Legislature(2015 - 2016)BARNES 124
03/02/2016 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Economic Impacts of Alaska Fiscal Options - Institute of Social and Economic Research | |
| HB304 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 304 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 2, 2016
3:19 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Shelley Hughes, Vice Chair
Representative Jim Colver
Representative Gabrielle LeDoux
Representative Cathy Tilton
Representative Andy Josephson
Representative Sam Kito
MEMBERS ABSENT
Representative Mike Chenault (alternate)
COMMITTEE CALENDAR
PRESENTATION: ECONOMIC IMPACTS OF ALASKA FISCAL OPTIONS -
INSTITUTE OF SOCIAL & ECONOMIC RESEARCH
- HEARD
HOUSE BILL NO. 304
"An Act requiring the electronic submission of a tax return or
report with the Department of Revenue; relating to the taxes on
cigarettes and tobacco products; taxing electronic smoking
products; adding a definition of 'electronic smoking product';
and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 304
SHORT TITLE: ELECTRNC TAX RETURNS;TOBACCO & E-CIGS TAX
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/08/16 (H) READ THE FIRST TIME - REFERRALS
02/08/16 (H) L&C, FIN
02/19/16 (H) L&C AT 3:15 PM BARNES 124
02/19/16 (H) Heard & Held
02/19/16 (H) MINUTE(L&C)
02/22/16 (H) L&C AT 3:15 PM BARNES 124
02/22/16 (H) Heard & Held
02/22/16 (H) MINUTE(L&C)
02/24/16 (H) L&C AT 3:15 PM BARNES 124
02/24/16 (H) Heard & Held
02/24/16 (H) MINUTE(L&C)
02/27/16 (H) L&C AT 10:00 AM BARNES 124
02/27/16 (H) -- MEETING CANCELED --
03/02/16 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
GUNNAR KNAPP PhD, Director/Professor of Economics
Institute of Social & Economic Research
University of Alaska Anchorage
Anchorage, Alaska
POSITION STATEMENT: Provided concluding slides and corrections
for a PowerPoint presentation entitled, "Economic Impacts of
Alaska Fiscal Options Overview of Draft Conclusions" dated
2/29/16, first presented during the House Labor and Commerce
Standing Committee meeting of 2/29/16.
STEPHANIE CHILTON, Owner
High Voltage Vapes
Soldotna, Alaska
POSITION STATEMENT: Testified in opposition to HB 304.
TRISTAN TALIESIN
Kenai, Alaska
POSITION STATEMENT: Testified in opposition to HB 304.
SETH PARKER
Kenai, Alaska
POSITION STATEMENT: Testified in opposition to HB 304.
JORDAN EDWARDS
Wasilla, Alaska
POSITION STATEMENT: Testified in opposition to HB 304.
ELIZABETH RIPLEY, Executive Director
Mat-Su Health Foundation
Wasilla, Alaska
POSITION STATEMENT: Testified in support of HB 304.
ALISON HALPIN
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 304.
ERIC VARGASON
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to HB 304.
ANGELA CARROLL, Spokesperson
Smoke-Free Alternatives Trade Association
Wasilla, Alaska
POSITION STATEMENT: Testified in opposition to HB 304.
JAMES BRIGGS, Owner
Peche Foggin Sauce
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 304.
ACTION NARRATIVE
3:19:41 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at [3:19] p.m. Representatives
Olson, Josephson, Hughes, LeDoux, Colver, Tilton, and Kito were
present at the call to order.
^PRESENTATION: Economic Impacts of Alaska Fiscal Options -
Institute of Social and Economic Research
PRESENTATION: Economic Impacts of Alaska Fiscal Options -
Institute of Social and Economic Research
3:20:17 PM
CHAIR OLSON announced that the first order of business would be
a continuation of the presentation by the Institute of Social
and Economic Research, University of Alaska Anchorage.
3:21:04 PM
GUNNAR KNAPP PhD, Director and Professor of Economics, Institute
of Social and Economic Research (ISER), University of Alaska
Anchorage (UAA), continued a PowerPoint presentation entitled,
"Economic Impacts of Alaska Fiscal Options Overview of Draft
Conclusions," which was first presented at the House Labor and
Commerce Standing Committee meeting of 2/29/16. Dr. Knapp
announced corrections to slides presented at the previous
meeting as follows: slide 3 corrected the share of sales tax
with fewer exclusions paid by non-residents from 7 percent to 9
percent; slide 4 corrected the share of reduced federal
government tax obligations, after state obligations are
deducted, from 4 percent. He continued to slides 5, 6, 7, 8 and
9 relating to total impacts of deficit reduction, how fast the
deficit should be reduced, and how to reduce economic impacts.
Basically, the state has lost billions of dollars of oil revenue
and thus must reduce its deficit, which will affect its economy.
The impacts of deficit reduction began with earlier spending
cuts to the capital budget, which will be felt by the
construction industry in the near future. He opined that there
will be a smoother economic adjustment to lower oil revenues if
significant progress is made this year. Dr. Knapp presented
slide 10 which illustrated the potential short-run impacts of
reducing the deficit by $1 billion, $2 billion, and $3 billion
which is the scale of the actual deficit. He pointed out that
reducing the deficit by $1 billion would result in the loss of
17,000 jobs.
3:34:44 PM
REPRESENTATIVE JOSEPHSON recalled that the governor's fiscal
plan to fix the deficit this year commits all resources, such as
the Constitutional Budget Reserve (CBR), and the [supplemental
budgets]. He cautioned that using "part of a budget patch,"
doesn't work because the governor's plan relies on every
available dollar in savings.
DR. KNAPP expressed his understanding that the governor's plan
has many aspects and would not completely close the deficit, but
would accomplish the "vast bulk of the heavy lifting toward
getting the state where, where the remaining spending would be
financed in a sustainable way."
REPRESENTATIVE JOSEPHSON provided an example of a $3.5 billion
deficit and a $2.5 billion fix that would require $1 billion
from savings, but which would derail the governor's plan because
the savings are needed to "buttress, for example, the earnings
reserve in a sovereign wealth model or to recreate the
[supplemental budget] which would spin off some of its own new
revenue."
DR. KNAPP acknowledged that the governor's plan, or others that
use Alaska Permanent Fund earnings, affect how much the fund
will produce investment returns in the future. As long as the
state continues to run deficits, the deficits will reduce future
earnings. He restated that the study was narrowly focused on
certain aspects of cutting spending, however, drawing from
savings would result in permanently reduced future earnings.
3:41:29 PM
REPRESENTATIVE KITO returned attention to slide 10 and asked
whether the $2 billion and $3 billion cuts made by reducing
workers are just for illustration.
DR. KNAPP said yes, because those cuts are not a real option.
REPRESENTATIVE COLVER asked for the indirect multiplier for non-
government jobs.
DR. KNAPP said the loss of jobs would be a direct loss of 60
percent of government workers, and an indirect loss of 40
percent of private workers. Further information can be found on
slides 35 and 36 that were presented at the meeting of 2/29/16.
REPRESENTATIVE COLVER surmised that a 2.5 multiplier indicates a
loss of 5,200 state and state-contracted jobs, and a total loss
of 13,000 jobs. He then asked for the number of lost jobs that
would be catastrophic to the state's economy.
DR. KNAPP observed that the state's economy is in a weak state
in that both the government and private industry must cut back.
The oil, mining, and salmon industries are experiencing low
prices and the capital budget cuts have affected the
construction industry. Ideally, when the private sector economy
is suffering it is not a time to reduce government spending.
Dr. Knapp was unsure of "a tipping point."
3:52:28 PM
REPRESENTATIVE LEDOUX asked for clarification of slide 10.
DR. KNAPP explained that column five indicated spending was
reduced one-third by cutting spending, one-third by raising an
income tax, and one-third by cutting the PFD; the combined
impact of all three actions would cost 10,000 jobs. In further
response to Representative LeDoux, he said the total loss of
income to Alaskans would be $1.3 billion.
REPRESENTATIVE LEDOUX suggested that the percentages may be
varied and requested additional charting to show "all of those
different variables."
DR. KNAPP noted that slide 36, which was presented at the
meeting on 2/29/16, allows members to complete additional
calculations, or he could provide that information. In further
response to Representative LeDoux, he said the option with the
least effect on the economy - in the short term - is for the
state to save less. He added that the least effect on the total
economy would be to cut capital spending, which has already been
done by the legislature. He urged that members consider all
options because the actions taken determine "the kind of state
we have."
4:00:58 PM
REPRESENTATIVE HUGHES asked if Dr. Knapp was being paid by the
administration to do this analysis, and whether ISER receives
general funds from the state through the UAA budget.
DR. KNAPP responded that ISER receives general fund support
through the UAA budget which covers about 40 percent of its
budget. The study was financed one-half by the Office of
Management & Budget and one-half by the Department of Revenue.
REPRESENTATIVE HUGHES expressed her interest in the long-term
effects on the economy and to younger Alaskans fifteen to twenty
years hence; for example, the impacts to the Public Employees'
Retirement System (PERS) and the Teachers' Retirement System
(TRS). She cautioned that imposing an income tax may mean fewer
jobs lost, but states with income taxes lose population in the
long-term. She asked Dr. Knapp to comment on the long-term
economic impacts on the private sector and the overall economy.
4:05:06 PM
DR. KNAPP agreed that long-term impacts are critically
important, which is the focus of the remainder of his
presentation. He pointed out that spending cuts, income taxes,
sales taxes, and dividend cuts all have long-term impacts on
Alaska's economy and its society. Alaskans will be more
affected by long-term implications than by short-term
implications, which is analogous to someone who is sick choosing
treatment options: what hurts less versus what is going to make
one healthy.
REPRESENTATIVE HUGHES said her understanding is a dollar in the
private sector has a greater multiplier effect than a dollar in
the public sector.
DR. KNAPP said he could neither agree nor disagree without "a
clearer understanding of what was meant." Losing a job - public
or private - would have same impact on the economy; the loss of
their tasks is a different question.
4:10:06 PM
REPRESENTATIVE HUGHES returned attention to slide 8 which was
presented at the meeting on 2/29/16 and asked whether Dr. Knapp
advised "that it is better to not do everything in one year and
to phase the solution."
DR. KNAPP clarified that there are very serious negative impacts
to not making significant progress on the deficit. Although the
economy is weak, he cautioned that the state cannot "save this
problem for later."
REPRESENTATIVE JOSEPHSON asked whether there is an argument for
stimulus through a capital budget, or for the state to issue
bonds for some capital projects.
DR. KNAPP advised that if government finances are healthy there
is a good argument for stimulus; however, the state has so much
lost oil money that it cannot escape an adjustment. There is no
question that it would definitely help the state's construction
industry, but the state would face the consequences. He
returned attention to slide 11 which listed the impacts of fully
closing the deficit this year. However, slide 12 stated that
the government can't permanently support an economy by running
deficits, and he stressed the further negative consequences of
delay, such as further draining of reserve funds, fewer options
and less time to implement options, and the downgrading of
Alaska's credit rating [slide 13]. Slide 14 showed additional
negative consequences including rising business and household
uncertainty about future services and taxes. Furthermore, there
will be less confidence in whether Alaska can achieve a solution
and remain a good place to do business and live. These are the
consequences of not demonstrating that there is a plan for how
to get out of this situation, although the consequences cannot
be measured precisely.
4:21:06 PM
DR. KNAPP continued to slide 15, noting that significant
progress includes a major reduction in the deficit, consensus on
a plan for the future, demonstrating political ability to act,
and a perception of significant progress by Alaskans. All of
the fiscal options have many other potential impacts such as
indirect and longer-term impacts, which are harder to estimate
and important to Alaska's future [slide 17]. Impacts of
spending cuts include increases in local taxes, user fees, loss
of federal revenues, impacts of reduced capital budgets, and
impacts on government and university workforce [slide 18].
Further potential effects of spending cuts were listed on slide
19. Examples of potential impacts of income taxes include
impacts to investment and to wages [slide 20]. Examples of
potential impacts of sales taxes include administrative costs,
impacts on local government and rural communities, and impacts
on the visitor industry [slide 21]. Slide 22 listed the
potential impacts of dividend cuts such as wages, spending, and
quality of life for larger or poorer families. Dr. Knapp
stressed that all of the foregoing long-term indicators are
relevant and matter. Slide 23 listed more long-term impacts of
adjusting to the deficit that were not addressed by the study.
He concluded that the fiscal choices will significantly affect
Alaska's future economy and society [slide 24]. In response to
Chair Olson, he said the study is in its third or fourth
version. In further response to Chair Olson, he said the study
has been modified for corrections and to add details.
CHAIR OLSON has heard that the study was going to go into more
detail on the proposed tax bills.
DR. KNAPP apologized, saying there was a misunderstanding.
Other issues were beyond the scope of the study.
4:31:00 PM
The committee took a brief at ease.
4:31:40 PM
REPRESENTATIVE LEDOUX questioned whether bond ratings are based
on legislative actions which could subsequently be repealed.
DR. KNAPP agreed that close legislative votes convey a message;
however, the negative economic consequences from bond rating
agencies, Alaskans, or Alaska businesses are related to
uncertainty and confidence in the legislature finding a
solution.
REPRESENTATIVE LEDOUX remarked:
... you're saying that we not only need to do
something, but we all need to do it together and if,
if it's a slim margin, that that's not going to
accomplish the purposes.
DR. KNAPP responded:
All I'm really saying is that the, that the negative
economic consequences of delay are tied to the extent
that they create business uncertainty and, and
business, and household and investor uncertainty about
what will be done, and whether something can be done.
DR. KNAPP provided examples of delays.
4:38:24 PM
REPRESENTATIVE JOSEPHSON returned attention to slide 18 which
indicated there is a potential loss of federal matching funds.
He surmised that the state seeks to benefit from federal
matching funds for the University of Alaska budget and other
programs, and asked, "Are we right that the four dollars from
Washington, DC that gets spent in Alaska has the same impact,
generally speaking, as the dollar we supply?"
DR. KNAPP explained that the impact on the construction industry
is the same whether the state or federal government pays for a
project. Approximately one-third of the state's economy comes
from the federal government. He continued, " ... the impact on
the economy is four times as great if you cut something that
brings in matching funding." In further response to
Representative Josephson, Dr. Knapp said that the potential
impact of migration from rural villages listed on slide 19 is
due to the closing of small schools, which could lead to higher
social service costs in urban areas. He urged for further
testimony on all of the potential impacts listed on slide 19.
4:43:39 PM
REPRESENTATIVE HUGHES stated that she is open to new
information; however, she suggested there is a bias in the study
because there were many more potential impacts listed for
spending cuts on slide 18, then for increased taxes listed on
slide 19. Representative Hughes encouraged Dr. Knapp to
reconsider whether the information presented is truly an
objective approach.
DR. KNAPP acknowledged Representative Hughes' statement as fair.
There are many different kinds of spending, thus there are many
impacts related to spending cuts, but how an income tax affects
the economy "can be boiled down to one or two questions." He
agreed to provide a better perception.
4:46:35 PM
HB 304-ELECTRNC TAX RETURNS;TOBACCO & E-CIGS TAX
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 304, "An Act requiring the electronic submission
of a tax return or report with the Department of Revenue;
relating to the taxes on cigarettes and tobacco products; taxing
electronic smoking products; adding a definition of 'electronic
smoking product'; and providing for an effective date."
4:46:40 PM
CHAIR OLSON reopened public testimony on HB 304.
4:47:30 PM
STEPHANIE CHILTON, Owner, High Voltage Vapes, urged members not
to support HB 304 because it would cripple her business. Her
husband previously worked in the oil field and her home and
livelihood depends on the success of her business to support her
family of five. She has closed one shop and laid off four
employees already. The bill will cause the state to lose income
from the taxes that businesses are currently paying because
customers will shop online instead of supporting local
businesses.
4:48:49 PM
TRISTAN TALIESIN informed the committee he began vaping seven
months ago and successfully quit smoking tobacco products after
twenty-eight years. The bill would force him to buy products
online and if the local shop raises its prices he will not shop
locally. He votes and lives in Alaska and served in the
military. Mr. Taliesin stressed that e-cigarettes and vaping
are a consumer-driven market as an alternative to smoking
tobacco products; laws may cause him to spend his money out of
state or overseas.
4:50:35 PM
SETH PARKER said vaping saved his life when he started in
January 2015. The bill would hurt local businesses and destroy
the vaper industry in Alaska, and will force him as a consumer
to take his money out-of-state, even if he prefers to buy
locally.
4:51:59 PM
JORDAN EDWARDS said he has lived in Alaska for 30 years. He
said he smoked for ten years and quit five years ago by using
vaper products. He urged the committee to consider the impact
of HB 304 on small shops, local consumers, and the public in
Alaska. He opined that vaping is not smoking as stated in a
recent legal case. If a 100 percent wholesale tax takes effect,
shops will not be able to compete and all of the shops in the
Matanuska-Susitna area will close. Mr. Edwards warned that all
vapers will return to smoking or will purchase products online,
and the first line of defense against underage vaping will be
stopped. Currently, shops ask for identification, and kids will
turn to online purchases by the use of prepaid credit cards.
All consumers will turn to Internet purchases, resulting in lost
jobs, lost taxes, lost in-state commerce and revenue, and the
state will suffer far greater than if a realistic tax were
chosen. He concluded, saying that during the next decade one
billion people will die worldwide from tobacco-related illnesses
if vaping products are demonized.
4:54:00 PM
ELIZABETH RIPLEY, Executive Director, Mat-Su Health Foundation,
informed the committee her organization's board of directors
strongly supports HB 304 for the following reasons: increased
tobacco taxes reduce youth and adult smoking rates; the proposed
tax includes e-cigarette products, which are currently outside
of Alaska's laws and tax structures. Higher taxes prevent youth
tobacco use and reduce health care costs; for example, in 2005,
a tax of $1 per pack in the Matanuska-Susitna (Mat-Su) Borough
and an additional $1 per pack state tax were effective and
decreased smoking 58 percent for Mat-Su middle schoolers, 8
percent for traditional high schoolers, 22 percent for
alternative high schoolers, and 35 percent for adults. Ms.
Ripley said these decreases were a health and economic win for
affected individuals, their families, and for communities. The
foundation also supports the bill because it includes e-
cigarette products, which are perceived by adolescents to be
safer than traditional cigarettes. She said e-cigarettes are a
"grooming tool," which allows kids to become addicted to tobacco
and nicotine using flavors such as bubble gum and Skittles. A
report in 2015 showed that ninth graders who use e-cigarettes
were three times more likely to switch to combustible tobacco
products [report not provided]. She urged the committee to pass
HB 304 in order to protect all of Alaska's children and to
improve the health of the Alaska population.
REPRESENTATIVE JOSEPHSON asked Ms. Ripley to provide the
committee with the abovementioned report.
4:57:06 PM
ALISON HALPIN stated her opposition to HB 304. Ms. Halpin said
she is an [e-liquid] manufacturer, a vape shop manager, and a
consumer who would be affected by the proposed tax. Firstly,
she would be taxed for manufacturing [e-liquids] for sale;
secondly, her retail location would be taxed; and finally, she
would have to pay a higher price for products. The tax would
decimate an industry which helps people stop smoking, as she was
able to with a personalized vaporizer, and she has helped others
quit smoking. The tax would push customers to online retailers.
Ms. Halpin said vape shops are the first line of defense against
underage vaping. Demographics indicate the people who smoke are
individuals who suffer from depression and mental illness, are
low-income, and are in high-stress environments; the bill would
remove vaping as an option for those who want to stop.
4:58:47 PM
ERIC VARGASON said he opposes the tax because shops will close
and force people to shop online, and consumers will not receive
instruction on battery safety and support for quitting smoking.
Most importantly, vape shops check identification and shun
people under the age of 19 away from vaping. The tax will put
people out of work, close shops, and remove the opportunity for
people to quit smoking.
5:00:32 PM
ANGELA CARROLL said she was speaking on behalf of members of the
Smoke-Free Alternatives Trade Association. If HB 304 becomes
law, the bill would tax vape products at 100 percent of
wholesale price and treat alternative products just like
cigarettes. According to the Department of Revenue, small
operations would be required to carry tobacco licenses issued by
the state as if they were selling tobacco products, which they
are not. She said categorizing vape products into a tobacco tax
scheme is the wrong approach. Ms. Carroll described the
paperwork required by the bill, and she urged the committee to
review the forms. The remainder of her testimony will be
submitted in written form.
5:02:53 PM
JAMES BRIGGS said he owns an e-liquid company called Peche
Foggin Sauce. Mr. Briggs expressed his opposition to HB 304
because the proposed wholesale tax will hurt him as a consumer
and drive him out of business. The tax will close local
businesses and drive consumers to online sales. E-liquid
contains "pg, vg," artificial and natural flavorings, and
sometimes nicotine. The ingredients vary in price from $30 per
gallon to $200 per gallon, and nicotine costs $300 per gallon.
The tax will double his costs and the price of his product, so
consumers will turn to online vendors, ultimately hurting state
taxes. Also, some will return to combustible cigarettes which
contain 4,000 chemicals and known carcinogens. Mr. Briggs urged
the committee to oppose the tax.
5:04:34 PM
CHAIR OLSON closed public testimony.
[HB 304 was held over.]
5:05:25 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB304 Opposing Documents-Email Alison Halpin 03-02-16.pdf |
HL&C 3/2/2016 3:15:00 PM |
HB 304 |
| HB304 Opposing Documents-Email Sheb Garfield 02-24-16.pdf |
HL&C 3/2/2016 3:15:00 PM |
HB 304 |
| HB304 Opposing Documents-Tobacco tax forms-Ang Carroll-SFTAT-03-02-16.PDF |
HL&C 3/2/2016 3:15:00 PM |
HB 304 |
| HB304 Opposing Documents-Written Testimony-Alison Halpin 02-26-16.pdf |
HL&C 3/2/2016 3:15:00 PM |
HB 304 |
| HB304 Opposing Documents-Email Chuck Butler 03-01-16.pdf |
HL&C 3/2/2016 3:15:00 PM |
HB 304 |
| HB304 Opposing Documents-Email Isaac Howell 03-01-16.pdf |
HL&C 3/2/2016 3:15:00 PM |
HB 304 |
| HB304 Opposing Documents-Email Jay Oku 03-02-16.pdf |
HL&C 3/2/2016 3:15:00 PM |
HB 304 |
| ISER Economic Impacts study-New slides for remainder of Gunnar Knapp testimony 03-02-16.pdf |
HL&C 3/2/2016 3:15:00 PM |
ISER Presentation - New Slides for remainder of Gunnar Knapp testimony |