffs  in  the                                                               
industry on the North Slope.    Ms. Schoenrock said she felt that                                                               
if workers  on the North  Slope can take a  cut in pay  so should                                                               
the governor.  She said she could  not afford the tax as she does                                                               
not have  many customers,  and urged  that the  legislature "find                                                               
another way."                                                                                                                   
                                                                                                                                
10:23:12 AM                                                                                                                   
                                                                                                                                
CARMEN LUNDE,  Director, Kodiak CHARR,  said the  liquor industry                                                               
has previously had  its taxes raised by 300 percent  and the last                                                               
tax  increase put  Alaska by  far as  the highest-taxed  state on                                                               
alcohol.    The  industry  already  contributes  heavily  to  the                                                               
state's tax base  - approximately $40 million per year  - and the                                                               
hospitality industry  should not pay  more.  The tax  proposal is                                                               
for $0.10  per drink, which  would bring the  tax on a  gallon of                                                               
spirits to $25.60, on a gallon of  wine to $5, and on a gallon of                                                               
beer  to $2.40.   Ms.  Lunde  characterized the  tax proposal  as                                                               
outrageous.  She  is aware of the $3.5 billion  deficit and urged                                                               
that  other  avenues   should  be  explored,  such   as  cuts  to                                                               
government and  spending, and  revisiting tax  cuts for  oil. She                                                               
said  she  is  in  favor  of a  state  lottery,  and  opposed  to                                                               
"touching the permanent fund."                                                                                                  
                                                                                                                                
10:25:21 AM                                                                                                                   
                                                                                                                                
CLAY MURPHY said  he a 35-year Alaska resident and  has lived and                                                               
worked all  over the state.   He said he is  adamantly opposed to                                                               
the alcohol tax because all  businesses and restaurants will pass                                                               
the cost of  the tax along to consumers; in  fact, Alaskans would                                                               
be  "double-taxed"   by  the  actions   of  their   governor  and                                                               
legislators.  The bill will hurt  small business and he urged for                                                               
a focus  on the budget  during this crisis.   Mr. Murphy  said he                                                               
was pleased with  the focus on the budget by  the Alaska House of                                                               
Representatives.   He  said the  tax  has been  introduced as  an                                                               
afterthought without previous notice to the public.                                                                             
                                                                                                                                
CHAIR OLSON advised  that legislation is posted  on the committee                                                               
web site.                                                                                                                       
                                                                                                                                
MR. MURPHY asked what the money will  be used for and how much is                                                               
expected to  be generated  for each purpose.   He  cautioned that                                                               
increased  taxes  will  become   a  steamroller  and  urged  that                                                               
legislators consider the harm to  individuals and businesses.  In                                                               
addition,  he urged  for further  cuts to  agencies which  can be                                                               
done without harm  to the residents of Alaska because  of the way                                                               
money is  spent by state agencies.   His experience is  that when                                                               
business revenues  have decreased, cuts  have to be made,  and it                                                               
is  not  right  to  hurt   businesses  without  further  cuts  to                                                               
agencies.                                                                                                                       
                                                                                                                                
10:29:19 AM                                                                                                                   
                                                                                                                                
TIFFANY HALL, executive director of  Recover Alaska, said she was                                                               
calling from Seattle,  but lives in Anchorage.   She informed the                                                               
committee  that Recover  Alaska  is a  multi-sector action  group                                                               
working  to   reduce  the  harm   caused  by   excessive  alcohol                                                               
consumption  throughout  the  state.    Increasing  the  existing                                                               
alcohol  excise tax  will generate  much needed  revenue for  the                                                               
public services which rely on state  general funds (GF).  In this                                                               
way,  the tax  functions as  a revenue  diversification strategy,                                                               
and  also   supports  long-standing  public  health   and  safety                                                               
objectives.   Additionally, an  increase in  the alcohol  tax has                                                               
been shown  to reduce alcohol  consumption, which will  also save                                                               
money as  the cost of  alcohol abuse in  Alaska causes a  loss of                                                               
productivity,  health  care   costs,  traffic  crashes,  criminal                                                               
justice costs, and protective services  costs, totaling over $1.2                                                               
billion.   An increase in the  tax will also save  lives, improve                                                               
the health of babies, and reduce  underage drinking.  In 1983 and                                                               
2002,  statewide  alcohol  tax  increases  were  followed  by  29                                                               
percent  and  11 percent  decreases  in  the number  of  alcohol-                                                               
related  deaths.   There were  also reductions  in the  amount of                                                               
binge   drinking  during   pregnancy,   and   in  youth   alcohol                                                               
consumption.   Increases to  state excise  taxes on  alcohol have                                                               
been  recommended  by  the  Surgeon  General  of  the  U.S.,  the                                                               
Institute of Medicine, the American  Medical Association, and the                                                               
Community Prevention  Services Task  Force due to  research which                                                               
indicates that  increased alcohol excise taxes  lead to decreases                                                               
in alcohol-related deaths, traffic  crashes, violence, crime, and                                                               
child abuse.   Negative impacts  of alcohol abuse cost  the state                                                               
over  $1 billion  per  year,  and increasing  the  tax will  help                                                               
bridge the fiscal  gap by reducing costs  and generating revenue;                                                               
an increase in  the tax will decrease consumption  and save lives                                                               
in Alaska.  She  urged the committee to pass the  bill.  Ms. Hall                                                               
offered to provide written comments  that will include sources to                                                               
verify her spoken testimony.                                                                                                    
                                                                                                                                
10:32:54 AM                                                                                                                   
                                                                                                                                
The committee took an at ease from 10:32 a.m. to 10:33 a.m.                                                                     
                                                                                                                                
10:33:07 AM                                                                                                                   
                                                                                                                                
MICHAEL JEFFERY  said he  was speaking  on his own  behalf.    He                                                               
provided  a brief  background, noting  that he  was the  superior                                                               
court judge  in Barrow  for 32  years and prior  to that  a legal                                                               
services attorney.   He is  now retired,  and is not  speaking on                                                               
behalf of  the court  system.  Mr.  Jeffery expressed  his strong                                                               
support for  HB 248, and his  agreement with the comments  of Ms.                                                               
Hall.  He pointed  out the cost of alcohol abuse  in 2010 of $1.2                                                               
billion  was due  to  loss of  productivity,  health care  costs,                                                               
crashes,   criminal   justice,    protective   services,   public                                                               
assistance,  and   social  services.     Evidence-based  research                                                               
supports increases in  state excise taxes on alcohol  in order to                                                               
raise  revenue, and  reduce heartache  all  over the  state.   He                                                               
recalled that  Barrow went  dry for  a period  of time,  and when                                                               
residents were allowed  to bring alcohol back in,  the crime rate                                                               
doubled, which is an example of  the harm that alcohol can cause.                                                               
He acknowledged the  concern of business owners  in the industry,                                                               
but alcohol-related crimes and suicides  are beyond price.  There                                                               
should  be  support  for  a  program that  can  raise  money  for                                                               
services  including domestic  violence shelters,  early childhood                                                               
education, and  treatment for substance abuse  and mental health,                                                               
while also  allowing people to  use alcohol.   The cost  over the                                                               
lifetime  of  one  child  severely   affected  by  fetal  alcohol                                                               
spectrum  disorder  can  be  $1  million  to  $2  million;  binge                                                               
drinking  by moms  is identified  as a  cause of  this condition.                                                               
Mr. Jeffery expressed his support for HB 248.                                                                                   
                                                                                                                                
10:37:38 AM                                                                                                                   
                                                                                                                                
LARRY  HACKENMILLER,   Secretary,  Interior  CHARR,   stated  his                                                               
opposition  to HB  248, which  doubles  the alcohol  tax for  the                                                               
purpose of  closing the  budget gap.   He  said according  to the                                                               
Department  of Revenue,  the  last major  tax  [increase] was  in                                                               
2002, and  also created the  [Alcohol and Other Drug  Treatment &                                                               
Prevention Fund  Authority], in which  50 percent of  the alcohol                                                               
taxes  were to  be deposited  and used  for mental  health budget                                                               
code 1180.   He said  $20 million went  to the alcohol  and other                                                               
drug treatment fund,  and questioned how much  money was directed                                                               
to alcohol treatment  and prevention, and how much  to other drug                                                               
abuse treatment and  prevention.   The bill would  double the tax                                                               
on alcohol  consumers, so  half of the  money goes  to prevention                                                               
programs for drugs other than  alcohol.  Mr. Hackenmiller said if                                                               
money  is dedicated  to the  treatment of  other drug  abuse, the                                                               
additional tax  is punitive against  an alcohol consumer,  and is                                                               
discriminatory.    He  directed  attention  to  page  11  of  the                                                               
document  entitled,  "New   Sustainable  Alaska  Plan,  Alcoholic                                                               
Beverage Tax  HB248," and  said he  did not  see any  new revenue                                                               
estimated  from  marijuana, and  expressed  his  belief that  the                                                               
state was  going to make  money in  taxes from marijuana  and, if                                                               
so, he suggested that marijuana  users should pay the $20 million                                                               
to  the mental  health budget  code 1180.   This  would lift  the                                                               
burden  from  alcohol  consumers.    Mr.  Hackenmiller  said  the                                                               
additional $40 million  in the new revenue  component coming from                                                               
the  new alcohol  tax is  incorrect because  the increase  to the                                                               
general fund  is only $20  million, as  the other $20  million is                                                               
dedicated  to  expenditures;  depositing  $20  million  into  the                                                               
mental health budget code 1180  will increase government spending                                                               
for office  space, computers, copy  machines, employees,  and new                                                               
programs.    He  advised  that  the  state  budget  needs  to  be                                                               
decreased first,  and there  are more  spending reductions  to be                                                               
found, and more  dedicated funds.  The alcohol tax  is a punitive                                                               
tax  and should  not be  considered in  the budget  gap proposal;                                                               
unless  the budget  is  decreased to  a  sustainable budget,  the                                                               
state will revisit taxes again in the near future.                                                                              
                                                                                                                                
10:41:00 AM                                                                                                                   
                                                                                                                                
ROBERT MCCORMICK  said he works  at Glacier Brew House  and Orso,                                                               
serves on the board of Alaska  CHARR, and is the treasurer of the                                                               
Brewers Guild of Alaska.   Mr. McCormick acknowledged the need to                                                               
find new  sources of income for  the state, but the  sources need                                                               
to  be  broad-based,  so  everyone  pays,  and  on  services  and                                                               
products  that are  taxed less  in Alaska  than in  other states.                                                               
In  Alaska, the  taxes  on spirits  are  the second-highest,  the                                                               
highest on  wine, and the  second-highest on beer in  the nation.                                                               
Mr. McCormick  said he is  also concerned that Alaskans  will buy                                                               
alcohol  from other  states online,  and the  tax will  make that                                                               
option  more  attractive.     In  addition,  illegally  importing                                                               
alcohol will be  more lucrative and tempting.  Brewing  is one of                                                               
the few manufacturing  industries that is growing  in Alaska; the                                                               
number of brewers has grown from less  than a dozen to over 20 in                                                               
20 years.   He pointed out that the state  would not double taxes                                                               
on the oil industry.  Brewers  do not receive incentives from the                                                               
state,  and  do  not  receive  tax  credits.    He  restated  his                                                               
opposition to HB 248.                                                                                                           
                                                                                                                                
10:43:35 AM                                                                                                                   
                                                                                                                                
KIRSTEN  MYLES, executive  director, Cook  Inlet CHARR,  said she                                                               
represents the food and beverage  retailers in Anchorage, who are                                                               
opposed to  HB 248.  She  stressed that the proposed  alcohol tax                                                               
would  put Alaska's  taxes at  five to  eight times  the national                                                               
average; although all industries are  needed to bring in revenue,                                                               
an increase of this size targeted at one industry is ridiculous.                                                                
                                                                                                                                
10:44:54 AM                                                                                                                   
                                                                                                                                
DARWIN  BIWER  said he  owns  Darwin's  Theory,  a small  bar  in                                                               
downtown Anchorage, and  is the chair of the  board for statewide                                                               
CHARR.    He  referred  to  the  last  tax  in  1971-1972,  which                                                               
established a treatment program,  and questioned what happened to                                                               
the money  and why it  didn't solve  all of the  health problems.                                                               
Also, he said  he could not raise his prices  by $0.10 per drink,                                                               
but  would have  to  raise the  price  by $0.25  at  a time;  the                                                               
proposed tax is  an increase at the retail level  and an increase                                                               
to the  consumer.   Mr. Biwer  said when  prices go  up consumers                                                               
will  drink a  cheaper beer  and not  Alaska products,  which are                                                               
more  expensive, thus  Alaska brewers,  wineries, and  distillers                                                               
will be hurt by the tax.                                                                                                        
                                                                                                                                
10:47:09 AM                                                                                                                   
                                                                                                                                
DON GRASSE  said he is the  president of K and  L Distributors in                                                               
Anchorage,  which  employs over  200  Alaskans  and has  been  in                                                               
business in  the state since  1940.  He expressed  his company's,                                                               
and  the  industry's,  disappointment   with  the  governor,  his                                                               
administration,  and  the proposed  alcohol  tax.   Many  in  the                                                               
industry  contacted  the governor  and  his  staff prior  to  the                                                               
release of  the bill and pointed  out how high the  alcohol taxes                                                               
are in Alaska, and how little  revenue would be raised.  When the                                                               
proposal is  compared to doubling the  gas tax, which is  50th in                                                               
the nation, the gas tax would  be $0.24, and the national average                                                               
is $0.30.   The fishing tax is proposed to  increase by 1 percent                                                               
and  the  mining tax  is  proposed  to  increase 2  percent,  and                                                               
cigarette taxes would be 8th in  the nation.  Mr. Grasse said the                                                               
alcohol taxes are out of step  with all of the other proposals by                                                               
the governor.  The actual cost  to consumers will be much greater                                                               
than $0.10  per drink and in  many cases the costs  of goods will                                                               
increase by more than 20 percent  to a consumer.  Mr. Grasse said                                                               
the hospitality industry  has the potential to grow,  but will be                                                               
stifled by  the proposed taxes.   He expressed his hope  that the                                                               
legislature will  see that  the alcohol tax  is not  the solution                                                               
for the state's problems.                                                                                                       
                                                                                                                                
10:50:04 AM                                                                                                                   
                                                                                                                                
MATT TOMTER said he owns the  Eagle River Alehouse and the Palmer                                                               
City Alehouse,  two restaurants  that employ  between 90  and 120                                                               
people per  year.   He informed the  committee that  the industry                                                               
has faced  the following challenges  in the  past 12 months:   an                                                               
increase in the  minimum wage of $2 per hour  which increases his                                                               
cost  by $100,000  per year;  Affordable Care  Act of  2010 (ACA)                                                               
requirements, the cost of which  are unclear, except it will cost                                                               
$90,000 to $160,000  per year to provide  insurance to everybody;                                                               
and an increase  in alcohol taxes.  He said  he sells about 3,800                                                               
kegs of  beer per  year, and  the increase in  cost that  will be                                                               
passed  along to  consumers is  significant.   Taking  in all  of                                                               
these factors,  in 2016  and 2017 his  operational costs  will be                                                               
raised by  over $250,000  per year.   Mr. Tomter  said, "  ... at                                                               
some point  there's a breaking  point on  how much we  can charge                                                               
for  a burger."   He  warned that  when people  can't afford  the                                                               
prices they will stop supporting  the food and beverage industry,                                                               
which is  a primary  employer on  the road system.   He  wants to                                                               
stay  in business  and  said he  is opposed  to  the increase  in                                                               
alcohol tax.                                                                                                                    
                                                                                                                                
10:52:39 AM                                                                                                                   
                                                                                                                                
JOEL KADARAUCH  said he represents  the Odom Corporation  and the                                                               
Alaska Wine and Spirits Wholesale  Association.  Odom Corporation                                                               
has been  in business locally  for eighty years and  employs over                                                               
four hundred  Alaskans, 98 percent  of which hold  full-time jobs                                                               
with benefits.   He  said if  selective tax  increases are  to be                                                               
part  of the  solution to  the state's  deficit, the  current tax                                                               
burden should be recognized:   Alaska's alcohol excise taxes were                                                               
tripled  in  2002, and  became  the  highest-taxed state  in  the                                                               
nation in  wine, beer,  and spirits, and  remains the  highest in                                                               
two categories.   He directed attention to  three graphs provided                                                               
in  the committee  packet which  represent this  tax burden,  and                                                               
depict where  Alaska would rank  should HB 248 become  law: seven                                                               
times  the national  average  for beer,  six  times the  national                                                               
average  for   wine,  and   five-and-a-half  times   for  spirits                                                               
[documents not provided].  While  the total per-capita tax burden                                                               
is  the lowest  in  the nation,  there is  no  other industry  in                                                               
Alaska  that carries  a disproportionately  high tax  burden.   A                                                               
broad-based approach  is onerous and inequitable.   Secondly, the                                                               
contribution of HB 248 to state  revenues would be $20 million to                                                               
unrestricted   general  funds,   which  is   a  minimal   deficit                                                               
reduction.    Mr.  Kadarauch  summarized that  he  and  those  he                                                               
represents are strongly opposed to the bill.                                                                                    
                                                                                                                                
10:55:24 AM                                                                                                                   
                                                                                                                                
MIKE COONS  stated his opposition  to HB 248.   He said he  was a                                                               
retired paramedic  and has seen  abuse and addiction.   Mr. Coons                                                               
said he opposes  all sin taxes and the  consequences thereof, and                                                               
that  he  has  provided  further details  in  written  testimony.                                                               
Section 3 of  HB 248 shows a  100 percent increase in  sin tax on                                                               
all alcohol products, except for  homebrew.  He cautioned that if                                                               
the bill is  enacted, bootlegging in dry  villages will increase.                                                               
The socialist-liberalist's  stated goal is  to make a  product so                                                               
expensive that users will stop  buying a product; however, in his                                                               
experience, those  with an alcohol  addiction will  buy homebrew,                                                               
and "beg on  the street corner ...."  Mr.  Coons advised that the                                                               
result  of sin  taxes is  that  state and  local governments  get                                                               
money  for  the   general  fund,  and  some  money   may  go  for                                                               
rehabilitation  efforts,  but most  of  the  taxes are  used  for                                                               
bloated local and state government.   He opined that sin taxes on                                                               
alcohol, cigarettes,  and gasoline are  really a means  to attack                                                               
users  of  a product,  and  fund  the  progressive goals  of  big                                                               
government.   Mr.  Coon said  the tax  will be  paid for  "by the                                                               
responsible users  in the neighborhood  of 90 to 95  percent, and                                                               
to  the  addicts,  maybe  5  percent,  maybe  10  percent."    He                                                               
concluded that  the tax will  not help  alcoholism, homelessness,                                                               
or  reduce   driving  under   the  influence   (DUI)  violations.                                                               
Referring to  earlier testimony, he  said he was  totally against                                                               
lotteries.   The bill  punishes responsible  adults but  does not                                                               
contribute to a sustainable budget.                                                                                             
                                                                                                                                
10:59:50 AM                                                                                                                   
                                                                                                                                
MICHELE SHAPIRO,  Director, Mat-Su  CHARR, said she  was speaking                                                               
on  behalf  of  restaurants,  bars, and  package  stores  in  the                                                               
Matanuska-Susitna Borough.    Hospitality  members in  the Mat-Su                                                               
Borough  are  strongly opposed  to  HB  248, and  she  reiterated                                                               
previous testimony that  Alaskans pay the highest  alcohol tax in                                                               
the nation already,  which is a heavy burden for  one industry to                                                               
bear.                                                                                                                           
                                                                                                                                
11:00:56 AM                                                                                                                   
                                                                                                                                
KATE BURKHART said she is  the Executive Director of the Advisory                                                               
Board  on Alcoholism  and Drug  Abuse, and  of the  Alaska Mental                                                               
Health  Board,   which  are  the  state   planning  councils  for                                                               
behavioral health, and her comments  are on behalf of the boards.                                                               
Ms. Burkhart said  she has also provided written  comments to the                                                               
committee in  support of HB 248.    She encouraged  the committee                                                               
to consider the  bill as part of the larger  attempt to solve the                                                               
state's budget problems, along with  reduced spending, reforms to                                                               
contain costs,  and efforts  to generate  revenue.   Ms. Burkhart                                                               
referred to  criminal justice  reform that  will succeed  only if                                                               
the  state has  a  robust community  health  and social  services                                                               
sector.   This  is a  multi-dimensional problem  that requires  a                                                               
multi-dimensional solution; it is important  to consider the bill                                                               
in the context  of similar legislation.  She  urged the committee                                                               
to refer  to her written  comments for further details  on issues                                                               
related to HB 248.                                                                                                              
                                                                                                                                
REPRESENTATIVE JOSEPHSON expressed his  understanding that HB 248                                                               
would  double the  amount that  goes into  the Alcohol  and Other                                                               
Drug Treatment & Prevention Authority fund.                                                                                     
                                                                                                                                
MS.  BURKHART said  the  governor's intention  is  to follow  the                                                               
current practice of  putting one-half of the excise  tax into the                                                               
Alcohol  and Other  Drug Treatment  & Prevention  Authority fund,                                                               
and one-half into GF.                                                                                                           
                                                                                                                                
REPRESENTATIVE JOSEPHSON asked:                                                                                                 
                                                                                                                                
     Do you  know whether or  not, that the $20  million, if                                                                    
     it  passed, that  would  go into  this  fund, would  be                                                                    
     omitted from  some other  behavioral health  account or                                                                    
     mental health trust  account?  In other words,  is it a                                                                    
     net gain of $20 million to  treat, or is it going to be                                                                    
     status quo?                                                                                                                
                                                                                                                                
MS.  BURKHART  answered  that  the   legislature  must  make  the                                                               
appropriation,  thus the  legislature  decides how  much goes  to                                                               
what program.   Currently,  there are GF  mental health  funds as                                                               
well  as revenue  from the  Alcohol and  Other Drug  Prevention &                                                               
Treatment Authority  fund going  to behavioral  health prevention                                                               
and treatment; in  fact, more than $20  million goes specifically                                                               
to substance use disorder treatment  services such as residential                                                               
treatment and  detoxification services.   Every year, all  of the                                                               
money is before the legislature  for appropriation, thus if there                                                               
were supplanting, the legislature would do so.                                                                                  
                                                                                                                                
11:04:48 AM                                                                                                                   
                                                                                                                                
BRANDON  HOWARD said  he was  starting Amalga  Distillery, a  new                                                               
distillery in Juneau.   This is a new business  in the community,                                                               
and he acknowledged  that the industry is  associated with social                                                               
issues.   He said the spirit  excise taxes will double  his taxes                                                               
to  about  $8   per  bottle,  which  will   impact  his  margins.                                                               
Businesses in  Alaska must pay  a premium for materials,  and for                                                               
shipping products out of the state,  and another tax will make it                                                               
harder  to  start a  distillery  and  it  may  be a  less  viable                                                               
business.   Mr. Howard  suggested another way  to double  the tax                                                               
revenue would  be to double  the number of distilleries  and grow                                                               
the industry  in the state.   In addition to  capital, challenges                                                               
to opening  a new  business are permitting  and processing.   The                                                               
tax burden will be passed to  the customer, and the price for his                                                               
product will be  much greater than that of his  competitors.  His                                                               
initial distribution will  be within the state, and  the tax will                                                               
burden Alaskans.  Mr. Howard stated his opposition to HB 248.                                                                   
                                                                                                                                
CHAIR  OLSON recalled  previous  legislation  that allowed  micro                                                               
distilleries to have tasting rooms, which would be helpful.                                                                     
                                                                                                                                
MR.  HOWARD agreed  that is  a  big help.     He  added that  his                                                               
distillery, and others in Alaska,  are promoting premium products                                                               
for  distribution out-of-state.    In further  response to  Chair                                                               
Olson, he  said Amalga Distillery will  manufacture Juneauper Gin                                                               
and a single malt whiskey, using Alaska barley, wheat, and rye.                                                                 
                                                                                                                                
11:09:52 AM                                                                                                                   
                                                                                                                                
JACK MANNING  stated he  owns a convenience  and liquor  store in                                                               
Juneau,  is president  of  the  local CHARR,  and  serves on  the                                                               
statewide CHARR board.   He said he applauds  the legislature and                                                               
the  governor  for  dealing  with   the  state's  fiscal  issues.                                                               
However, this  is a tax on  consumers, and is it  unfair to place                                                               
the  burden on  one segment  of Alaskans,  the alcohol  consumer.                                                               
This  is  a radical  tax  rate;  a  similar  change in  taxes  in                                                               
Washington  almost  destroyed a  new  distillery  industry.   The                                                               
liquor  stores  in  Oregon  along  the  Washington  state  border                                                               
increased sales by 35 percent,  benefitting from the tax increase                                                               
in  Washington.   Alaska  does  not  have bordering  states,  but                                                               
liquor is  available from  the Internet for  free freight,  as is                                                               
advertised by Alaska  Airlines.  He said he  agreed with previous                                                               
testimony in opposition to HB 248.                                                                                              
                                                                                                                                
11:12:09 AM                                                                                                                   
                                                                                                                                
CHAIR OLSON announced that public testimony would remain open.                                                                  
                                                                                                                                
[HB 248 was held over.]                                                                                                         
                                                                                                                                
11:12:23 AM                                                                                                                   
                                                                                                                                
The committee took an at ease from 11:12 a.m. to 11:27 a.m.                                                                     
                                                                                                                                
        HB 252-ELCTRNC TAX RETURNS; VESSEL PASSENGER TAX                                                                    
                                                                                                                                
11:27:39 AM                                                                                                                   
                                                                                                                                
CHAIR OLSON announced  that the final order of  business would be                                                               
HOUSE BILL NO. 252, "An  Act requiring electronic submission of a                                                               
tax return  or report with  the Department of  Revenue; repealing                                                               
the  tax reduction  for local  levies for  the commercial  vessel                                                               
passenger excise  tax; amending  the definition of  'voyage'; and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
11:27:40 AM                                                                                                                   
                                                                                                                                
CHAIR OLSON opened public testimony on HB 252.                                                                                  
                                                                                                                                
11:27:49 AM                                                                                                                   
                                                                                                                                
CAROL FRASER,  General Manager,  Lakefront Anchorage  Hotel, said                                                               
she was  speaking as an  Alaskan and as  a member of  the tourism                                                               
industry.    The  Lakefront  Anchorage  Hotel  employs  over  120                                                               
Alaskans year-around  as housekeepers, bussers,  clerks, drivers,                                                               
and  servers.   She opined  HB 252  is a  jobs bill.   The  hotel                                                               
operates year-around but primarily  relies on tourism; 70 percent                                                               
of the hotel's revenue is  received between 5/15 and 9/15, during                                                               
the  cruise ship  season.    The bill  proposes  to increase  the                                                               
cruise ship  passenger tax, and  she urged legislators  to review                                                               
the impacts of the [Alaska  Cruise Ship Tax Initiative Measure 2,                                                               
approved  8/22/06  (cruise  ship initiative)]  that  resulted  in                                                               
taxation  which made  Alaska the  "most expensive  destination in                                                               
the  world for  cruise ship  operations."   The cruise  ships are                                                               
floating hotels and  can move anywhere in the world;  in 2010, as                                                               
a  result of  the additional  tax, the  cruise lines  moved their                                                               
ships  to  other destinations  that  brought  a higher  return  -                                                               
subsequently 140,000 less customers came  to Alaska and there was                                                               
a loss  of 5,000 jobs.   In 2009, through agreements  between the                                                               
tourism industry and  state government, there was  a reduction in                                                               
taxes and  the cruise ships  moved vessels back to  Alaska; since                                                               
2012, the tourism industry in  Alaska has increased each year and                                                               
tourism is expected to  have a banner year in 2016.    Ms. Fraser                                                               
said this  will create more  jobs for Alaskans, more  revenue for                                                               
communities,  and more  taxes  for the  state.   Tourism  employs                                                               
almost 40,000  Alaskans, many  of which are  entry jobs  that can                                                               
lead  to careers.   She  stated there  is a  need to  protect the                                                               
tourism industry  - which  is a renewable  resource for  Alaska -                                                               
and HB 252 will again  make Alaska uncompetitive in the worldwide                                                               
cruise market.   She concluded, noting that  Alaska cannot afford                                                               
to lose any more jobs.                                                                                                          
                                                                                                                                
11:31:34 AM                                                                                                                   
                                                                                                                                
GIDEAN  GARCIA,  Chief  Operating Officer,  CIRI  Alaska  Tourism                                                               
Corporation,  stated his  opposition to  HB  252.   He said  CIRI                                                               
benefits from  a strong cruise  industry as many  passengers stay                                                               
at CIRI  lodges in  Seward and Talkeetna,  or take  CIRI wildlife                                                               
cruises.  Not  all cruise ship guests stay  at affiliated hotels,                                                               
but many  do support other  Alaska-owned businesses.   Mr. Garcia                                                               
said  additional costs  to passengers  reduces potential  "guest-                                                               
spend"  in the  state.   He questioned  what can  be gained  from                                                               
funds that  are restricted by federal  law and cannot be  used in                                                               
the  general fund.    In 2015,  the number  of  visitors was  the                                                               
highest  on  record,  and  strong   growth  in  the  industry  is                                                               
returning after  many years; he cautioned  against risking growth                                                               
by raising  taxes.  Although  the state has a  significant budget                                                               
shortfall, his organization is  generally against targeted taxes,                                                               
and  he  urged  for  legislators  to  look  for  broad-based  and                                                               
equitable sources of new revenue.                                                                                               
                                                                                                                                
11:33:24 AM                                                                                                                   
                                                                                                                                
PATTI  MACKEY,  president  and CEO,  Ketchikan  Visitors  Bureau,                                                               
asked  the   committee  to  consider  the   negative  impacts  of                                                               
repealing  the  tax  reduction   in  communities  where  a  local                                                               
passenger fee  is also imposed.    Although  she is aware  of the                                                               
state's fiscal  issues, the  [Commercial Passenger  Vessel Excise                                                               
Tax] fund is  not a source of  revenue for the general  fund.  At                                                               
the time  of the initial state  fee, there was an  adverse impact                                                               
on communities  that depend  on the  cruise industry;  high taxes                                                               
and fees caused the cruise lines to  take a look at the high cost                                                               
of doing business, which resulted  in fewer ships and passengers,                                                               
and less revenue.   When the tax reduction was  put in place five                                                               
years  ago,   growth  returned  to  the   cruise  ship  industry.                                                               
Ketchikan  is  more  dependent  than  ever  on  locally-generated                                                               
revenue,  such as  sales taxes  paid by  visitors, and  the state                                                               
faces  competition  from   other  cruise  destinations;  Alaska's                                                               
market  share has  declined steadily  from 7  percent in  2007 to                                                               
about 4  percent today.   The  state needs to  be mindful  of its                                                               
high operating  costs for cruise  lines.  Ms. Mackey  stated that                                                               
the tax reduction was recognition  that cruise lines help pay for                                                               
services directly  to port communities,  and that Alaska  is open                                                               
for business.                                                                                                                   
                                                                                                                                
11:35:35 AM                                                                                                                   
                                                                                                                                
BOB SIVERTSEN, speaking on his own  behalf, said he is opposed to                                                               
HB 252.  In 2010, former  Governor Sean Parnell worked to address                                                               
industry  concerns regarding  cruise ship  operations in  Alaska.                                                               
The  governor and  the legislature  lowered the  cruise passenger                                                               
head  tax  out of  concern  for  the  future of  Alaska's  cruise                                                               
industry.  Mr.  Sivertsen opined the state should  honor the past                                                               
agreement, and  if necessary, the  state and the  industry should                                                               
work  out  an equitable  agreement.    The present  tax  promotes                                                               
investment and meets applicable  federal and state laws regarding                                                               
the use  of the taxes.   Mr. Sivertsen said increased  taxes will                                                               
hurt local and  state tourism businesses and will  not reduce the                                                               
state deficit.  What HB 252  may do is jeopardize the economy and                                                               
send  the wrong  message  to an  Alaska-friendly  industry.   The                                                               
state should learn from past mistakes and successes.                                                                            
                                                                                                                                
11:37:04 AM                                                                                                                   
                                                                                                                                
RYAN   BINKLEY,  President,   Riverboat  Discovery,   stated  his                                                               
opposition to  HB 252.  He  informed the committee he  is a life-                                                               
long  Alaskan and  his family's  business has  been building  and                                                               
operating boats  across the state for  over 100 years.   In 1950,                                                               
his  grandparents began  a  river  tour and  became  part of  the                                                               
tourism business and the economy  in Fairbanks.  He observed that                                                               
Fairbanks  is a  cruise  port,  and relies  on  the visitors  who                                                               
cruise  to Alaska;  in fact,  the effects  of cruise  visitors is                                                               
felt even  more in Fairbanks  because the itineraries  that bring                                                               
visitors there  are the  longest and most  expensive and  are the                                                               
first  eliminated by  barriers to  travel, such  as a  tax.   Mr.                                                               
Binkley said one-third  of cruise ship passengers  cross the Gulf                                                               
of Alaska, thus  a negative effect is magnified  in the Interior.                                                               
Policy effects  of legislation are  usually speculative,  but the                                                               
state has seen  the impacts of head tax increases  to the visitor                                                               
industry in  2006.  In the  Interior in 2008, there  was almost a                                                               
40 percent drop  in the number of visitors, and  his business was                                                               
forced to  eliminate 70  positions.  Also,  the Interior  has not                                                               
rebounded as completely as other  parts of the state, and remains                                                               
at  30  percent off  of  the  tourism  business levels  prior  to                                                               
passage of the cruise ship  initiative.  Mr. Binkley acknowledged                                                               
that the state  must work together to solve  budget problems, and                                                               
inquired as  to why the state  would harm the economy  of Alaska,                                                               
when  HB 252  does  not  contribute to  closing  the fiscal  gap.                                                               
Furthermore,  there  may  be  litigation  that  jeopardizes  "the                                                               
entire tax  program."   He cautioned  that cruise  companies will                                                               
not be  harmed by HB 252,  but small Alaska businesses  will feel                                                               
its effects.  He urged the committee to oppose HB 252.                                                                          
                                                                                                                                
11:40:48 AM                                                                                                                   
                                                                                                                                
STEVE HITES,  said he  and his  wife own  the Skagway  Street Car                                                               
Company and  have been  in business  for 30  years.   He recalled                                                               
that when the cruise ship  initiative passed, the cruise industry                                                               
pulled  its ships  out of  Alaska due  to the  increased cost  of                                                               
doing  business, and  in subsequent  years  his family's  company                                                               
hired fewer  employees.    Former Governor  Sean Parnell  saw the                                                               
need  to  address the  problem  and  met  with officials  of  the                                                               
international  cruise  industry, which  Mr.  Hites  said had  not                                                               
happened  before in  his 40  years  of experience  in the  cruise                                                               
industry.    Mr. Hites  said  the  governor and  the  legislature                                                               
reduced the  head tax  and the ships  were redeployed  to Alaska.                                                               
He said  [HB 252] will  not do any good  and will create  a giant                                                               
hole in  an industry that  is a bright  spot in the  economy, and                                                               
that  provides an  engine for  the private  sector.   The Skagway                                                               
Street Car  Company pays  $70,000 in city  sales tax  in Skagway,                                                               
and  pays  $23,000 in  property  tax.    In addition,  his  small                                                               
business employs people  and provides help.  The  bill will drive                                                               
away  a  sector  of  the   economy,  and  because  Alaska  is  in                                                               
competition with  the Asian market, cruise  companies are looking                                                               
globally  at operating  costs.   He recalled  that Alaska  was 14                                                               
percent of the global cruise ship  industry and is now 4 percent.                                                               
He stressed that  Alaska must remain competitive  by not imposing                                                               
additional taxes.                                                                                                               
                                                                                                                                
11:44:42 AM                                                                                                                   
                                                                                                                                
LAWRENCE  GAFFNEY,  CEO,  Huna Totem  Corporation,  informed  the                                                               
committee Huna Totem Corporation  has 1,300 shareholders and owns                                                               
and operates Icy Strait Point,  which is the largest employer and                                                               
the largest  payer of sales  tax in the  City of Hoonah,  a rural                                                               
community of  760 residents.   Last year, Huna  Totem Corporation                                                               
provided  125 jobs,  85 percent  of  which were  local hire,  and                                                               
contributed over $4 million into  the community.  The last cruise                                                               
ship tax  increase resulted in  a 30 percent decline  in business                                                               
and, 7 years  later, the business has not fully  recovered.  This                                                               
May,  his  firm  is  completing  a  $40  million  new  investment                                                               
program, in conjunction with the City  of Hoonah, as a public and                                                               
private  partnership,  building  a   new  cruise  ship  dock  and                                                               
expanding facilities.   This  tax increase  will have  a chilling                                                               
effect on  the attractiveness of  Alaska to the  cruise industry,                                                               
which provides  90 percent of  Huna Totem  Corporation's revenues                                                               
and  is responsible  for many  jobs.   The result  will be  fewer                                                               
ships,  less  profitability,  fewer  jobs,  and  a  blow  to  the                                                               
economic driver of Hoonah.                                                                                                      
                                                                                                                                
11:47:28 AM                                                                                                                   
                                                                                                                                
The committee took an at ease from 11:47 a.m. to 12:00 p.m.                                                                     
                                                                                                                                
12:00:44 PM                                                                                                                   
                                                                                                                                
CHAIR OLSON announced that public testimony would remain open.                                                                  
                                                                                                                                
[HB 252 was held over.]                                                                                                         
                                                                                                                                
12:01:32 PM                                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
12:01 p.m.                                                                                                                      

Document Name Date/Time Subjects
HB248 Supporting Documents-Email Perry Ahsogeak 02-12-16.pdf HL&C 2/13/2016 10:00:00 AM
HB 248
HB248 Opposing Documents-Written Testimony- Bill Howell 02-13-16.pdf HL&C 2/13/2016 10:00:00 AM
HB 248
HB248 Opposing Documents-Written Testimony-Larry Hackenmiller 02-13-16.pdf HL&C 2/13/2016 10:00:00 AM
HB 248