Legislature(2015 - 2016)BARNES 124

03/02/2016 03:15 PM LABOR & COMMERCE

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Audio Topic
03:19:41 PM Start
03:20:17 PM Presentation: Economic Impacts of Alaska Fiscal Options - Institute of Social and Economic Research
04:46:40 PM HB304
05:05:25 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation Continued from 2/29/16: TELECONFERENCED
"Economic Impacts of Alaska Fiscal Options -
Draft Conclusions" by Professor Gunnar Knapp,
Institute of Social & Economic Research
Heard & Held
-- Public Testimony <Time Limit May Be Set> --
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                         March 2, 2016                                                                                          
                           3:19 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Kurt Olson, Chair                                                                                                
Representative Shelley Hughes, Vice Chair                                                                                       
Representative Jim Colver                                                                                                       
Representative Gabrielle LeDoux                                                                                                 
Representative Cathy Tilton                                                                                                     
Representative Andy Josephson                                                                                                   
Representative Sam Kito                                                                                                         
MEMBERS ABSENT                                                                                                                
Representative Mike Chenault (alternate)                                                                                        
COMMITTEE CALENDAR                                                                                                            
PRESENTATION:  ECONOMIC IMPACTS OF ALASKA FISCAL OPTIONS -                                                                      
INSTITUTE OF SOCIAL & ECONOMIC RESEARCH                                                                                         
     - HEARD                                                                                                                    
HOUSE BILL NO. 304                                                                                                              
"An Act  requiring the electronic  submission of a tax  return or                                                               
report with the  Department of Revenue; relating to  the taxes on                                                               
cigarettes  and  tobacco   products;  taxing  electronic  smoking                                                               
products; adding  a definition  of 'electronic  smoking product';                                                               
and providing for an effective date."                                                                                           
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 304                                                                                                                  
SHORT TITLE: ELECTRNC TAX RETURNS;TOBACCO & E-CIGS TAX                                                                          
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
02/08/16       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/08/16       (H)       L&C, FIN                                                                                               
02/19/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
02/19/16       (H)       Heard & Held                                                                                           
02/19/16       (H)       MINUTE(L&C)                                                                                            
02/22/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
02/22/16       (H)       Heard & Held                                                                                           
02/22/16       (H)       MINUTE(L&C)                                                                                            
02/24/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
02/24/16       (H)       Heard & Held                                                                                           
02/24/16       (H)       MINUTE(L&C)                                                                                            
02/27/16       (H)       L&C AT 10:00 AM BARNES 124                                                                             
02/27/16       (H)       -- MEETING CANCELED --                                                                                 
03/02/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
GUNNAR KNAPP PhD, Director/Professor of Economics                                                                               
Institute of Social & Economic Research                                                                                         
University of Alaska Anchorage                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Provided concluding slides  and corrections                                                             
for  a PowerPoint  presentation  entitled,  "Economic Impacts  of                                                               
Alaska  Fiscal  Options  Overview  of  Draft  Conclusions"  dated                                                               
2/29/16,  first presented  during  the House  Labor and  Commerce                                                               
Standing Committee meeting of 2/29/16.                                                                                          
STEPHANIE CHILTON, Owner                                                                                                        
High Voltage Vapes                                                                                                              
Soldotna, Alaska                                                                                                                
POSITION STATEMENT:  Testified in opposition to HB 304.                                                                       
TRISTAN TALIESIN                                                                                                                
Kenai, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in opposition to HB 304.                                                                       
SETH PARKER                                                                                                                     
Kenai, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in opposition to HB 304.                                                                       
JORDAN EDWARDS                                                                                                                  
Wasilla, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in opposition to HB 304.                                                                       
ELIZABETH RIPLEY, Executive Director                                                                                            
Mat-Su Health Foundation                                                                                                        
Wasilla, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in support of HB 304.                                                                          
ALISON HALPIN                                                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 304.                                                                       
ERIC VARGASON                                                                                                                   
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 304.                                                                       
ANGELA CARROLL, Spokesperson                                                                                                    
Smoke-Free Alternatives Trade Association                                                                                       
Wasilla, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in opposition to HB 304.                                                                       
JAMES BRIGGS, Owner                                                                                                             
Peche Foggin Sauce                                                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 304.                                                                       
ACTION NARRATIVE                                                                                                              
3:19:41 PM                                                                                                                    
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee  meeting  to  order at  [3:19]  p.m.    Representatives                                                               
Olson, Josephson,  Hughes, LeDoux, Colver, Tilton,  and Kito were                                                               
present at the call to order.                                                                                                   
^PRESENTATION:    Economic Impacts  of  Alaska  Fiscal Options  -                                                               
Institute of Social and Economic Research                                                                                       
   PRESENTATION:  Economic Impacts of Alaska Fiscal Options -                                                               
           Institute of Social and Economic Research                                                                        
3:20:17 PM                                                                                                                    
CHAIR OLSON announced  that the first order of  business would be                                                               
a continuation  of the  presentation by  the Institute  of Social                                                               
and Economic Research, University of Alaska Anchorage.                                                                          
3:21:04 PM                                                                                                                    
GUNNAR KNAPP PhD, Director and  Professor of Economics, Institute                                                               
of  Social and  Economic  Research (ISER),  University of  Alaska                                                               
Anchorage  (UAA), continued  a PowerPoint  presentation entitled,                                                               
"Economic  Impacts of  Alaska Fiscal  Options  Overview of  Draft                                                               
Conclusions," which  was first presented  at the House  Labor and                                                               
Commerce  Standing  Committee  meeting  of 2/29/16.    Dr.  Knapp                                                               
announced  corrections  to  slides   presented  at  the  previous                                                               
meeting as  follows:  slide  3 corrected  the share of  sales tax                                                               
with fewer exclusions  paid by non-residents from 7  percent to 9                                                               
percent;  slide   4  corrected  the  share   of  reduced  federal                                                               
government   tax  obligations,   after   state  obligations   are                                                               
deducted, from 4 percent.  He continued  to slides 5, 6, 7, 8 and                                                               
9 relating  to total impacts  of deficit reduction, how  fast the                                                               
deficit should  be reduced, and  how to reduce  economic impacts.                                                               
Basically, the state has lost  billions of dollars of oil revenue                                                               
and thus must reduce its  deficit, which will affect its economy.                                                               
The  impacts of  deficit  reduction began  with earlier  spending                                                               
cuts  to  the   capital  budget,  which  will  be   felt  by  the                                                               
construction industry in  the near future.  He  opined that there                                                               
will be a  smoother economic adjustment to lower  oil revenues if                                                               
significant  progress is  made this  year.   Dr. Knapp  presented                                                               
slide  10 which  illustrated the  potential short-run  impacts of                                                               
reducing the  deficit by $1  billion, $2 billion, and  $3 billion                                                               
which is  the scale of the  actual deficit.  He  pointed out that                                                               
reducing the  deficit by $1 billion  would result in the  loss of                                                               
17,000 jobs.                                                                                                                    
3:34:44 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  recalled  that the  governor's  fiscal                                                               
plan to fix the deficit this  year commits all resources, such as                                                               
the Constitutional  Budget Reserve  (CBR), and  the [supplemental                                                               
budgets].   He  cautioned that  using "part  of a  budget patch,"                                                               
doesn't  work  because  the  governor's   plan  relies  on  every                                                               
available dollar in savings.                                                                                                    
DR. KNAPP  expressed his understanding  that the  governor's plan                                                               
has many aspects and would  not completely close the deficit, but                                                               
would  accomplish the  "vast  bulk of  the  heavy lifting  toward                                                               
getting the  state where, where  the remaining spending  would be                                                               
financed in a sustainable way."                                                                                                 
REPRESENTATIVE JOSEPHSON  provided an  example of a  $3.5 billion                                                               
deficit  and a  $2.5 billion  fix that  would require  $1 billion                                                               
from savings, but which would  derail the governor's plan because                                                               
the savings  are needed to  "buttress, for example,  the earnings                                                               
reserve  in  a   sovereign  wealth  model  or   to  recreate  the                                                               
[supplemental budget]  which would spin  off some of its  own new                                                               
DR. KNAPP acknowledged  that the governor's plan,  or others that                                                               
use  Alaska Permanent  Fund earnings,  affect how  much the  fund                                                               
will produce  investment returns in the  future.  As long  as the                                                               
state continues to run deficits,  the deficits will reduce future                                                               
earnings.   He restated  that the study  was narrowly  focused on                                                               
certain  aspects  of  cutting  spending,  however,  drawing  from                                                               
savings would result in permanently reduced future earnings.                                                                    
3:41:29 PM                                                                                                                    
REPRESENTATIVE  KITO returned  attention  to slide  10 and  asked                                                               
whether  the $2  billion and  $3  billion cuts  made by  reducing                                                               
workers are just for illustration.                                                                                              
DR. KNAPP said yes, because those cuts are not a real option.                                                                   
REPRESENTATIVE COLVER asked for  the indirect multiplier for non-                                                               
government jobs.                                                                                                                
DR. KNAPP  said the  loss of jobs  would be a  direct loss  of 60                                                               
percent  of  government  workers,  and an  indirect  loss  of  40                                                               
percent of private workers.   Further information can be found on                                                               
slides 35 and 36 that were presented at the meeting of 2/29/16.                                                                 
REPRESENTATIVE COLVER surmised that  a 2.5 multiplier indicates a                                                               
loss of 5,200  state and state-contracted jobs, and  a total loss                                                               
of 13,000 jobs.   He then asked for the number  of lost jobs that                                                               
would be catastrophic to the state's economy.                                                                                   
DR. KNAPP  observed that the state's  economy is in a  weak state                                                               
in that both  the government and private industry  must cut back.                                                               
The  oil,  mining, and  salmon  industries  are experiencing  low                                                               
prices   and  the   capital  budget   cuts   have  affected   the                                                               
construction industry.  Ideally,  when the private sector economy                                                               
is  suffering it  is not  a time  to reduce  government spending.                                                               
Dr. Knapp was unsure of "a tipping point."                                                                                      
3:52:28 PM                                                                                                                    
REPRESENTATIVE LEDOUX asked for clarification of slide 10.                                                                      
DR.  KNAPP  explained that  column  five  indicated spending  was                                                               
reduced one-third  by cutting spending,  one-third by  raising an                                                               
income  tax,  and one-third  by  cutting  the PFD;  the  combined                                                               
impact of all  three actions would cost 10,000 jobs.   In further                                                               
response  to Representative  LeDoux, he  said the  total loss  of                                                               
income to Alaskans would be $1.3 billion.                                                                                       
REPRESENTATIVE  LEDOUX  suggested  that the  percentages  may  be                                                               
varied and  requested additional charting  to show "all  of those                                                               
different variables."                                                                                                           
DR.  KNAPP  noted that  slide  36,  which  was presented  at  the                                                               
meeting  on  2/29/16,  allows   members  to  complete  additional                                                               
calculations, or he  could provide that information.   In further                                                               
response to  Representative LeDoux, he  said the option  with the                                                               
least effect  on the  economy - in  the short term  - is  for the                                                               
state to save less.  He added  that the least effect on the total                                                               
economy would be to cut  capital spending, which has already been                                                               
done  by the  legislature.   He urged  that members  consider all                                                               
options because  the actions taken  determine "the kind  of state                                                               
we have."                                                                                                                       
4:00:58 PM                                                                                                                    
REPRESENTATIVE HUGHES  asked if Dr.  Knapp was being paid  by the                                                               
administration  to do  this analysis,  and whether  ISER receives                                                               
general funds from the state through the UAA budget.                                                                            
DR.  KNAPP  responded that  ISER  receives  general fund  support                                                               
through  the UAA  budget which  covers  about 40  percent of  its                                                               
budget.    The study  was  financed  one-half  by the  Office  of                                                               
Management & Budget and one-half by the Department of Revenue.                                                                  
REPRESENTATIVE  HUGHES expressed  her interest  in the  long-term                                                               
effects on the economy and  to younger Alaskans fifteen to twenty                                                               
years hence;  for example, the  impacts to the  Public Employees'                                                               
Retirement  System (PERS)  and  the  Teachers' Retirement  System                                                               
(TRS).  She cautioned that imposing  an income tax may mean fewer                                                               
jobs lost,  but states with  income taxes lose population  in the                                                               
long-term.   She  asked Dr.  Knapp  to comment  on the  long-term                                                               
economic impacts on the private sector and the overall economy.                                                                 
4:05:06 PM                                                                                                                    
DR.   KNAPP  agreed   that  long-term   impacts  are   critically                                                               
important,  which   is  the  focus   of  the  remainder   of  his                                                               
presentation.  He  pointed out that spending  cuts, income taxes,                                                               
sales  taxes, and  dividend cuts  all have  long-term impacts  on                                                               
Alaska's  economy  and  its  society.    Alaskans  will  be  more                                                               
affected   by   long-term   implications   than   by   short-term                                                               
implications, which is analogous to  someone who is sick choosing                                                               
treatment options:  what hurts less  versus what is going to make                                                               
one healthy.                                                                                                                    
REPRESENTATIVE HUGHES said  her understanding is a  dollar in the                                                               
private sector has  a greater multiplier effect than  a dollar in                                                               
the public sector.                                                                                                              
DR. KNAPP  said he  could neither agree  nor disagree  without "a                                                               
clearer understanding of what was meant."   Losing a job - public                                                               
or private -  would have same impact on the  economy; the loss of                                                               
their tasks is a different question.                                                                                            
4:10:06 PM                                                                                                                    
REPRESENTATIVE  HUGHES returned  attention to  slide 8  which was                                                               
presented at the  meeting on 2/29/16 and asked  whether Dr. Knapp                                                               
advised "that it  is better to not do everything  in one year and                                                               
to phase the solution."                                                                                                         
DR. KNAPP clarified that there  are very serious negative impacts                                                               
to not making significant progress  on the deficit.  Although the                                                               
economy is  weak, he cautioned  that the state cannot  "save this                                                               
problem for later."                                                                                                             
REPRESENTATIVE JOSEPHSON  asked whether there is  an argument for                                                               
stimulus  through a  capital budget,  or for  the state  to issue                                                               
bonds for some capital projects.                                                                                                
DR. KNAPP advised  that if government finances  are healthy there                                                               
is a good  argument for stimulus; however, the state  has so much                                                               
lost oil money that it cannot  escape an adjustment.  There is no                                                               
question that  it would definitely help  the state's construction                                                               
industry,  but  the  state  would  face  the  consequences.    He                                                               
returned attention to slide 11  which listed the impacts of fully                                                               
closing the  deficit this  year.  However,  slide 12  stated that                                                               
the government  can't permanently  support an economy  by running                                                               
deficits, and  he stressed the  further negative  consequences of                                                               
delay, such as  further draining of reserve  funds, fewer options                                                               
and  less  time to  implement  options,  and the  downgrading  of                                                               
Alaska's credit  rating [slide 13].   Slide 14  showed additional                                                               
negative  consequences including  rising  business and  household                                                               
uncertainty about future services  and taxes.  Furthermore, there                                                               
will be less confidence in  whether Alaska can achieve a solution                                                               
and remain a good  place to do business and live.   These are the                                                               
consequences of  not demonstrating that  there is a plan  for how                                                               
to get  out of this  situation, although the  consequences cannot                                                               
be measured precisely.                                                                                                          
4:21:06 PM                                                                                                                    
DR.  KNAPP  continued  to  slide   15,  noting  that  significant                                                               
progress includes a major reduction  in the deficit, consensus on                                                               
a plan  for the future,  demonstrating political ability  to act,                                                               
and a  perception of  significant progress by  Alaskans.   All of                                                               
the  fiscal options  have many  other potential  impacts such  as                                                               
indirect and  longer-term impacts,  which are harder  to estimate                                                               
and  important  to  Alaska's  future  [slide  17].    Impacts  of                                                               
spending cuts include  increases in local taxes,  user fees, loss                                                               
of  federal revenues,  impacts of  reduced  capital budgets,  and                                                               
impacts  on  government  and  university  workforce  [slide  18].                                                               
Further potential effects  of spending cuts were  listed on slide                                                               
19.    Examples of  potential  impacts  of income  taxes  include                                                               
impacts  to investment  and to  wages  [slide 20].   Examples  of                                                               
potential impacts  of sales  taxes include  administrative costs,                                                               
impacts on  local government and  rural communities,  and impacts                                                               
on  the  visitor  industry  [slide  21].   Slide  22  listed  the                                                               
potential impacts of  dividend cuts such as  wages, spending, and                                                               
quality  of  life for  larger  or  poorer  families.   Dr.  Knapp                                                               
stressed  that  all of  the  foregoing  long-term indicators  are                                                               
relevant and matter.   Slide 23 listed more  long-term impacts of                                                               
adjusting to  the deficit that  were not addressed by  the study.                                                               
He concluded  that the fiscal  choices will  significantly affect                                                               
Alaska's future economy  and society [slide 24].   In response to                                                               
Chair  Olson,  he said  the  study  is  in  its third  or  fourth                                                               
version.  In  further response to Chair Olson, he  said the study                                                               
has been modified for corrections and to add details.                                                                           
CHAIR OLSON  has heard that the  study was going to  go into more                                                               
detail on the proposed tax bills.                                                                                               
DR.  KNAPP  apologized,  saying  there  was  a  misunderstanding.                                                               
Other issues were beyond the scope of the study.                                                                                
4:31:00 PM                                                                                                                    
The committee took a brief at ease.                                                                                             
4:31:40 PM                                                                                                                    
REPRESENTATIVE LEDOUX  questioned whether bond ratings  are based                                                               
on legislative actions which could subsequently be repealed.                                                                    
DR. KNAPP agreed  that close legislative votes  convey a message;                                                               
however,  the negative  economic  consequences  from bond  rating                                                               
agencies,  Alaskans,   or  Alaska   businesses  are   related  to                                                               
uncertainty  and   confidence  in   the  legislature   finding  a                                                               
REPRESENTATIVE LEDOUX remarked:                                                                                                 
         ... you're saying that we not only need to do                                                                          
      something, but we all need to do it together and if,                                                                      
        if it's a slim margin, that that's not going to                                                                         
     accomplish the purposes.                                                                                                   
DR. KNAPP responded:                                                                                                            
     All I'm  really saying is  that the, that  the negative                                                                    
     economic consequences  of delay are tied  to the extent                                                                    
     that   they  create   business  uncertainty   and,  and                                                                    
     business, and household  and investor uncertainty about                                                                    
     what will be done, and whether something can be done.                                                                      
DR. KNAPP provided examples of delays.                                                                                          
4:38:24 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON returned  attention to  slide 18  which                                                               
indicated there  is a potential  loss of federal  matching funds.                                                               
He  surmised  that  the  state  seeks  to  benefit  from  federal                                                               
matching  funds for  the University  of Alaska  budget and  other                                                               
programs, and  asked, "Are  we right that  the four  dollars from                                                               
Washington, DC  that gets  spent in Alaska  has the  same impact,                                                               
generally speaking, as the dollar we supply?"                                                                                   
DR. KNAPP explained that the  impact on the construction industry                                                               
is the  same whether the state  or federal government pays  for a                                                               
project.   Approximately one-third  of the state's  economy comes                                                               
from the federal  government.  He continued, " ...  the impact on                                                               
the economy  is four  times as  great if  you cut  something that                                                               
brings   in  matching   funding."     In   further  response   to                                                               
Representative  Josephson,  Dr.  Knapp said  that  the  potential                                                               
impact of  migration from  rural villages listed  on slide  19 is                                                               
due to the  closing of small schools, which could  lead to higher                                                               
social  service costs  in  urban  areas.   He  urged for  further                                                               
testimony on all of the potential impacts listed on slide 19.                                                                   
4:43:39 PM                                                                                                                    
REPRESENTATIVE   HUGHES  stated   that   she  is   open  to   new                                                               
information; however, she suggested there  is a bias in the study                                                               
because  there  were  many  more  potential  impacts  listed  for                                                               
spending cuts  on slide  18, then for  increased taxes  listed on                                                               
slide  19.    Representative  Hughes   encouraged  Dr.  Knapp  to                                                               
reconsider  whether   the  information  presented  is   truly  an                                                               
objective approach.                                                                                                             
DR. KNAPP acknowledged Representative  Hughes' statement as fair.                                                               
There are many  different kinds of spending, thus  there are many                                                               
impacts related to  spending cuts, but how an  income tax affects                                                               
the economy  "can be boiled  down to one  or two questions."   He                                                               
agreed to provide a better perception.                                                                                          
4:46:35 PM                                                                                                                    
        HB 304-ELECTRNC TAX RETURNS;TOBACCO & E-CIGS TAX                                                                    
CHAIR OLSON announced  that the final order of  business would be                                                               
HOUSE BILL NO.  304, "An Act requiring  the electronic submission                                                               
of  a  tax return  or  report  with  the Department  of  Revenue;                                                               
relating to the taxes on  cigarettes and tobacco products; taxing                                                               
electronic smoking  products; adding a definition  of 'electronic                                                               
smoking product'; and providing for an effective date."                                                                         
4:46:40 PM                                                                                                                    
CHAIR OLSON reopened public testimony on HB 304.                                                                                
4:47:30 PM                                                                                                                    
STEPHANIE CHILTON,  Owner, High Voltage Vapes,  urged members not                                                               
to support  HB 304 because  it would  cripple her business.   Her                                                               
husband  previously worked  in the  oil  field and  her home  and                                                               
livelihood depends on the success  of her business to support her                                                               
family  of five.   She  has  closed one  shop and  laid off  four                                                               
employees already.  The bill will  cause the state to lose income                                                               
from  the  taxes that  businesses  are  currently paying  because                                                               
customers   will  shop   online  instead   of  supporting   local                                                               
4:48:49 PM                                                                                                                    
TRISTAN  TALIESIN informed  the committee  he began  vaping seven                                                               
months ago  and successfully quit smoking  tobacco products after                                                               
twenty-eight years.   The  bill would force  him to  buy products                                                               
online and if  the local shop raises its prices  he will not shop                                                               
locally.    He votes  and  lives  in  Alaska  and served  in  the                                                               
military.   Mr.  Taliesin stressed  that e-cigarettes  and vaping                                                               
are  a  consumer-driven  market  as  an  alternative  to  smoking                                                               
tobacco products;  laws may cause him  to spend his money  out of                                                               
state or overseas.                                                                                                              
4:50:35 PM                                                                                                                    
SETH  PARKER  said vaping  saved  his  life  when he  started  in                                                               
January 2015.   The bill would hurt local  businesses and destroy                                                               
the vaper  industry in Alaska, and  will force him as  a consumer                                                               
to  take  his money  out-of-state,  even  if  he prefers  to  buy                                                               
4:51:59 PM                                                                                                                    
JORDAN EDWARDS  said he  has lived  in Alaska for  30 years.   He                                                               
said he  smoked for ten  years and quit  five years ago  by using                                                               
vaper products.   He urged  the committee to consider  the impact                                                               
of HB  304 on  small shops,  local consumers,  and the  public in                                                               
Alaska.   He opined  that vaping  is not smoking  as stated  in a                                                               
recent legal case.  If a  100 percent wholesale tax takes effect,                                                               
shops will  not be able  to compete and all  of the shops  in the                                                               
Matanuska-Susitna area will  close.  Mr. Edwards  warned that all                                                               
vapers will return  to smoking or will  purchase products online,                                                               
and the  first line  of defense against  underage vaping  will be                                                               
stopped.  Currently, shops ask  for identification, and kids will                                                               
turn  to online  purchases by  the use  of prepaid  credit cards.                                                               
All consumers will turn to  Internet purchases, resulting in lost                                                               
jobs, lost  taxes, lost  in-state commerce  and revenue,  and the                                                               
state  will suffer  far  greater  than if  a  realistic tax  were                                                               
chosen.   He concluded,  saying that during  the next  decade one                                                               
billion people will die  worldwide from tobacco-related illnesses                                                               
if vaping products are demonized.                                                                                               
4:54:00 PM                                                                                                                    
ELIZABETH RIPLEY,  Executive Director, Mat-Su  Health Foundation,                                                               
informed  the committee  her  organization's  board of  directors                                                               
strongly supports  HB 304 for  the following reasons:   increased                                                               
tobacco taxes reduce youth and  adult smoking rates; the proposed                                                               
tax includes  e-cigarette products,  which are  currently outside                                                               
of Alaska's laws and tax  structures.  Higher taxes prevent youth                                                               
tobacco use and  reduce health care costs; for  example, in 2005,                                                               
a tax  of $1 per  pack in the Matanuska-Susitna  (Mat-Su) Borough                                                               
and  an additional  $1  per  pack state  tax  were effective  and                                                               
decreased  smoking  58 percent  for  Mat-Su  middle schoolers,  8                                                               
percent   for  traditional   high  schoolers,   22  percent   for                                                               
alternative  high schoolers,  and  35 percent  for  adults.   Ms.                                                               
Ripley said  these decreases were  a health and economic  win for                                                               
affected individuals,  their families, and for  communities.  The                                                               
foundation  also  supports  the   bill  because  it  includes  e-                                                               
cigarette  products, which  are  perceived by  adolescents to  be                                                               
safer than traditional  cigarettes.  She said  e-cigarettes are a                                                               
"grooming tool," which allows kids  to become addicted to tobacco                                                               
and nicotine  using flavors such as  bubble gum and Skittles.   A                                                               
report in  2015 showed  that ninth  graders who  use e-cigarettes                                                               
were three  times more  likely to  switch to  combustible tobacco                                                               
products [report not provided].   She urged the committee to pass                                                               
HB  304 in  order  to protect  all of  Alaska's  children and  to                                                               
improve the health of the Alaska population.                                                                                    
REPRESENTATIVE  JOSEPHSON   asked  Ms.  Ripley  to   provide  the                                                               
committee with the abovementioned report.                                                                                       
4:57:06 PM                                                                                                                    
ALISON HALPIN stated  her opposition to HB 304.   Ms. Halpin said                                                               
she is  an [e-liquid]  manufacturer, a vape  shop manager,  and a                                                               
consumer who  would be  affected by the  proposed tax.   Firstly,                                                               
she  would  be  taxed  for manufacturing  [e-liquids]  for  sale;                                                               
secondly, her  retail location would  be taxed; and  finally, she                                                               
would have  to pay a  higher price for  products.  The  tax would                                                               
decimate an industry which helps  people stop smoking, as she was                                                               
able to with a personalized  vaporizer, and she has helped others                                                               
quit smoking.  The tax  would push customers to online retailers.                                                               
Ms. Halpin said vape shops are  the first line of defense against                                                               
underage vaping.  Demographics indicate  the people who smoke are                                                               
individuals who  suffer from depression  and mental  illness, are                                                               
low-income, and  are in high-stress environments;  the bill would                                                               
remove vaping as an option for those who want to stop.                                                                          
4:58:47 PM                                                                                                                    
ERIC VARGASON  said he opposes  the tax because shops  will close                                                               
and force people  to shop online, and consumers  will not receive                                                               
instruction on  battery safety and support  for quitting smoking.                                                               
Most  importantly,  vape  shops  check  identification  and  shun                                                               
people under the  age of 19 away  from vaping.  The  tax will put                                                               
people out of  work, close shops, and remove  the opportunity for                                                               
people to quit smoking.                                                                                                         
5:00:32 PM                                                                                                                    
ANGELA CARROLL said she was speaking  on behalf of members of the                                                               
Smoke-Free  Alternatives Trade  Association.   If HB  304 becomes                                                               
law,  the  bill  would  tax  vape  products  at  100  percent  of                                                               
wholesale  price   and  treat  alternative  products   just  like                                                               
cigarettes.    According  to the  Department  of  Revenue,  small                                                               
operations would be required to  carry tobacco licenses issued by                                                               
the state  as if they  were selling tobacco products,  which they                                                               
are not.  She said categorizing  vape products into a tobacco tax                                                               
scheme  is  the  wrong  approach.    Ms.  Carroll  described  the                                                               
paperwork required  by the bill,  and she urged the  committee to                                                               
review  the  forms.   The  remainder  of  her testimony  will  be                                                               
submitted in written form.                                                                                                      
5:02:53 PM                                                                                                                    
JAMES  BRIGGS  said he  owns  an  e-liquid company  called  Peche                                                               
Foggin  Sauce.   Mr. Briggs  expressed his  opposition to  HB 304                                                               
because the  proposed wholesale tax  will hurt him as  a consumer                                                               
and  drive  him out  of  business.    The  tax will  close  local                                                               
businesses  and  drive  consumers  to  online  sales.    E-liquid                                                               
contains  "pg,  vg,"  artificial   and  natural  flavorings,  and                                                               
sometimes nicotine.   The ingredients vary in price  from $30 per                                                               
gallon to  $200 per gallon,  and nicotine costs $300  per gallon.                                                               
The tax  will double his costs  and the price of  his product, so                                                               
consumers will  turn to online vendors,  ultimately hurting state                                                               
taxes.   Also, some will  return to combustible  cigarettes which                                                               
contain 4,000 chemicals and known  carcinogens.  Mr. Briggs urged                                                               
the committee to oppose the tax.                                                                                                
5:04:34 PM                                                                                                                    
CHAIR OLSON closed public testimony.                                                                                            
[HB 304 was held over.]                                                                                                         
5:05:25 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
5:05 p.m.                                                                                                                       

Document Name Date/Time Subjects
HB304 Opposing Documents-Email Alison Halpin 03-02-16.pdf HL&C 3/2/2016 3:15:00 PM
HB 304
HB304 Opposing Documents-Email Sheb Garfield 02-24-16.pdf HL&C 3/2/2016 3:15:00 PM
HB 304
HB304 Opposing Documents-Tobacco tax forms-Ang Carroll-SFTAT-03-02-16.PDF HL&C 3/2/2016 3:15:00 PM
HB 304
HB304 Opposing Documents-Written Testimony-Alison Halpin 02-26-16.pdf HL&C 3/2/2016 3:15:00 PM
HB 304
HB304 Opposing Documents-Email Chuck Butler 03-01-16.pdf HL&C 3/2/2016 3:15:00 PM
HB 304
HB304 Opposing Documents-Email Isaac Howell 03-01-16.pdf HL&C 3/2/2016 3:15:00 PM
HB 304
HB304 Opposing Documents-Email Jay Oku 03-02-16.pdf HL&C 3/2/2016 3:15:00 PM
HB 304
ISER Economic Impacts study-New slides for remainder of Gunnar Knapp testimony 03-02-16.pdf HL&C 3/2/2016 3:15:00 PM
ISER Presentation - New Slides for remainder of Gunnar Knapp testimony