Legislature(2003 - 2004)
04/21/2004 03:30 PM House L&C
| Audio | Topic |
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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 21, 2004
3:30 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Carl Gatto, Vice Chair
Representative Nancy Dahlstrom
Representative Bob Lynn
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 538
"An Act relating to taxes on cigarettes and tobacco products;
relating to tax stamps on cigarettes; relating to forfeiture of
cigarettes and of property used in the manufacture,
transportation, or sale of unstamped cigarettes; relating to
licenses and licensees under the Cigarette Tax Act; and
providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 331
"An Act relating to federal requirements for governmental plan
and other qualifications for the teachers' retirement system,
the public employees' retirement system, and the judicial
retirement system; and providing for an effective date."
- MOVED CSHB 331(STA) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 538
SHORT TITLE: TOBACCO TAX; LICENSING; PENALTIES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
03/18/04 (H) READ THE FIRST TIME - REFERRALS
03/18/04 (H) W&M, L&C, FIN
03/24/04 (H) W&M AT 7:00 AM HOUSE FINANCE 519
03/24/04 (H) Heard & Held
03/24/04 (H) MINUTE(W&M)
03/26/04 (H) W&M AT 7:00 AM HOUSE FINANCE 519
03/26/04 (H) Heard & Held
03/26/04 (H) MINUTE(W&M)
03/31/04 (H) W&M AT 7:00 AM HOUSE FINANCE 519
03/31/04 (H) Heard & Held
03/31/04 (H) MINUTE(W&M)
04/02/04 (H) W&M AT 7:00 AM HOUSE FINANCE 519
04/02/04 (H) Moved CSHB 538(W&M) Out of Committee
04/02/04 (H) MINUTE(W&M)
04/07/04 (H) W&M RPT CS(W&M) NT 4DP 2DNP 1NR 2AM
04/07/04 (H) DP: SAMUELS, GRUENBERG, WILSON, HAWKER;
04/07/04 (H) DNP: KOHRING, MOSES; NR: WEYHRAUCH;
04/07/04 (H) AM: ROKEBERG, OGG
04/21/04 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 331
SHORT TITLE: RETIREMENT:TEACHERS/JUDGES/PUB EMPLOYEES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
05/21/03 (H) READ THE FIRST TIME - REFERRALS
05/21/03 (H) STA, L&C, FIN
03/30/04 (H) STA AT 8:00 AM CAPITOL 102
03/30/04 (H) <Bill Hearing Postponed to 4/1/04>
04/01/04 (H) STA AT 8:00 AM CAPITOL 102
04/01/04 (H) Scheduled But Not Heard
04/06/04 (H) STA AT 8:00 AM CAPITOL 102
04/06/04 (H) Heard & Held
04/06/04 (H) MINUTE(STA)
04/14/04 (H) STA AT 8:00 AM CAPITOL 102
04/14/04 (H) Moved CSHB 331(STA) Out of Committee
04/14/04 (H) MINUTE(STA)
04/15/04 (H) STA RPT CS(STA) NT 3DP 1NR
04/15/04 (H) DP: HOLM, LYNN, WEYHRAUCH; NR: COGHILL
04/19/04 (H) L&C AT 3:15 PM CAPITOL 17
04/19/04 (H) Heard & Held
04/19/04 (H) MINUTE(L&C)
04/21/04 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
JOEL GILBERTSON, Commissioner
Department of Health and Social Services
Juneau, Alaska
POSITION STATEMENT: Presented HB 538 and answered questions.
JOHANNA BALES, Excise Audit Manager
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Explained provisions in HB 538 and proposed
amendments.
ELIZABETH LUCAS, State President
AARP
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 538.
DOÑA WILLIAMS
Teens Against Tobacco Use (TATU)
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 538.
MICHELLE TOOHEY, Director of Public Advocacy
American Lung Association of Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 538.
MICHAEL J. ELERDING, Owner
Northern Sales Company of Alaska, Inc.
Ketchikan, Alaska
POSITION STATEMENT: Testified on HB 538; spoke about the
effects of adopted and proposed amendments on his business.
DAN BOONE
Homer, Alaska
POSITION STATEMENT: Urged passage of HB 538.
DARWIN BIWER
Anchorage Cabaret Hotel Restaurant & Retailers Association
(CHARR)
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 538,
emphasizing the need for education instead.
EMILY E. NENON, Alaska Advocacy Manager
American Cancer Society
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 538.
VERA JAMES
Alaska Native Health Board (ANHB)
Anchorage, Alaska
POSITION STATEMENT: Conveyed ANHB's support for HB 538 and
cited statistics relating to Alaska Native youth.
BOYD McFAIL
Anchorage, Alaska
POSITION STATEMENT: Testified that he doesn't favor the tax
increase in HB 538; agreed with the need for education and
requested an exemption for premium cigars and pipe tobacco.
PATRICIA SENNER, Family Nurse Practitioner
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 538.
ACTION NARRATIVE
TAPE 04-46, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 3:30 p.m. Representatives
Anderson, Gatto, and Rokeberg were present at the call to order;
Representatives Crawford and Guttenberg arrived shortly
thereafter. Representatives Dahlstrom and Lynn arrived as the
meeting was in progress.
HB 538-TOBACCO TAX; LICENSING; PENALTIES
[Contains discussion pertaining to SB 368, the companion bill]
CHAIR ANDERSON announced that the first order of business would
be HOUSE BILL NO. 538, "An Act relating to taxes on cigarettes
and tobacco products; relating to tax stamps on cigarettes;
relating to forfeiture of cigarettes and of property used in the
manufacture, transportation, or sale of unstamped cigarettes;
relating to licenses and licensees under the Cigarette Tax Act;
and providing for an effective date." [HB 538 was sponsored by
the House Rules Standing Committee by request of the governor;
before the committee was CSHB 538(W&M).]
Number 0100
JOEL GILBERTSON, Commissioner, Department of Health and Social
Services, presented HB 538, a $1-a-pack increase in the tobacco
tax that is part of the governor's fiscal package. Increasing
tobacco-product excise taxes is an effective tool in reducing
tobacco consumption and health impacts, he told members.
Calling tobacco the number-one health threat facing the state,
he said it's a leading cause of disability, illness, and death.
Since the tax increase in 1997, when the "$1 per pack" was
implemented, five years of data have shown a 30 percent decline
in cigarette consumption in Alaska. He lauded this
accomplishment of the previous legislature and the advocates who
worked for that increase.
COMMISSIONER GILBERTSON pointed out that young people especially
stand to gain from this legislation. Increasing the unit price
for tobacco products is one of the most effective ways to
prevent young Alaskans from beginning to smoke, he said, noting
that individuals usually begin smoking at an early age, thereby
starting a lifelong addiction. Highlighting the sensitivity of
youths to price increases, he predicted a $1-a-pack increase
will add to the 50 percent decline in smoking by youths seen
since the 1995 Youth Risk Behavior Survey, which he called a
statistically valid survey, and the 2003 survey completed year.
COMMISSIONER GILBERTSON reported that in the last calendar year,
through stepped-up enforcement of the Synar program, a decline
occurred from 30.2 percent to 10 percent in terms of illegal
sales to minors. A further 15 percent drop in youth-smoking
rates expected from this legislation would translate to 1,800
lives saved from premature death due to tobacco consumption.
Number 0290
COMMISSIONER GILBERTSON said increasing the price of tobacco
products is an effective public health and policy tool to
increase the health of adult Alaskans as well. He predicted the
result that 3,500 adult smokers will finally choose to quit and
avail themselves of cessation services provided by the State of
Alaska and in partnership with the [Alaska] Tobacco Control
Alliance (ATCA). For every 3,500 smokers who quit, he said, an
estimated 800 will be saved from smoking-related deaths.
COMMISSIONER GILBERTSON noted that vulnerable populations
include infants who are subjected to in utero exposure to high
nicotine levels; he suggested that smoking by expectant mothers
would be reduced significantly by this legislation, resulting in
850 babies spared from such exposure in the next five years.
COMMISSIONER GILBERTSON also predicted a great impact among
Alaska Natives, who experience a 44 percent smoking rate.
Noting that the Alaska Native Health Board and the Alaska Native
Tribal Health Consortium support this legislation for that
reason, he reported having worked cooperatively through the
tribal organizations and the ATCA to target programs towards the
Native community. He remarked, "We need to do more, and we will
do more going into the future, but this legislation will help
the Native population disproportionately, ... another reason why
this is good legislation."
COMMISSIONER GILBERTSON cited a 1998 study that showed $133
million in tobacco-related medical expenditures in Alaska
because of tobacco consumption, as well as $137 million in lost
productivity just from deaths - not including breaks,
disability, or illness. Noting the large number of econometric
studies on the relationship between price and tobacco use, he
said, "We've looked at the 17 largest, and in each one of them
it did show a correlation between increasing cost of tobacco
products and decreased utilization. We expect that to continue
with this legislation." He informed members that Ms. Bales from
the Department of Revenue would address other aspects including
enforcement provisions and the fiscal note.
Number 0466
REPRESENTATIVE GATTO asked whether this is a revenue measure or
relates more to the effects on children, for example. He said
he thinks this is a good idea and could have an enormous
positive effect on unborn children and in helping to protect
toddlers from secondhand smoke, which is sufficient reason for
him to support the bill. However, he cautioned about possible
unintended health consequences for teenagers who give up smoking
and then may take up some other dangerous and bad habit.
COMMISSIONER GILBERTSON replied that he hadn't seen a single
study suggesting that a price-related decrease in use by minors
has done anything but improve their health status, although he
acknowledged there could be something he wasn't aware of. He
brought attention to a chart that shows a direct correlation
between tobacco price and consumption from 1990 to 2003, with a
health-status increase for young Alaskans and the general
population. He offered to provide further information as well.
Number 0691
REPRESENTATIVE ROKEBERG asked what the administration's position
is on Section 16, page 4, which he'd added in the House Special
Committee on Ways and Means to increase money going to the
smoking education and cessation fund by perhaps $4.2 million, to
fully fund it to levels recommended by the Centers for Disease
Control and Prevention (CDC). He noted that he had amendments
to clarify that language.
COMMISSIONER GILBERTSON apologized that he hadn't been at that
hearing and thus hadn't seen the language as it moved forward;
he related his preference for getting back to Representative
Rokeberg with a more official response from the administration.
Noting that funds are appropriated in the budget annually by the
legislature for tobacco-control programs, he acknowledged that
Alaska and some other states fund this at a lower level than
recommended by CDC, but claimed tremendous success for the
program nonetheless. He elaborated:
We've seen precipitous declines in the consumption of
tobacco products in both adult and youth. We've seen
good access to cessation services, including the
operation of a toll-free hotline and cessation
services, investments in partnerships with the tribal
health consortium, with Southcentral Foundation,
Native organizations. I think we're succeeding.
COMMISSIONER GILBERTSON acknowledged that the question of
whether more dollars could be invested and have a positive
impact on the community is a legitimate one.
Number 0868
REPRESENTATIVE ROKEBERG returned to Representative Gatto's
question of whether this is a revenue measure or intended to
decrease tobacco use. He submitted that the history of tobacco
taxation in Alaska is checkered, and voiced concern that under
the master settlement agreement, funded by a 45-cent-per-pack
assessment by the smokers themselves, some $668 million was
provided, which may have been adjusted over the years. Relating
his understanding that the initial grant was an enormous amount
of money, he said the legislature saw fit to take 80 percent,
"securitize it, and build roads with it." He added:
I think we did the right thing because of the
discounted value of the dollar and what we got out of
it. However, we're using some $4 million of that
money, basically, to go towards our smoking-cessation
program, which was, in fact, part of the agreement
that was made with the tobacco companies originally.
So we've been short-funding that from the get go. We
had a tremendous amount of debate when we last
increased this tax by 71 cents. And at that time,
just to get the legislature to buy into it, we've got
to dedicate it to ... the statehood constitutional ...
dedicated fund, to schools.
REPRESENTATIVE ROKEBERG reiterated that he'd like to know the
administration's position on this, and expressed hope that it
would be a supportive one.
Number 0974
COMMISSIONER GILBERTSON acknowledged that this legislation would
generate much-needed revenue for the state and the general fund,
but said the administration, and the governor in particular, put
this forward after consulting in December with the [Alaska]
Tobacco Control Alliance, to improve public health and reduce
tobacco consumption. He said he believes the administration
sees this as a win-win situation for the State of Alaska.
REPRESENTATIVE ROKEBERG responded that he was glad to have the
governor on board, but clarified that he himself was asking, as
a matter of public policy, to have adequate funding given to
those people who need it, the smokers who are paying for this.
Citing statistics that show more than 70 percent of current
smokers wish to quit, he suggested the need to provide a helping
hand and put this money where it's supposed to go.
COMMISSIONER GILBERTSON noted that the master settlement
agreement and other funds that came in were largely driven by
states' responding to health care costs of tobacco-related
illnesses associated with the Medicaid program; that was the
reason for the litigation, and the State of Alaska continues to
carry a large cost in its Medicaid program, well over $60
million a year associated with tobacco-related illnesses. He
added that while this administration hasn't proposed using a
portion of the 20 percent that remains for Medicaid services,
that's what the legislature chose to do last year with the
(indisc.-coughing). So there are multiple purposes of those
funds, he concluded.
Number 1126
REPRESENTATIVE CRAWFORD remarked that he believes it's OK to get
more money from this because of all the money it costs the state
through Medicaid and other programs. However, he said, it seems
if the goal is to have fewer young people start to smoke, the
best method is to raise the age to 21. He mentioned legislation
he'd been trying to put forward for a couple of years; spoke in
favor of putting a [tax] of a dollar a pack, or more, on
cigarettes; and asked why the age shouldn't be raised to 21.
REPRESENTATIVE CRAWFORD turned attention to Section 7, page 3,
lines 7-10, and observed that it raises to three cartons a month
the amount of cigarettes that can be brought to Alaska from out
of state. He said this seems to be a big loophole for Internet
sales and so forth.
REPRESENTATIVE ROKEBERG pointed out that it's an amendment he'd
made. He said he could explain it after the commissioner
responded to the earlier concern.
COMMISSIONER GILBERTSON offered to sit down and talk with
Representative Crawford about his aforementioned legislation,
saying he hadn't been aware of it.
CHAIR ANDERSON suggested the committee wouldn't address that in
this bill unless there was an amendment.
COMMISSIONER GILBERTSON opined that the most effective
intervention relating to tobacco consumption nationwide has been
increasing the price of the product. He said this is an
effective public health tool as constructed. He acknowledged,
however, that raising the age also would decrease consumption
among a certain population. As for the second concern, he said
Johanna Bales of the Department of Revenue could address it.
REPRESENTATIVE ROKEBERG offered to speak to it also.
Number 1293
REPRESENTATIVE CRAWFORD related that from what he'd read, the
most effective thing to keep people from starting to smoke is to
delay it until later in life. He opined that raising the age
has been shown to be as effective as raising the price.
COMMISSIONER GILBERTSON agreed that raising the initial age for
legally purchasing tobacco products does decrease consumption.
Across the "general spread of tobacco consumers," however, he
said increasing the price of tobacco is the most effective
public health intervention tool for decreasing consumption. He
said that's why the department and "the advocates" have been
promoting this [legislation].
CHAIR ANDERSON remarked that the irony is how many 19- to 21-
year-olds smoke, which might cut the fiscal note in half if the
amendment passes. He suggested it would be interesting to hear
which the administration would support.
Number 1361
REPRESENTATIVE ROKEBERG responded to Representative Crawford's
earlier question [on Section 7, page 3, lines 7-10]. He
clarified that it was intended to allow only for actual personal
transportation by someone flying in to the state, for example,
not for Internet sales or anything else. He explained that
under current law, a person is a misdemeanant who brings in more
than five packs of cigarettes. He said bad laws that can't be
enforced shouldn't be on the books.
REPRESENTATIVE CRAWFORD asked, "If you can't enforce five packs,
how can you enforce three cartons?" He questioned having it on
the books at all.
REPRESENTATIVE ROKEBERG replied that there has to be an
amendment on the Internet sales only. This is only for personal
interstate transportation.
REPRESENTATIVE CRAWFORD replied that it seems [there are laws]
limiting interstate transportation of liquor. He asked: So why
not limit cigarettes?
REPRESENTATIVE ROKEBERG answered, "We did. We just raised the
limit, is all." He said the difference in what constitutes
criminal activity is the amount: five packs of cigarettes or
three cartons.
CHAIR ANDERSON announced that there would be more opportunity to
debate this at the next hearing.
Number 1440
REPRESENTATIVE GUTTENBERG referred to Representative Crawford's
comments about the age limit and said it's not a cessation
issue, but relates to not starting [to smoke]. As to having the
revenue decrease, he remarked, "In the end, that's the ideal."
CHAIR ANDERSON set aside HB 538 temporarily.
HB 331-RETIREMENT:TEACHERS/JUDGES/PUB EMPLOYEES
CHAIR ANDERSON announced that the next order of business would
be HOUSE BILL NO. 331, "An Act relating to federal requirements
for governmental plan and other qualifications for the teachers'
retirement system, the public employees' retirement system, and
the judicial retirement system; and providing for an effective
date." [HB 331 was sponsored by the House Rules Standing
Committee by request of the governor; before the committee was
CSHB 331(STA).]
CHAIR ANDERSON asked whether anyone wished to testify. [There
was no response.] He noted that the bill had been heard a
couple of days before.
Number 1463
REPRESENTATIVE DAHLSTROM said she'd been reviewing this and
knows the request by the governor's office pertaining to removal
of Village Public Safety Officers (VPSOs) from the program was
because of something that came from an Internal Revenue Service
(IRS) audit. She asked what the state is doing to encourage
participation in the VPSO program. She offered her belief that
the original intent in "adding that" was to help retain VPSOs in
their positions, which are hard to fill. She asked whether
anyone present or on teleconference could address this.
CHAIR ANDERSON asked whether Melanie Millhorn of the Department
of Administration or anyone else was on teleconference. [There
was no response.] He suggested holding the bill until the next
meeting.
Number 1511
REPRESENTATIVE ROKEBERG said he appreciated Representative
Dahlstrom's question, but opined that it has nothing to do with
the bill; it has to do with recruiting VPSOs, not IRS rulings
and the status of Alaska's statutes.
CHAIR ANDERSON agreed, but indicated he'd hold the bill if a
member had a concern relating to its passage.
REPRESENTATIVE DAHLSTROM said she wouldn't object to moving the
bill, but thought it was a relevant question because, to her
understanding, that was the intent of the original makers of the
bill years ago.
CHAIR ANDERSON suggested Representative Dahlstrom's staff could
talk to Ms. Millhorn, who could answer in the next committee of
referral.
REPRESENTATIVE DAHLSTROM agreed to that.
Number 1558
REPRESENTATIVE ROKEBERG moved to report [CSHB 331(STA)] out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 331(STA) was
reported from the House Labor and Commerce Standing Committee.
HB 538-TOBACCO TAX; LICENSING; PENALTIES
[Contains discussion of SB 368, the companion bill]
CHAIR ANDERSON returned attention to HOUSE BILL NO. 538, "An Act
relating to taxes on cigarettes and tobacco products; relating
to tax stamps on cigarettes; relating to forfeiture of
cigarettes and of property used in the manufacture,
transportation, or sale of unstamped cigarettes; relating to
licenses and licensees under the Cigarette Tax Act; and
providing for an effective date."
Number 1575
JOHANNA BALES, Excise Audit Manager, Tax Division, Department of
Revenue, noted that she is the program manager for the cigarette
and tobacco products excise tax. She referred to written
testimony she'd provided and informed members that she would
address the bill analysis in committee packets. Ms. Bales
explained that this bill raises the cigarette tax from $1 to $2
a pack, and raises the other tobacco products tax from 75
percent to 100 percent of the wholesale price.
MS. BALES said this also makes technical corrections to the
Cigarette Tax Act and the "other tobacco products tax" Act. For
example, there was disparity between what licensees pay for
their licenses; with this legislation, anyone who brings this
product into the state for resale would pay a $50 license fee,
and thus those who paid the lower fee of $25 would now pay $50.
However, an individual with a license to bring cigarettes in for
personal consumption would still pay $25. Furthermore, because
of the chance for double taxation, technical corrections were
made to the definitions of license types to ensure that someone
who purchases from a licensee doesn't have to pay the tax; this
relates primarily to out-of-state licensees.
MS. BALES reported that there'd been brief discussion about
Representative Rokeberg's amendment, already included in
[CSHB 538(W&M)], to increase the limit for transporting
cigarettes into the state from 100 to 600 cigarettes. Also,
there are proposed changes in the misdemeanor and criminal
penalties; the threshold is raised so an individual must bring
in a higher amount of cigarettes before it justifies a felony
provision versus a misdemeanor. She said the Department of Law
had gone through this, and now the Act is in compliance with
other felony provisions in statute.
MS. BALES noted that another section had been discussed briefly.
Mentioning 11.2 percent of annual cigarette taxes that would be
deposited into the general fund, she said the legislature would
be directed to appropriate those amounts to the tobacco-use
education and cessation fund; it is estimated this 11.2 percent
will amount to about $5.1 million a year.
Number 1738
MS. BALES further noted that technical corrections are being
made to tax-stamp legislation passed last session. If a
licensee purchases tax stamps but those stamps are lost in
transit, the department will replace those, provided it gets
"adequate documentation from the carrier" that those stamps have
been lost. She said this had been a big problem for some
licensees.
MS. BALES advised that, currently, licensees who purchase
cigarette tax stamps on a deferred-payment basis must post a
bond equal to 200 percent of the monthly purchases, which
results in 100 percent coverage, since someone can make two
months' purchases before having to make the first payment.
Language in the bill would allow licensees who've been in the
state for five years, who have a physical presence, and who have
been "a good taxpayer" for five years to post a 100 percent
bond. Thus the Department of Revenue would basically be
extending credit for "the other 100 percent" for a period of one
month. That had been an issue with some of the distributors,
she noted.
MS. BALES pointed out that some provisions allow licensees to
maintain some unstamped inventory in the state if they are
making sales out of state and they provide information showing
that they are properly licensed in those other jurisdictions to
pay taxes in those jurisdictions. Furthermore, there are
forfeiture provisions in the bill such that if a person has a
felony violation in cigarette trafficking, unstamped cigarettes
can be seized, as well as assets used in the commission of that
crime.
Number 1837
MS. BALES addressed a provision relating to a floor-stock tax to
be paid on the effective date of the Act. She explained:
A floor-stock tax is the difference between ... the
tax rate on the effective date, which is $2 a pack,
and the current tax rate of $1 a pack, and that all
distributors and retailers would have to pay to the
department, in six monthly installments, that
difference in revenue.
MS. BALES noted that committee packets contain information
showing that in 1997, when there was no floor-stock tax, an
estimated $7 million was lost in cigarette-tax revenues.
Furthermore, complaints had been received from consumers. She
explained that consumers and distributors, primarily the latter,
had stockpiled. But instead of passing those savings on to
consumers, [the distributors] had basically pocketed state
revenues. She said most other states have a floor-stock tax.
Noting that she'd highlighted the finer points of the bill, Ms.
Bales offered to answer questions.
Number 1879
REPRESENTATIVE ROKEBERG returned attention to his amendment on
page 4 [Section 16, added in the House Special Committee on Ways
and Means]. He mentioned putting it into terms of a percentage
of total proceeds and asked Ms. Bales whether that would add the
needed clarification or whether she had other recommendations.
MS. BALES provided her understanding that the way that
allocation was done, it puts more money into the tobacco-use
education and cessation fund than was intended.
REPRESENTATIVE ROKEBERG suggested Ms. Bales work with him and
his staff, saying there was a draft. He added, "The intention
is to make that the accurate amount, and reflect that."
Number 1930
REPRESENTATIVE ROKEBERG turned attention to language regarding
the personal transportation of 600 cigarettes. He asked whether
Ms. Bales recommended deleting the preceding wording about the
first 100 cigarettes.
MS. BALES affirmed that. She specified it's on page 3,
Section 7, beginning on line 7 [and also in Section 15].
Current language says the cigarette tax doesn't apply to the
first 100 cigarettes imported by an individual for personal
consumption [during the calendar month].
REPRESENTATIVE ROKEBERG asked whether the implication would be
"by any method."
Number 1983
MS. BALES answered in the affirmative, but noted there are
cigarette-shipping restrictions that someone importing through
the mail would be in violation of. She said:
So we would recommend removing this sentence that says
"the first 100 cigarettes" and leaving in the
amendment that was offered by Representative Rokeberg
[included in CSHB 538(W&M)] of "the first 600
cigarettes personally transported". That would
alleviate any confusion of people thinking, ... "I can
mail in 100 cigarettes, but I can also personally
transport 600." And really what we're trying to say
is that ... 600 is the maximum amount that you can
personally, ... physically on your person, carry into
the state.
MS. BALES specified that the suggestion was to remove that
language in Sections 7 and 15.
REPRESENTATIVE ROKEBERG asked, then, whether the thrust would be
to allow personal transportation of a limited amount of
cigarettes monthly, but that any other importation such as via
the Internet would be strictly prohibited.
MS. BALES affirmed that.
REPRESENTATIVE ROKEBERG asked, "Is there an amount there?"
MS. BALES answered that it's zero under current statute.
REPRESENTATIVE ROKEBERG, noting that Representative Crawford had
expressed concerns, said he wanted to make sure there was an
understanding. He requested confirmation that the department
doesn't object to the limit of 600 for personal importation.
Number 2040
MS. BALES replied:
We do not object to that. And the main reason is our
focus in the past for cigarette-tax enforcement has
not been on the personal transportation in someone's
luggage. ... It would be prohibitively expensive and
invasive for us to go to the airport and check
people's luggage. Our focus and area of concern is
with the Internet, and that has been a big problem for
us.
REPRESENTATIVE ROKEBERG added, "Or if there's other methods of
major commercial-type importation of contraband."
MS. BALES concurred.
REPRESENTATIVE ROKEBERG noted that current statute [limits it]
to five packs of cigarettes. Since importation of six packs
would be a class A [misdemeanor under the bill], he remarked,
"Bad law."
Number 2071
REPRESENTATIVE CRAWFORD said he'd rather have the amount be one
carton and remove the "monthly" part. He explained:
If you don't have any way of enforcing this, why would
you put in there "monthly"? ... You don't know how
many trips up and down you made. You could still be
breaking the law because ... you brought in 600 ...
cigarettes last week. So it seems kind of ambiguous
to me just to put "monthly", that you must have a
limit for that time and that time alone. ... I would
think that three cartons of cigarettes ... is a lot to
bring in, because ... you could make lots of trips.
REPRESENTATIVE CRAWFORD asked for an explanation if the
foregoing is wrong.
REPRESENTATIVE ROKEBERG suggested the average smoker probably
smokes a carton a week. Mentioning one year in jail and a
$10,000 fine for someone who brings in two weeks' worth, he said
it makes no sense.
CHAIR ANDERSON turned to public testimony, requesting that
people limit testimony to two minutes in order to hear from as
many as possible.
Number 2153
ELIZABETH LUCAS, State President, AARP, noting that she is a
volunteer, told the committee:
AARP is entirely in support of House Bill 538.
Research tells us and the governor's transmittal
letter clearly states that a higher tobacco tax will
help prevent our youth from beginning to smoke. It
will also help some current smokers stop.
AARP is the largest organization of grandparents in
the world. We smile when we see our grandkids play
sports, and we smile when they come proudly home with
a good report card. We enjoy our grandkids. I am
confident that no Alaskan grandparent smiles when they
learn that one of their grandchildren has started to
smoke. Some AARP members smoke; many AARP members
used to smoke and know how difficult it is to quit.
If raising the [cost of a] pack of cigarettes helps
prevent any of Alaska's grandchildren from starting to
smoke, we are strongly in favor of it.
We were concerned with the data in the governor's
transmittal letter indicating that Alaska Natives, and
especially Alaska Native high school students, smoke
at a much higher rate than the non-Native population.
We strongly recommend that some of the new revenue
coming to state government ... from this tax increase
be used to target cessation efforts to Native smokers
and, in particular, to our Native youth.
House Bill 538 is good economic policy, and it's good
health policy. It makes sense and it's fair. AARP
recommends a "yes" vote on House Bill 538.
Number 2236
REPRESENTATIVE LYNN asked whether it would be discriminatory to
give revenue to one group of Alaskans more than another.
MS. LUCAS responded, "Targeting a certain group brings to mind
that they have the most ability to be susceptible. And so if
that is true, then ... I would think that ... the money would be
geared toward them because they are ... at a higher risk." In
response to Chair Anderson, she said, "If we could use some of
this money to actually work ... on the cessation efforts toward
this particular group, I would think that that would be [good]."
REPRESENTATIVE LYNN suggested it has shades of racial profiling.
MS. LUCAS replied that she doesn't see it as such, but sees it
as [assisting] someone who needs some help.
Number 2318
DOÑA WILLIAMS, Teens Against Tobacco Use (TATU), informed the
committee that she is an active participant in TATU and attends
Juneau-Douglas High School. She said since the recent $1-a-pack
tax, she has seen a lot of high school students stop smoking
because they don't want to continue to "raise the money to
support their habits." It also deters younger students from
starting. "Our whole group is in support of this Act," she
concluded.
CHAIR ANDERSON asked whether some students also say it doesn't
matter what the cost is, because they really like to smoke.
MS. WILLIAMS replied that she's sure some students do, but said
most of her friends have quit smoking, for example.
Number 2360
REPRESENTATIVE GUTTENBERG referred to Representative Gatto's
earlier question with regard to whether teens may turn to other
things if the price of cigarettes rises. He asked Ms. Williams
whether she has seen evidence of this.
MS. WILLIAMS replied that she couldn't say. She indicated most
of her friends [who smoked] were actually more acquaintances
because of their habit.
TAPE 04-46, SIDE B
Number 2375
REPRESENTATIVE LYNN thanked Ms. Williams for being a witness
against this terrible habit.
Number 2360
MICHELLE TOOHEY, Director of Public Advocacy, American Lung
Association of Alaska, told members:
I'm honored to speak today in support of House
Bill 538, increasing the state tobacco tax. For the
American Lung Association of Alaska, tobacco taxes are
strictly a public health issue. Studies show that the
higher cigarette taxes are, the more effective they
are - the most effective way to reduce smoking among
youth and adults, and Alaska's own experience proves
the point: less addiction, less disease, less
suffering, less premature death, lower health care
costs to private businesses and to government program.
There are few, if any, more important measures that
could be identified to document success. We are
heartened by your willingness to consider increasing
the tobacco tax. We see it as a huge step in the
fight against tobacco addiction in our state, a cause
the American Lung Association of Alaska
enthusiastically supports.
Number 2318
REPRESENTATIVE ROKEBERG observed that three municipalities, to
his knowledge - Anchorage, Fairbanks, and Juneau - have their
own tobacco taxes in Alaska. He asked whether Ms. Toohey's
organization has a position on restricting additional municipal
taxation and leaving this as a state issue.
MS. TOOHEY replied:
Representative Rokeberg, we appreciate your position
on disallowing municipalities to increase the tax even
further. But in general ... we are opposed to any
sort of a preemption on a local level, not only for
taxes but other provisions such as, potentially,
clean-indoor-air ordinances which could be ...
preempted on a local level.
Number 2265
MICHAEL J. ELERDING, Owner, Northern Sales Company of Alaska,
Inc., noted that he and his wife are owners of this small
wholesale-distribution company in Southeast Alaska. He said:
We are partners with the state, and we are the state's
tax-collection arm. Last year we collected and
remitted to the state over $4 million ... in tobacco
excise tax. And so it's very important for us to be
concerned when the state is enacting policy regarding
tobacco laws and tobacco taxes. So it's important
that ... we be involved and ... pay attention.
I've prepared ... testimony with two pages regarding
anticipated and other amendments that have been
offered to this bill. I'll be as brief as I can
reviewing those. First, I'd like to thank the
Department of Revenue and the Department of Law for
their working late in the night last night to draft
... what we're calling ... fair-trade legislation.
And basically, the ... governor's transmittal [letter
for the bill] indicates that this is not a revenue
measure, but more ... a health measure; it's a
cessation measure that ... would stop smoking.
That being the case, it's inconsistent for state
policy to allow retailers and other wholesale
distributors to use predatory pricing practices to
sell cigarettes at below cost, ... or a predatory
pricing method. And, therefore, we support an
amendment which would ban the practice of allowing
distributors and retailers from using predator pricing
... schemes to promote the sale of cigarettes. The
amendment repeals and reenacts the language in Alaska
Statute 43.50.800 and strengthens existing state law
to that effect.
Number 2203
MR. ELERDING addressed the tax on other tobacco products as
follows:
The Senate today introduced ... an amendment that
would close a loophole that allows nonlicensed Alaska
distributors to sell tobacco products, be it
Copenhagen and/or other non-cigarette products, into
the state without being required to pay the state
excise tax. ... The example is that ... [a]
manufacturer or a representative in Florida can sell a
... can of Copenhagen or chew to [an] Alaska consumer
for $10. But if this law passes, the excise tax would
be 100 percent, so ... the tax for ... that can of
chew ... would also be $10. So, basically, our ...
cost right out of the box would be $20, whereas the
competitor who is in Florida doing business through
mail order or Internet would have a cost of $10. ...
Alaska businesses are at a distinct ... disadvantage
because ... we're paying the tax; ... the non-Alaska
business is not required to pay the tax. ... Alaska
businesses lose on that, the state loses because
they're not collecting the excise tax, and the
governor's intention of trying to ... reduce ...
tobacco consumption is lost because the price
incentive to reduce consumption goes out the window
when you give somebody a $10 incentive, or a 100
percent incentive, for not paying the tax to purchase
those products.
MR. ELERDING explained reasons for wanting to delete the entire
floor tax:
The Department of Revenue spoke about a floor-tax
amendment. We support ... the amendment offered in
the [House Special Committee on Ways and Means], which
would provide for a six-month phase-in of paying ...
the floor tax.
However, we prefer that the committee delete Section
25 of [HB 538], which would delete the entire floor
tax. And the reason for that is there's a lot of
changes from this time ... versus 1997, when the state
enacted ... the increase in tax from $2.90 [per
carton] to $10.00. And the first one is that, due to
a higher frequency of black-market and ... counterfeit
cigarettes, bootleggers and others ... have made the
tobacco companies be much more strict in terms of
their distribution of tobacco products. So, as a
result, we're on allocation on a weekly basis, and we
can't purchase cigarettes just ... at our will; they
tell us how much we can buy and when we can buy it.
... So there's a limitation on what we can buy.
Number 2093
MR. ELERDING continued:
Secondly, part of the problem last time was there was
about a six-month or eight-month phase-in lead time
between when the law was enacted and when the
effective date of that measure came in, which provided
plenty of time for people like myself ... to stockpile
some cigarettes.
And finally, the state has more than a modicum of
control about ... how this tax is collected, because
right now ... the mechanism for the state to collect
the tax is through the sale of the stamp. ... If I
were to try and stockpile ... stamps, I'd have to go
to the state window to purchase those stamps; the
state would know ... and be able to monitor what kind
of stockpiling effort takes place. ...
If you take a look at what happened ... the last time,
if I had not stockpiled some cigarettes ... I would
have a very difficult time being in the cigarette
business because one-third ... of the amount that we
stockpiled went to paying for increased costs and
additional carrying costs of our inventory; the other
part went for increased costs of carrying our accounts
receivable; and, ... for the first time since 1960,
... our buildings in Sitka and in Juneau had break-
ins, ... and the targets of those break-ins were theft
of cigarette products, so we had to implement new
security measures and we also had to have higher
insurance. ...
So, basically, our position as a tobacco distributor
is that this is a one-time opportunity for us to get a
little "bump" in capital ... to cover the increased
costs of carrying cigarettes, as a result of state
action, which is increasing ... the cost of
cigarettes, again, because of the tax.
Number 2052
MR. ELERDING discussed concerns about Representative Rokeberg's
previous amendment and reasons for wanting an exemption in the
neighborhood of 200 cigarettes. He said:
The last measure I'd like to speak to is the personal
exemption. Representative Rokeberg had ... submitted
an amendment to increase the exemption from ... 100
cigarettes to 600 cigarettes. Our concern is that ...
that's a pretty substantial increase. And, really,
our other concern is that ... the transportation of
the cigarettes ... in the amendment indicates that it
must be transported by the consumer on his person.
Our concern is that there could be a more liberal
interpretation of that, which would broaden the scope
of that, thereby allowing the consumers ... to bring
in, through other transportation methods, more
product. And, really, the whole intent of this
legislation is to make sure that the state ... is
increasing the cost of cigarettes to reduce
consumption.
By increasing the exemption, ... you're eliminating
that incentive to have those people stop smoking.
Basically, you've said, "We're going to allow this
exemption, ... which will take away the incentive for
them to stop smoking." ... We want to make sure that
the language is tight. And I've heard comments on
that today, which makes me feel better, but we also
feel ... [an] exemption in the neighborhood of 200
cigarettes, which is one carton of cigarettes, would
be much more reasonable ... and equitable, and
something that we could support.
CHAIR ANDERSON informed Mr. Elerding that there'd be discussion
of the amendment at the next hearing; he mentioned minimum
pricing and Section 25 and suggested that Mr. Elerding be
available to answer questions then.
Number 1960
DAN BOONE, Homer, testified in support of HB 538. He told
members:
I believe this tax is supported by approximately 80
percent of Alaskans. It will raise approximately $35
million annually. It will reduce the number of
cigarettes sold and the number of smokers. It will
also reduce the number of teenagers that start
smoking. And, in the long run, it will reduce state
Medicaid expenses.
I fail to see a problem with this proposal other than
it is called a tax. It probably should be called a
user fee. Currently, the State of Alaska has a
Medicaid burden for tobacco-related illnesses in
excess of $130 million annually. The current tobacco
tax brings in about $45 million, with another $25
million coming from the master settlement agreement,
for a total of $70 million.
Even with the estimated $35-million user-fee increase,
the State of Alaska will still be subsidizing Medicaid
for tobacco-related illnesses by more than $25 million
a year. For a state with a looming fiscal problem, it
would only seem prudent to eliminate all unnecessary
expenses or collect appropriate fees from those
incurring the expenses.
Tobacco is a legal product, and people do have the
right to choose. But if they choose to smoke, they
should also be willing to accept the financial
responsibility for the consequences of that choice.
Therefore, I strongly urge you to support and pass
House Bill 538.
Number 1879
DARWIN BIWER, Anchorage Cabaret Hotel Restaurant & Retailers
Association (CHARR), testified in opposition to HB 538. He
voiced concern that raising the tax on cigarettes an additional
dollar will make them a unique item. Although not a smoker
himself, he cautioned that teenagers will go to the schools with
a carton of cigarettes stolen from a relative, for example, and
kids will buy these cigarettes because they seem special.
MR. BIWER emphasized that education is the only way to keep
people from starting to smoke or to get them to stop. Referring
to Representative Rokeberg's comments about the tobacco
settlement, he said 80 percent [of that settlement money] hadn't
gone where it was supposed to - towards education that would
provide a better means to deter smoking.
Number 1767
EMILY E. NENON, Alaska Advocacy Manager, American Cancer
Society, referred members to a letter she'd submitted [in
support of HB 538] and read from the second-to-last paragraph,
"By increasing the state's tobacco tax, with its known
correlation to reducing youth smoking, we are taking a critical
step in stemming the tide of rising health care costs to the
state and needless death and disability in our communities."
Number 1725
VERA JAMES, Alaska Native Health Board (ANHB), informed members
that she was speaking for ANHB as a whole; now representing 229
federally recognized tribal communities within Alaskan, ANHB was
established in 1968 as a nonprofit organization and advocates on
health care issues that may impact Native people and their
culture. Noting that ANHB had sent a letter in support of
HB 538 for reasons given in recent testimony by others,
Ms. James also pointed out that 44 percent of Alaska Native high
school students continue to smoke, even though tobacco use by
high school students nationwide is declining.
Number 1670
BOYD McFAIL, Anchorage, spoke on his own behalf, saying he feels
this tax increase isn't a good way to go. He agreed with
[Mr. Biwer] that education is the way to stop teens from
starting to smoke cigarettes. He also asked that there be a tax
exemption on premium cigars and pipe tobacco [sold exclusively
in tobacco shops]. He remarked, "You don't see teenagers out
there smoking cigars or pipes, and if you do see a teenager out
there smoking a pipe, it's most likely that the product that
they're smoking is not a tobacco product."
MR. McFAIL pointed out that that premium cigars sold exclusively
in tobacco shops had been able to generate state revenue, and
said he'd sent information about revenue from one store to
Representative Dahlstrom's office the previous night; he noted
that until 1999, this one store had paid almost $26,000 to the
state for sales of cigars or pipe tobacco. He explained:
After that tax went into effect, the revenue that was
generated for the state went down. The popularity,
though, of smoking the cigars and pipes did not go
down. The only thing that happened was people started
to import their stuff ... from other ... tobacco
stores outside of the state.
MR. McFAIL predicted that if the previous trend had continued,
this one shop would now pay an estimated $60,000 in revenue to
the state this year. Saying cigars and pipe tobacco aren't
smoked in the same way [as cigarettes] and don't have chemicals
added, as happens with cigarettes, chewing tobacco, or snuff,
Mr. McFail again requested an exemption [from the tax in
Section 17] for premium cigars or pipe tobacco sold exclusively
in tobacco shops.
Number 1513
PATRICIA SENNER, Family Nurse Practitioner, Anchorage, testified
in support of HB 538, noting that she works with teenagers.
[Ms. Senner had also sent a letter of support on behalf of the
Alaska Nurses Association.] She explained that her interest in
this bill is to increase the price of cigarettes in an effort to
discourage their use by young people. She also spoke in favor
of dedicating a portion of the proceeds from this tax for
continued anti-smoking campaigns and smoking-cessation programs.
She said:
I feel a two-pronged approach is very important in
reducing smoking. Unfortunately, a large portion of
the homeless youth I work with smoke. Many of them
started at a very young age because their parents let
them have access to cigarettes. Though current
programs haven't stopped these youths from smoking, I
know that it has greatly decreased their consumption
rates.
One of the most common requests for services at my
clinic is for assistance in quitting smoking.
Medicaid - and, I'm sure, private insurance as well -
does not pay for nicotine patches, which is about $50
for a three-week set of patches. It'd be extremely
helpful to these poor youth to have access to products
and programs that could help them improve their health
and their lives.
MS. SENNER noted that a lot of these kids also use marijuana;
she suggested it would be nice if there were some way to tax
that as well. Ms. Senner requested passage of this bill.
CHAIR ANDERSON closed public testimony and noted that amendments
would be addressed at the next hearing. [HB 538 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:40 p.m.
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