Legislature(2003 - 2004)
04/04/2003 03:19 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 4, 2003
3:19 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Bob Lynn, Vice Chair
Representative Nancy Dahlstrom
Representative Carl Gatto
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
Representative Norman Rokeberg
COMMITTEE CALENDAR
HOUSE BILL NO. 155
"An Act relating to the submission of payroll information by
contractors and subcontractors performing work on a public
construction contract; and providing for an effective date."
- MOVED CSHB 155(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 162
"An Act increasing the fee for a state business license; and
providing for an effective date."
- MOVED CSHB 162(L&C) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 155
SHORT TITLE:PUBLIC CONSTRUCTION PROJECT REQUIREMENTS
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
03/05/03 0423 (H) READ THE FIRST TIME -
REFERRALS
03/05/03 0423 (H) L&C, FIN
03/05/03 0423 (H) FN1: (LWF)
03/05/03 0423 (H) GOVERNOR'S TRANSMITTAL LETTER
03/14/03 (H) L&C AT 3:15 PM CAPITOL 17
03/14/03 (H) Heard & Held
03/14/03 (H) MINUTE(L&C)
04/04/03 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 162
SHORT TITLE:INCREASE BUSINESS LICENSE FEE
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
03/05/03 0432 (H) READ THE FIRST TIME -
REFERRALS
03/05/03 0432 (H) L&C, FIN
03/05/03 0433 (H) FN1: (CED)
03/05/03 0433 (H) GOVERNOR'S TRANSMITTAL LETTER
03/12/03 (H) L&C AT 4:00 PM CAPITOL 17
03/12/03 (H) Heard & Held
03/12/03 (H) MINUTE(L&C)
03/28/03 (H) L&C AT 3:15 PM CAPITOL 17
03/28/03 (H) <Bill Hearing Postponed to
04/04/03
04/04/03 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
DICK CATTANACH, Executive Director
Associated General Contractors
Anchorage, Alaska
POSITION STATEMENT: Offered five suggested changes to the
proposed committee substitute (CS) for HB 155.
GREG O'CLARAY, Commissioner
Department of Labor & Workforce Development
Juneau, Alaska
POSITION STATEMENT: Supported the proposed CS to HB 155 and
commented on suggestions offered by other witnesses.
RON TRUINI
Ironworkers Local 751
Anchorage, Alaska
POSITION STATEMENT: Suggested several revisions to the proposed
CSHB 155.
VINCE BELTRAMI
IBEW Local 1547
Anchorage, Alaska
POSITION STATEMENT: Asked whether payroll reports will continue
to be sent to the department under the proposed CSHB 155;
expressed concern that new user fees will not be dedicated to
enforcement of the prevailing wage program.
CHRIS TUCK
IBEW Local 1547
Anchorage, Alaska
POSITION STATEMENT: Supported proposed revisions in the
proposed CSHB 155 regarding contractors, subcontractors, and
employers.
CHUCK WIEGERS
ABC [Associated Builders and Contractors] Alaska
Fairbanks, Alaska
POSITION STATEMENT: Testified on the proposed CSHB 155, noting
that current law still gives the department the teeth to enforce
the prevailing wage laws.
JOHN BROWN, President,
Fairbanks Central Labor Council
Fairbanks, Alaska
POSITION STATEMENT: During his testimony on the proposed CSHB
155, stressed the importance of user fees flowing back to the
department to support enforcement activities.
NANCY PETERSON
City of Valdez
Valdez, Alaska
POSITION STATEMENT: Supported the changes in the proposed CSHB
155, particularly retaining the department as the collection
point for the certified payroll reports.
DON ETHERIDGE, Lobbyist
for Alaska State AFL-CIO
Juneau, Alaska
POSITION STATEMENT: Testified on the proposed CSHB 155,
supporting the sending of payroll reports to the department and
urging the dedication of user fees to support enforcement
activities.
PAULA SCAVERA, Special Assistant
Office of the Commissioner
Department of Labor & Workforce Development
Juneau, Alaska
POSITION STATEMENT: During testimony on the proposed CSHB 155,
explained how a department "form" can be paper or electronic.
RICK URION, Director
Division of Occupational Licensing
Department of Community & Economic Development (DCED)
Juneau, Alaska
POSITION STATEMENT: Answered questions on HB 162.
DON JOHNSON, Fishing Charter Operator
Kenai, Alaska
POSITION STATEMENT: Expressed concerns with HB 162.
JOSH APPLEBEE, Staff
to Representative Tom Anderson
House Labor and Commerce Standing Committee
Alaska State Legislature
POSITION STATEMENT: Provided information with regard to fee
changes under HB 162.
ACTION NARRATIVE
TAPE 03-28, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 3:19 p.m. Representatives
Anderson, Lynn, Dahlstrom, Gatto, and Crawford were present at
the call to order. Representative Guttenberg arrived as the
meeting was in progress.
HB 155-PUBLIC CONSTRUCTION PROJECT REQUIREMENTS
Number 0060
CHAIR ANDERSON announced that the first order of business would
be HOUSE BILL NO. 155, "An Act relating to the submission of
payroll information by contractors and subcontractors performing
work on a public construction contract; and providing for an
effective date."
Number 0083
REPRESENTATIVE DAHLSTROM moved to adopt the proposed committee
substitute (CS) for HB 155, Version 23-GH1119\D, Craver, 4/3/03,
as the working document. There being no objection, Version D
was before the committee.
CHAIR ANDERSON noted that this CS resolves many of the issues
raised during testimony at the earlier hearing. Section 1 was
revised so that submission of certified payroll reports is every
two weeks instead of weekly, and it removes the requirement to
submit the reports to the contracting agencies.
CHAIR ANDERSON noted that Section 2 of the CS states that the
general contractor will pay all fees for the entire project at
the beginning of the project -- the contractor's fee plus a fee
for each subcontractor. The second part of Section 2 creates a
sliding scale for the fee based on the contract amounts as
follows: under $5,000 - no fee; $5,000 to $10,000 - $100 fee;
$10,000 to $50,000 - $150 fee; $50,000 to $500,000 - $200 fee;
$500,000 to $1 million - $250 fee; and $1 million and up - $300
fee. The maximum fee to be paid by the contractor would be
$5,000. He noted that Sections 3 and 4 of the CS are unchanged
from the original bill. Section 5 directs the Department of
Labor & Workforce Development to computerize the submission
process for certified payroll reports.
Number 0250
CHAIR ANDERSON described Conceptual Amendment 1, which read as
follows:
1. Need exemption for emergencies (such as the wind disaster
in Anchorage) to allow work to begin and then file notice
of intent to pay prevailing wage.
2. Clarify that jobs under $5,000 are exempt from the fee but
not from filing notice of intent and an affidavit of
compliance.
3. Make language consistent (e.g. the terms "contractor" and
"subcontractor" need to be used consistently instead of
"employer").
Number 0319
CHAIR ANDERSON moved to adopt Conceptual Amendment 1. There
being no objection, it was so ordered.
The committee took an at-ease from 3:25 to 3:27 p.m.
Number 0497
DICK CATTANACH, Executive Director, Associated General
Contractors (AGC), Anchorage, noted that construction is a cost-
pass-through industry, so the AGC can support the concept of
[the fees in] this bill. He said that the costs would be passed
on to the ultimate owners, in this case, the state, the
municipality, and the various political subdivisions. He said
he will suggest ways to make CSHB 155 work better. In Section
1, which requires the submission of certified payroll reports
every second Friday, a company with numerous jobs could end up
reporting every week. He suggested reporting all previously
unreported payroll on the second and fourth Fridays, then every
contractor would be reporting consistently on the same Friday.
This would help reduce paperwork, he said.
Number 0578
MR. CATTANACH recommended in Section 2 that the minimum
[threshold for contracts for purposes of calculating fees] be
changed from $5,000 to at least $25,000. He also recommended
that the fee be a percentage of the contract amount, up to the
maximum of $5,000. For example, a contract between $50,000 and
$500,000 would result in a fee between $500 and $5,000 per job.
This avoids burdening the contractor with additional accounting
just to figure out how much he has to pay.
CHAIR ANDERSON asked how it was a burden to add up the total
amounts of a job.
Number 0660
MR. CATTANACH replied that depending on the size of the job,
general contractors have from five to fifteen specialty
contractors working under them; he would have to aggregate those
subcontracts to see how much he would have to pay. He suggested
its simpler to take a percentage on the general contractor's
total rather than the general contractor's job plus the
associated subcontractors. He suggesting taking a simple one
percent if the goal of this section of the bill is to raise
money.
MR. CATTANACH pointed out problems with Section 2, subsection
(c), on page 3, lines 3-7, which appears to hold up the final
payment if one subcontractor has not signed the required
affidavit of compliance. He said that this holds hostage all
the good subcontractors who have signed the affidavit and
followed the law. The provision puts enforcement on the
contractor and that's not where it belongs, he said. He asked
that this subsection be deleted or reconsidered.
MR. CATTANACH questioned the purpose of Section 4, page 3,
starting on line 18 [which states that contractors starting work
before the July 1, 2003, effective date] must file a notice of
intent but no fee. He said he didn't see what the state gains
with this section. Rather, he suggested leaving existing
contracts out of the bill, and making the bill apply to all new
contracts issued on or before July 1, 2003, and making it a part
of the required contract language. He suggested allowing for
electronic reporting to the extent possible.
Number 0899
MR. CATTANACH, at the request of Chair Anderson, restated his
five suggested changes to the CS. 1) In Section 1, file reports
the second and fourth Friday of the month for all payroll that
has been incurred since the last reporting period, rather than
every two weeks. 2A) In Section 2, change the minimum contract
size from $5,000 to $50,000. 2B) For contracts from $50,000 to
$500,000, calculate a simple fee of 1 percent calculated on the
general contractor's contract. 3) Delete Section 2, subsection
(c) because it allows one subcontractor who doesn't sign an
affidavit to hold up payments to all other subcontractors. 4)
Delete Section 4 because it requires a notice of intent from an
ongoing project. 5) Expand the concept of electronic filing of
certified payroll reports and allow those to be filed with the
affidavits.
Number 1083
REPRESENTATIVE CRAWFORD noted his agreement with Mr. Cattanach's
points. He said, however, that HB 155 is a smoke and mirrors
way of raising revenue; all it does is add to the cost of public
construction, which will be paid by the public entity that
contracts to build a school or a road. This money won't flow to
the Department of Labor & Workforce Development; it's not a fee
to help fund their programs. If it's a tax, he suggested
calling it a tax. He said he doesn't agree with the premise of
the bill.
Number 1179
GREG O'CLARAY, Commissioner, Department of Labor & Workforce
Development, stated that the CS is an improvement over the
original HB 155. The department supports Conceptual Amendment
1. He said he disagreed with Mr. Cattanach's suggested $50,000
as a minimum size contract; he preferred using $25,000 for the
minimum size of contracts. He said he agreed with using the 1
percent to calculate the general contractor's fee because the
fee increases with the size of the contract.
Number 1316
CHAIR ANDERSON summarized Commissioner O'Claray's response to
Mr. Cattanach's five points. 1) Commissioner O'Claray agreed
with filing certified payroll reports on the second and fourth
Fridays. 2) He preferred starting the fees with $25,000
contracts and a 1 percent fee to calculate the contractor's fee.
3) He did not agree with deleting subsection 2(c) because it
gives the department teeth to enforce the prevailing wage law,
especially with a general contractor who is out of compliance.
He said there should be a way for the department to address the
problem of a subcontractor who is out of compliance so that
others would not be penalized. 4) He agreed that Section 4 can
be deleted because current law requires reporting, and the
effective date of the bill will determine when the new fees are
collected.
MR. CATTANACH clarified his fifth point about electronic filing
and noted that it's already contained in the CS.
Number 1591
REPRESENTATIVE GUTTENBERG asked about holding a prime contractor
responsible for a subcontractor filing on time. He noted that
it's a set of teeth to keep the subcontractor in line.
COMMISSIONER O'CLARAY said he agreed in concept but was trying
to avoid holding up a payment to a prime contractor because a
bad subcontractor had "gone south." He said he wants to be able
to hold up payment to the subcontractor.
Number 1688
MR. CATTANACH described a typical final pay request on a project
that might have 15 subcontractors. This bill would hold up
payment to the single subcontractor who hasn't filed the
affidavit of compliance as well as payments to the prime
contractor and the 14 other subcontractors. He suggested that
if contractors don't comply with the rules, disbar them, and
don't allow them to bid on any more projects until they comply.
He asked why one would penalize the contractors who play by the
rules.
REPRESENTATIVE GUTTENBERG said he'd support an amendment to deal
with this issue.
REPRESENTATIVE CRAWFORD said he wholeheartedly agreed with the
need to disbar people who violate the Little Davis-Bacon Act [AS
36.05]. He said he has investigated several instances of
companies that do this repeatedly. But he said it's not clear
how to incorporate that issue into this bill.
Number 1782
REPRESENTATIVE GATTO asked what happens if it is the contractor
who goes south [thereby holding up payments to the
subcontractors].
COMMISSIONER O'CLARAY explained that is exactly the issue being
debated. The bill gives the department the authority to
withhold payment in order to force compliance with the newly
required reports. He said the bill gives the department enough
teeth to keep the contractor from going south. He said he'd
prefer to see CSHB 155 move out of committee, and perhaps the
disadvantage to the subcontractor could be addressed by a future
committee.
Number 1861
RON TRUINI, Ironworkers Local 751, proposed several changes to
clarify payroll reports and employers.
REPRESENTATIVE CRAWFORD noted that Mr. Truini's concerns were
already covered in Conceptual Amendment 1.
Number 1958
VINCE BELTRAMI, IBEW, [International Brotherhood of Electrical
Workers] Local 1547, asked for confirmation that the proposed
CSHB 155 will continue having the contractors send the certified
payroll reports directly to the Department of Labor & Workforce
Development. He also confirmed that contractors can continue to
submit written payroll reports after the July 1, 2004, deadline
when the department starts accepting electronic reports. He
expressed concern regarding whether this bill raised revenue
earmarked for the department. He asked the commissioner to
comment about whether these funds will prevent cuts to the Title
36 [wage enforcement programs].
Number 2052
COMMISSIONER O'CLARAY responded that he could not guarantee that
the money raised by CSHB 155 would flow to the Department of
Labor & Workforce Development. The user fees will be deposited
to the general fund. He said he hoped that these funds would
[prevent] future cuts to the enforcement section of the
[Division of Standards and Safety]. He said he will advocate
for retaining the funding for this program. He responded to
another question from Mr. Beltrami, saying that the House
Finance Standing Committee will be making decisions about the
governor's proposed FY 04 budget. There's always the potential
that Title [36] programs could be impacted, he said.
Number 2161
CHRIS TUCK, IBEW Local 1547, stated that his concerns have been
voiced by previous speakers. He confirmed that the language for
contractors and subcontractors in the proposed CSHB 155 has been
amended.
MR. TRUINI suggested on page 1, line 8, deleting "wages paid"
and inserting "payroll reports".
REPRESENTATIVE CRAWFORD noted that the wording in question is
the current statute that has been in effect for quite a while.
He reiterated that all of Mr. Truini's concerns have been dealt
with in Conceptual Amendment 1.
Number 2267
CHUCK WIEGERS, ABC [Associated Builders and Contractors] Alaska,
Fairbanks, noted that his issues have been addressed. He did
note that under the current law, the department can ask the
attorney general to prosecute any contractor who is not paying
the prevailing wage; the teeth are still present in the law.
Number 2287
JOHN BROWN, President, [Fairbanks] Central Labor Council,
stressed that the department needs the funds necessary to make
the prevailing wage law work. Enforcement activities have been
underfunded, he said.
REPRESENTATIVE CRAWFORD responded that if these user fees were
designated as program receipts, the money could be used for
enforcement. As the bill is written, all this money will go
directly into the general fund, so the [proposed CSHB 155] will
raise the cost of construction but won't really help the budget
of the department.
Number 2348
NANCY PETERSON, City of Valdez, expressed appreciation for the
changes in Section 1 of CSHB 155, keeping the certified payroll
reports flowing to the Department of Labor & Workforce
Development. She noted concerns with Section 2, subsection (c),
withholding of final payment because it will place a burden on
the local contracting agency that will have to pay interest
while the department determines whether all the requirements
have been met.
TAPE 03-28, SIDE B
Number 2375
REPRESENTATIVE GUTTENBERG asked where Valdez will find the funds
to pay the fees that the contractor will pass on to the city.
MS. PETERSON said the fees being charged [and passed on to the
City of Valdez by the contractors] will result in a small
increase in the cost of the project. She said she was pleased
to see that the changes in the proposed CS require the
department to monitor the certified payrolls [rather than
assigning the task to the contracting agencies].
Number 2284
DON ETHERIDGE, Lobbyist for Alaska State AFL-CIO [American
Federation of Labor and Congress of Industrial Organizations],
said his group supports the changes in the proposed CSHB 155,
especially with the certified payroll reports remaining with the
department. He also urged a method directing the user fees to
the department, which he acknowledged is a different battle.
CHAIR ANDERSON pondered the need for a second conceptual
amendment which incorporates the commissioner's suggested
changes. These changes would be: Changing Section 1 to
reporting on the second and fourth Fridays for all payroll
incurred; changing Section 2, raising the minimum contract limit
from $5,000 to $50,000 [per Mr. Cattanach] or $25,000 as
recommended by the commissioner; use a 1 percent figure to
calculate the fee above $50,000 instead of a sliding scale;
leaving in the notice element in Section 4, per the
commissioner, or removing it, per Mr. Cattanach.
Number 2181
REPRESENTATIVE GATTO suggested clarifying the interim periods
between the second and fourth Friday deadlines of every month.
He suggested deleting "two weeks" and inserting "the previous
reporting period" on page 1, line 12.
COMMISSIONER O'CLARAY agreed that "the previous reporting
period" is a good clarification.
Number 2099
CHAIR ANDERSON reviewed the possible changes for Conceptual
Amendment 2.
REPRESENTATIVE GATTO reiterated his suggestion of deleting "two
weeks" and inserting "the previous reporting period" on page 1,
line 12.
CHAIR ANDERSON confirmed that the second change [on page 2,
lines 19-28] would set the minimum contract at $25,000, per the
commissioner's preference, and use the 1 percent calculation for
the fees instead of the stepped amounts. He confirmed that the
committee did not want to delete subsection 2(c) because the
commissioner opposed this action.
Number 2007
REPRESENTATIVE CRAWFORD said he hated that [the final payment]
could be held up because of one bad actor, but the law needs
teeth to do the right thing.
CHAIR ANDERSON said he believes Section 4 of the CS needs to
remain in place and thinks it has been misread. If not, he said
he's willing to work to change it before it goes to the House
finance committee.
REPRESENTATIVE GATTO asked whether the language "on a form
provided by" on page 2, line 1, refers to a paper form or an
electronic form. He noted that the CS uses both "form" and
"electronic filing".
Number 1933
PAULA SCAVERA, Special Assistant, Office of the Commissioner,
Department of Labor & Workforce Development, said that the word
"form", found in various state laws, means paper or electronic.
Number 1901
CHAIR ANDERSON summarized Conceptual Amendment 2 as follows:
1. Page 1, line 12 - After the word "previous", delete "two
weeks" and insert "reporting period".
2. In Section 2 adjust the minimum contract price to $25,000.
Additionally, the sliding scale needs to be removed and
replaced with a flat 1 percent of the total contract price
for all qualifying jobs.
REPRESENTATIVE GATTO asked for clarification on whether the
contract total refers to the sum total or only the amount above
$25,000.
CHAIR ANDERSON confirmed the amount is the total contract.
Number 1856
CHAIR ANDERSON moved to adopt Conceptual Amendment 2. There
being no objection, it was so ordered.
Number 1836
REPRESENTATIVE DAHLSTROM [moved to adopt Amendment 3, 23-
GH1119\A.1, Craver, 3/19/03, with line numbers on page 3 hand-
corrected to reflect Version D of HB 155] which read as follows:
Page 1, line 1, following "relating to":
Insert "the definition of 'public construction'
for purposes of paying prevailing wages, and to"
Page 3, lines 1 - 3:
Delete all material and insert:
"Sec. 36.05.900. Definitions. In this chapter,
(1) "contracting agency" means the state or
a political subdivision of the state that has entered
into a public construction contact with a contractor;
(2) "public construction" does not include
rehabilitation, alteration, extension, or repair,
structural or otherwise, undertaken by tenants of a
building owned or controlled by the state for
government or public use after the initial
construction or acquisition of the building by the
state, notwithstanding AS 36.95.010."
REPRESENTATIVE DAHLSTROM explained that she was presenting
Representative Rokeberg's amendment because he was not able to
attend today's meeting. She referred to his accompanying cover
memo in each member's bill packet.
Number 1753
REPRESENTATIVE CRAWFORD objected to Amendment 3. He stated that
this would be a huge change in [AS 36.05, Wages and Hours of
Labor] and would not have the general agreement of the various
parties who worked on the CS. He said it's a huge change to
remove rehabilitation, alternations, extensions, or repairs [of
buildings] from the Little Davis-Bacon Act. No one has
contemplated this kind of a change in the law, he said. He
explained that he has worked on a rehabilitation of a public
building that was worth many millions of dollars.
COMMISSIONER O'CLARAY acknowledged that Amendment 3 would have a
major negative impact on the prevailing wage rate law.
[Renovations of buildings] account for about 50 percent of
construction projects, he said. The department could not
support this amendment, and it would be a deal breaker on the
CS.
REPRESENTATIVE GUTTENBERG stated that adopting this [amendment]
would make the legislation a different bill. It is an entirely
new concept with an entirely new constituency that would want to
testify. [This amendment] goes to the core issues of the
prevailing wage law, he said. It would be a disservice to this
bill and the work accomplished by the various players to open
the bill up to a [change] this large and wide.
Number 1570
A roll call vote was taken. No Representatives voted in favor
of proposed Amendment 3. Representatives Guttenberg, Crawford,
Dahlstrom, Gatto, Lynn, and Anderson voted against it.
Therefore, Amendment 3 failed by a vote of 0-6.
CHAIR ANDERSON closed testimony and debate on the bill.
Number 1560
REPRESENTATIVE DAHLSTROM moved to report CSHB 155, Version 23-
GH1119\D, Craver, 4/3/03, as amended, out of committee with
individual recommendations and the accompanying fiscal note.
There being no objection, CSHB 155(L&C) was reported from the
House Labor and Commerce Standing Committee.
HB 162-INCREASE BUSINESS LICENSE FEE
Number 1529
CHAIR ANDERSON announced that the final order of business would
be HOUSE BILL NO. 162, "An Act increasing the fee for a state
business license; and providing for an effective date."
CHAIR ANDERSON reminded the committee that at the March 12,
2003, hearing HB 162 was amended to tier the fee costs as
follows:
0-5 employees - $50 per year
6-25 employees - $100 per year
26-plus employees - $200 per year
CHAIR ANDERSON noted that committee members should have a
spreadsheet in which the groupings [of employees] were slightly
revised as follows: 0-4, 5-19, and 20-plus. The spreadsheet
illustrates what the governor's legislation will yield with the
various changes in fees. He asked members to review the chart
and decide whether there should be another amendment to the
legislation in order to increase the amount or whether this
tiered approach is sufficient.
Number 1379
RICK URION, Director, Division of Occupational Licensing,
Department of Community & Economic Development (DCED),
acknowledged that [the design of the bill] is the legislature's
decision. However, he remarked that it would be best to keep
the [fee system] simple. Mr. Urion highlighted that this
legislation does bring in a lot of revenue and most business
owners don't mind paying that fee.
Number 1350
DON JOHNSON, Fishing Charter Operator, informed the committee
that he has a charter operation on the Kenai River and that in
the 1980s there were no fees. Mr. Johnson pointed out that he
is now paying between $3,000-$5,000 to put his boat in the
water. This ongoing disregard of the public's willingness to
pay fees is a mistake, he said. This [increase] in the business
license fee is a generic tax on the state's residents who want
to do business, and it discourages business. All these fees get
passed on to the consumer. Mr. Johnson said, in the end, this
[increase] will really hurt the fisheries industry.
REPRESENTATIVE GUTTENBERG asked Mr. Johnson what he viewed as a
reasonable fee for a business license for a year.
MR. JOHNSON clarified that he works in a fishing and hunting
guide business. He noted that this industry has experienced a
tremendous increase in fees, and every time [there is an
increase or a new fee] the comment is made, "No one will mind."
He informed the committee that currently he has to take out a
loan to pay all the fees before [starting his season]. Although
he understands trying to fill in the fiscal gap with a user fee,
he indicated that the fee structure would undermine the fishing
industry. A lot of businesses have more than four, five, or ten
employees, and those businesses will get hammered on this, he
warned.
Number 1155
REPRESENTATIVE GATTO pointed out that 20 years ago, when there
were no fees, 2 million barrels of oil were produced on the
pipeline. However, today there are just about 1 million barrels
of oil produced. This reduction in revenue is part of the
reason for this increase as is the desire to control the amount
of use on the rivers, which indirectly helps those involved in
commercial hunting and fishing.
MR. JOHNSON reiterated that he thought generating revenue with a
user fee is good, but he stressed the person wanting to access
the lake or river should be charged rather than the
businessperson.
CHAIR ANDERSON turned to a chart provided by committee staff.
He explained that the first section lays out [the income for HB
162, as proposed by the governor], with detail for each category
of employees targeted by [the committee]. The second section
desplays the three tiers of income under HB 162, as amended by
the committee, and it illustrates a decrease in total income.
The third section reflects the increase in income if the
business license [fee for small employers] was increased [to
$75] per year. The fourth section reflects the income if the
business license [fee for the small employers] was increased to
$100 per year; it moves the [revenue] closer to the governor's
annual target of $7 million.
Number 0970
JOSH APPLEBEE, Staff to Representative Tom Anderson, House Labor
and Commerce Standing Committee, Alaska State Legislature,
informed the committee that if the 20-plus category of employees
was charged $500 for a business license and the 0-4 category of
employees was charged $75, there would be new revenue in the
amount of $4,244,900.
CHAIR ANDERSON highlighted the need for a balanced approach so
that small companies aren't [favored] while [large] businesses
continue to pay their share. He emphasized that the committee
must develop a reasonable fee that also generates revenue.
REPRESENTATIVE CRAWFORD pointed out that [when a company pays
for] a business license, it obtains a name that no one else can
use, which is worthwhile and for which [there should be a fee].
He said he disagrees with the governor's legislation, which
charges a $200 fee regardless of the size of the business. He
said he favors a modest change in the business fee.
Number 0862
CHAIR ANDERSON proposed the following:
0-4 employees - $75
5-19 employees - $100
20-plus employees - $200
He inquired as to how much more revenue would be generated by
changing the 0-4 employees category to $75, as specified above.
He noted that the current legislation before the committee
[example two on the spreadsheet] yields $2,133,675.
MR. APPLEBEE informed the committee that the above change would
result in total annual revenue of $3.611 [million].
CHAIR ANDERSON explained that [this fee structure] would provide
another $1.5 million and would [reach] half of the governor's
target.
Number 0772
REPRESENTATIVE CRAWFORD pointed out that there are many seasonal
jobs that have great fluctuations in the numbers of employees.
When the fee is based on the number of employees, Representative
Crawford said he believes those businesses that temporarily hire
larger numbers of employees will be hurt the worst.
REPRESENTATIVE GATTO asked if there is a breakdown that
addresses sole proprietorships [separately] with the next
category being 2-5 employees.
Number 0660
REPRESENTATIVE GUTTENBERG agreed that there are lots of sole
proprietorships. He also concurred with Representative
Crawford's warning about the impact on seasonal businesses.
MR. URION said that although the division has the number of sole
proprietors, sole proprietors can have employees. With regard
to determining the number of employees, Mr. Urion specified that
those employers who file a quarterly report with the Department
of Labor would be charged a fee on the basis of the number of
employees [specified in the quarterly report]. Therefore,
seasonal [businesses] will have to pay a fee at the high end
[based on the number of employees during their busiest season].
Number 0504
REPRESENTATIVE CRAWFORD posed a situation in which an employee
works for a single contractor [on and off] numerous times
[during the year]. He asked if that employee would be counted
once or each time the person was rehired.
CHAIR ANDERSON pointed out that a contractor wouldn't obtain a
business license for each job but rather for the year.
Therefore, he assumed that the contractor's maximum number of
employees for one year would be [the number considered] when
purchasing the business license the next year.
MR. URION, in response to Representative Crawford, explained
that an employee would [only be counted once], no matter the
number of times the employee worked for the employer in a year.
Number 0398
REPRESENTATIVE LYNN informed the committee that he is a [real
estate] broker associate for a large company in Anchorage. The
company employs probably 100 agents who are independent
contractors. He asked what would happen if the broker of the
large company had his business license based on his number of
employees and each of the independent contractors had their own
license.
MR. URION assumed that a real estate [broker] would have a
business license.
Number 0318
REPRESENTATIVE LYNN said that he didn't have a business license
and he didn't believe anyone [in his position] did either.
Representative Lynn explained that all his commissions come
through the broker, although he is an independent contractor
rather than an employee.
MR. URION related his belief that an independent contractor had
to have a business license. Furthermore, one can't be an
independent contractor and an employee, the individual is one or
the other.
REPRESENTATIVE LYNN requested that Mr. Urion check on that.
CHAIR ANDERSON informed the committee that he has provided Mr.
Applebee with various scenarios to plug into his spreadsheet.
Chair Anderson proposed a hypothetical scenario in which an
employer of 0-4 employees paid $75, 5-19 employees paid $150,
and 20-plus employees paid $300. Chair Anderson reiterated the
need for balance, but mentioned that every other state has a
higher business license fee than Alaska. He expressed the need
to develop a number that brings in additional revenue to pay for
the program and [ease] the budget deficit.
Number 0113
REPRESENTATIVE GUTTENBERG asked if 20 employees is the highest
number that is tracked. He remarked that it would seem
appropriate to increase the fee for employers with 50 or more
employees.
CHAIR ANDERSON said that's something to consider.
REPRESENTATIVE GATTO mentioned a $25 fee plus $10 per employee.
TAPE 03-29, SIDE A
Number 0077
MR. URION indicated that 90 percent of the businesses [in
Alaska] have 0-4 employees. The businesses on the high end [of
employees] are so few that it would make little difference in
[total revenue if fees for those few businesses were higher].
Number 0142
CHAIR ANDERSON gave the committee aide another set of figures to
enter into his computer spreadsheet: $75 for 0-4 employees,
$150 for 5-19 employees, and $200 for 20-plus employees. He
noted that it would total $3,866,575, which is $1.7 million more
than the current amended version of the bill, assuming no
"dropouts" - people who refuse to pay the fee. Chair Anderson
referred to the spreadsheet in committee packets that shows the
amounts under HB 162 as currently amended, in addition to other
scenarios including the governor's proposal under which everyone
would pay $200. He explained that he'd like the total to be at
least $3.5 million, half the revenue requested by the governor
in the original bill. He sought members' input.
Number 0219
REPRESENTATIVE GUTTENBERG suggested seeing how much would be
generated if the fee were $500 for 20-plus employees under that
scenario.
CHAIR ANDERSON mentioned seasonal businesses and so forth,
noting that it is quite a jump from the current $25.
REPRESENTATIVE GUTTENBERG withdrew his suggestion.
CHAIR ANDERSON said there was merit in that thought process.
However, as Mr. Urion had said, 90 percent of Alaskan businesses
have the smaller number of employees, and the higher amount
would apply to so few [businesses] that it wouldn't increase
revenue much.
Number 0323
REPRESENTATIVE DAHLSTROM expressed concern that $3 million isn't
what the governor asked for and that he'll make [budget]
adjustments elsewhere without the legislature's input.
CHAIR ANDERSON asked Mr. Urion whether he believes the $3.8
[million] would be more acceptable than the $2.1 million.
MR. URION said every [increase in revenue] is appreciated.
REPRESENTATIVE DAHLSTROM reiterated her concern [about
additional budget cuts].
Number 0431
CHAIR ANDERSON said [this bill] reminded him of the [sharp
increase] in the alcohol tax last year. He suggested the need
to [increase revenues] in "baby steps" out of fairness.
Number 0440
REPRESENTATIVE CRAWFORD mentioned the 300 percent increase
originally proposed for the alcohol tax. He pointed out that
the governor's proposal [for the business license] would be an
800 percent increase.
REPRESENTATIVE DAHLSTROM highlighted Mr. Urion's testimony that
this is the first increase in 50 years. She said it will affect
her personally too.
REPRESENTATIVE CRAWFORD pointed out that it won't affect
[legislators] nearly as much as it will affect people who aren't
[as well-off financially].
Number 0508
CHAIR ANDERSON returned attention to his recommendation of $75,
$150, and $200. He explained that the biggest increase would be
for businesses with more than 20 employees. They would pay $175
more a year, whereas businesses with 0-4 employees would pay
only $50 more. Acknowledging Representative Dahlstrom's point,
he added, "We're trying to work with the governor to cut costs
and generate revenue."
Number 0557
REPRESENTATIVE GATTO suggested that $200 was too close [to the
$75 and $150 fees]. He proposed $250 or even $300, indicating
it should account for the major difference in the number of
employees.
CHAIR ANDERSON indicated he was asking the committee aide to run
a scenario for $75 and $150, and inquired about $250. He
expressed dislike for $300, saying he wouldn't support such an
amendment.
MR. APPLEBEE said [increasing the fee for large employers]
changes the revenue to $4,022,675.
REPRESENTATIVE DAHLSTROM noted that it is a $400,000 increase.
CHAIR ANDERSON said he believes a $275 increase a year [for a
$300 fee for large employers] is too much and thus he wouldn't
support it because some seasonal companies have 4 or 5 employees
in the winter but 20-plus in the summer. He referred to
Representative Guttenberg's remarks and pointed out that
[ExxonMobil Corporation], for example, is in that 20-plus
category. He suggested perhaps the House Finance Committee
could look at [setting a fee for the large employers] further.
Number 0643
REPRESENTATIVE LYNN raised the possibility of a graduated system
that changes to a percentage of the gross or net revenue after a
certain point.
MR. URION surmised that NFIB [National Federation of Independent
Business] would object and that many businesses wouldn't want to
have to "disclose that to that degree."
CHAIR ANDERSON agreed it is a good idea to look at ways to
capitalize on the larger companies without making the smaller
companies incur debilitating fees. He asked whether anyone had
an amendment to raise the fees at some level in order to get
closer to the governor's requested revenue. He reminded members
that an amendment was adopted at the March 12 meeting that would
bring in $2,133,675.
Number 0760
CHAIR ANDERSON moved to adopt a conceptual amendment such that
$75 would be the fee for 0-4 employees a year, $150 would be the
fee for 5-19 employees a year, and $200 would be retained for
20-plus employees a year; that would yield $3,866,575 if there
were no "dropouts," and would raise revenue over the amended
bill by another $1,700,000. He said he'd like to raise it a
little closer to the amount desired by the governor.
Number 0840
REPRESENTATIVE GUTTENBERG objected. He said the committee aide
had done a good job, but he recalled asking for a larger
spreadsheet to show some different numbers at the previous
meeting. He suggested it would have helped to have had multiple
scenarios "already built in to something." He expressed concern
about the disproportionate burden on [companies with] 0-4 and
15-19 employees compared with [large oil companies like
ExxonMobil Corporation, for example]. He also mentioned
[companies with] seasonal employees and the need to build those
concerns into [the committee's solution]. He said he didn't
think there was a simplistic answer.
CHAIR ANDERSON agreed.
Number 0919
REPRESENTATIVE DAHLSTROM reiterated that this will affect her
and several members of her family, but expressed confidence that
the governor will come up with the $7 million. She said she'd
rather know exactly where it will come from, rather than be
surprised later.
Number 0961
REPRESENTATIVE CRAWFORD acknowledged that it isn't "fun
business" to close a budget gap. He referred to Representative
Guttenberg's comments and said this [amendment] doesn't address
a lot of concerns. For example, a sole proprietor or a business
with one employee could earn $1 million a year, whereas a
company with 100 employees in a year could do only a few hundred
thousand dollars in business. He pointed out that there will be
millions of dollars more to [raise] in future years.
Representative Crawford suggested the need for a broad-based
plan that addresses the whole problem with a phased approach
over a number of years. He said he will wait for a good,
honest-to-goodness fiscal plan.
CHAIR ANDERSON agreed and said he is wearing "two hats." One
[of his concerns] is that there is a budget deficit that must be
addressed immediately. Noting that this is one targeted area
[in which to raise revenues], he said businesses should pay a
little more "business tax," but asked what "a little bit more"
should be. He said he was pleased that the committee passed an
amendment to reduce what the governor proposed, but he now finds
himself in a quandary coming back to the committee and asking
for an amendment that would generate revenue closer to what the
governor targeted. He said that he doesn't hear anyone else
recommending this approach and said that if nobody supports this
amendment, he will withdraw it and pass on the bill as amended
previously. He acknowleged Representative Guttenberg's point
about how the numbers were arrived at, but surmised that
"everybody has an idea on what the categories could be."
Number 1118
REPRESENTATIVE LYNN commented that no combination of numbers
would please everyone and that there is no perfect answer.
Mentioning a desire to provide the revenue sought by the
governor, he said it doesn't seem feasible when [the majority of
the businesses] are mom-and-pop [operations]. Noting that he
does photography on the side and has gladly paid $50 [for a two-
year license] to show his photographs at a Saturday market, he
said he might not have been so eager to do that "hobby business"
if he'd had to pay $75, $150, or $200 [a year]. He admitteded
that the burden falls on those businesses [with 0-4 employees]
because there are more of them. He expressed reluctance about
doing that, however, and said it is too bad the committee cannot
find a way to match [the business license fee] to the income [of
the particular business]. He pointed out that everyone turns in
a tax return, but acknowledged that it is confidential.
Number 1201
REPRESENTATIVE GATTO offered that sole proprietors are smart
people and will [adapt]; for example, they may combine with
others and obtain one license for the amalgamated business.
"You're going to wind up with less money than you think," he
predicted, indicating the numbers proposed by Chair Anderson
were acceptable. He compared Alaska favorably with California,
which is $35 billion in the hole and already has a sales tax and
income tax.
Number 1254
CHAIR ANDERSON withdrew his amendment. He explained that he
believes businesses under the current amended bill would be
paying enough. He suggested revisiting [business license fees]
in the future if the department indicates that the state isn't
"imposing enough business tax to operate." He suggested that
the committee members concur with the witnesses like Mr. Johnson
who say that businesses, with this hike, are paying enough. He
requested a motion to move the bill from committee, stating that
the message from the committee will be: "This is all we want
businesses to pay at this stage, and it can be revisited by
another legislature at another date."
Number 1299
REPRESENTATIVE GATTO moved to report HB 162, as amended, out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 162(L&C) was
reported from the House Labor and Commerce Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:20 p.m.
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