02/26/2002 08:10 AM House STA
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
February 26, 2002
8:10 a.m.
MEMBERS PRESENT
Representative John Coghill, Chair
Representative Jeannette James
Representative Hugh Fate
Representative Gary Stevens
Representative Peggy Wilson
Representative Harry Crawford
Representative Joe Hayes
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 199
"An Act relating to taxation, including taxation of income of
individuals, estates, and trusts."
- HEARD AND HELD
HOUSE BILL NO. 303
"An Act relating to the levy and collection of a sales tax; and
providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 398
"An Act relating to disposition of income of the Alaska
permanent fund; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: HB 199
SHORT TITLE:INCOME TAX: INDIVIDUALS/TRUSTS/ESTATES
SPONSOR(S): REPRESENTATIVE(S)HUDSON
Jrn-Date Jrn-Page Action
03/19/01 0650 (H) READ THE FIRST TIME -
REFERRALS
03/19/01 0650 (H) STA, FIN
03/23/01 0712 (H) COSPONSOR(S): SCALZI
01/18/02 2002 (H) SPONSOR SUBSTITUTE INTRODUCED
01/18/02 2002 (H) READ THE FIRST TIME -
REFERRALS
01/18/02 2002 (H) STA, FIN
01/18/02 2002 (H) REFERRED TO STATE AFFAIRS
02/14/02 (H) STA AT 8:00 AM BUTROVICH 205
02/14/02 (H) Heard & Held
MINUTE(STA)
02/23/02 (H) STA AT 10:00 AM HOUSE FINANCE
519
02/23/02 (H) Heard & Held
MINUTE(STA)
02/26/02 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 303
SHORT TITLE:STATEWIDE SALES TAX
SPONSOR(S): REPRESENTATIVE(S)WHITAKER
Jrn-Date Jrn-Page Action
01/14/02 1954 (H) PREFILE RELEASED 1/4/02
01/14/02 1954 (H) READ THE FIRST TIME -
REFERRALS
01/14/02 1954 (H) STA, FIN
01/16/02 1992 (H) COSPONSOR(S): FATE
02/04/02 2152 (H) COSPONSOR(S): LANCASTER
02/12/02 (H) STA AT 8:00 AM BUTROVICH 205
02/12/02 (H) Heard & Held
02/12/02 (H) MINUTE(STA)
02/26/02 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
REPRESENTATIVE BILL HUDSON
Alaska State Legislature
Capitol Building, Room 502
Juneau, Alaska 99801
POSITION STATEMENT: Testified as the sponsor of SSHB 199.
LARRY PERSILY, Deputy Commissioner
Office of the Commissioner
Department of Revenue
PO Box 110400
Juneau, Alaska 99811-0400
POSITION STATEMENT: Testified on SSHB 199.
SCOTT GOLDSMITH, Director
Institute of Social and Economic Research
University of Alaska Anchorage
3211 Providence Drive
Anchorage, Alaska 99508
POSITION STATEMENT: Testified on SSHB 199, commenting on
trigger mechanisms and impacts; during hearing on HB 303,
provided information relating to different taxation and budget-
reduction approaches.
KATHRYN KURTZ, Attorney
Legislative Legal Counsel
Legislative Legal and Research Services
Legislative Affairs Agency
State Capitol
Juneau, Alaska 99801-1182
POSITION STATEMENT: As the drafter of SSHB 199 and HB 303,
answered questions relating to Version J of both bills.
REPRESENTATIVE JIM WHITAKER
Alaska State Legislature
Capitol Building, Room 411
Juneau, Alaska 99801
POSITION STATEMENT: Testified as the sponsor of HB 303.
ACTION NARRATIVE
TAPE 02-18, SIDE A
Number 0001
CHAIR JOHN COGHILL called the House State Affairs Standing
Committee meeting to order at 8:10 a.m. Representatives
Coghill, James, Fate, Stevens, Wilson, and Crawford were present
at the call to order. Representative Hayes arrived as the
meeting was in progress.
CHAIR COGHILL announced, "The plan today is to try to amend up
the three different categories into three different bills." He
also announced that he didn't intend to move the bills from
committee, but rather to make a bill. Chair Coghill said he
felt a flat tax would be the best place to begin [the
discussion].
HB 199-INCOME TAX: INDIVIDUALS/TRUSTS/ESTATES
[Contains discussion of HB 413, HB 35, and HB 303]
CHAIR COGHILL announced that the first order of business would
be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 199, "An Act relating
to taxation, including taxation of income of individuals,
estates, and trusts."
CHAIR COGHILL reminded committee members that on February 23,
2002, Representative Hudson had provided the committee with an
amendment [22-LS0753\J.1, Kurtz, 2/18/02] to consider.
Number 0440
REPRESENTATIVE BILL HUDSON, Alaska State Legislature, testified
as the sponsor of SSHB 199. He began by saying SSHB 199 is an
attempt to fill a portion of the broad and difficult fiscal gap.
This bill simply reimposes an income tax, as a percentage of the
federal adjusted gross income. It uses a flat tax of 1 percent
of the adjusted gross income for the first year, which increases
to 2.25 percent of the adjusted gross income and continues on at
that rate.
REPRESENTATIVE HUDSON pointed out that the revised fiscal note
specifies that in the first year - because half of the year is
at 1 percent and half is at 2.25 percent - the total revenue
will be $258 million. That revenue will increase to $283
million [in the next year]. He added that this tax would be
less than one-half of the taxes paid by Alaskans when Alaska had
an income tax.
REPRESENTATIVE HUDSON related his belief that on average the tax
would be less than the permanent fund dividend (PFD), even at
the reduced rate. However, the more money one earns, the more
taxes one pays. If imposed, this tax could be deducted from the
federal income tax. According to a statement by Governor
Knowles regarding his [proposed] tax, Representative Hudson
reported that perhaps as much as $50 million that now goes to
the federal government could be retained by Alaskans.
Representative Hudson remarked that he'd written this bill
aiming for an equal contribution from the people of Alaska,
which is why he believes a flat tax is appropriate. He
mentioned that the fiscal note would probably be challenged in
the House Finance Committee because the administrative costs are
higher than originally submitted on the last governor's bill.
Number 0879
REPRESENTATIVE HUDSON turned to the amendment he'd offered at
the last committee hearing. He recalled that when the committee
had reviewed the three tax measures [SSHB 199, HB 10, and HB
413] members were enamored with the trigger mechanism in the
governor's bill [HB 413], which he said he likes as well.
Therefore, the amendment labeled 22-LS0753\J.1, Kurtz, 2/18/02,
was developed, which read as follows:
Page 1, line 12:
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Page 1, line 14, through page 2, line 1:
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"As soon as practicable after September 30
of each year, the department shall publish the
applicable tax rate under this subsection for the
following calendar year. The applicable tax rate for
a resident individual is
(1) two and one-fourth percent of the
individual's taxable income if the unaudited balance
in the budget reserve fund created by art. IX, sec.
17, Constitution of the State of Alaska, on
September 30, was equal to or less than
$2,000,000,000;
(2) one percent of the individual's taxable
income if the unaudited balance in the budget reserve
fund created by art. IX, sec. 17, Constitution of the
State of Alaska, on September 30, was more than
$2,000,000,000 but less than $2,500,000,000; or
(3) zero if the unaudited balance in the
budget reserve fund created by art. IX, sec. 17,
Constitution of the State of Alaska, on September 30,
was $2,500,000,000 or more."
Page 2, line 3:
Delete "(1)"
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Insert "."
Page 2, lines 7 - 10:
Delete all material and insert:
"As soon as practicable after September 30
of each year, the department shall publish the
applicable tax rate under this subsection for the
following calendar year. The applicable tax rate for a
nonresident or part-year resident individual, or for
an estate interest is
(1) two and one-fourth percent of the
individual's, estate's, or trust's taxable income,
multiplied by a fraction, the numerator of which is
taxable income from sources in the state and the
denominator of which is taxable income from all
sources, if the unaudited balance in the budget
reserve fund created by art. IX, sec. 17, Constitution
of the State of Alaska, on September 30, was equal to
or less than $2,000,000,000;
(2) one percent of the individual's,
estate's, or trust's taxable income, multiplied by a
fraction, the numerator of which is taxable income
from sources in the state and the denominator of which
is taxable income from all sources, if the unaudited
balance in the budget reserve fund created by art. IX,
sec. 17, Constitution of the State of Alaska, on
September 30, was more than $2,000,000,000 but less
than $2,500,000,000; or
(3) zero if the unaudited balance in the
budget reserve fund created by art. IX, sec. 17,
Constitution of the State of Alaska, on September 30,
was $2,500,000,000 or more."
REPRESENTATIVE HUDSON explained that the amendment ties an
individual's taxable income and the income taxes and percentages
to the unaudited balance in the Constitutional Budget Reserve
(CBR). The amendment specifies that if there is less than $2
billion in that reserve, the tax is 2.25 percent. If the
reserve has more than $2 billion but less than $2.5 billion, the
tax is 1 percent. If there is more than $2.5 billion, the tax
is 0 percent. Therefore, there is an incentive for the state to
do things such as oil exploration and development that will
enrich and enhance the CBR.
REPRESENTATIVE HUDSON highlighted that whether [the proposal] is
an income tax or using the earnings of the permanent fund, the
idea is to preserve a large value in the CBR, which is the
rainy-day fund, emergency and disaster fund, and growth and
opportunity fund. Continuing to consume the CBR would leave the
state with no "enterprise funds."
REPRESENTATIVE HUDSON specified that his proposal attempts to
preserve at least $1.5 billion in the CBR. If a significant
portion of the CBR can be maintained, oil revenues could be
bolstered by the earnings of the CBR when necessary. At a 5-
percent payout, the [reserve in the] CBR will bring in $50
million. Furthermore, $1.5 billion will bring in $75 million,
which is significant. In conclusion, Representative Hudson
offered the amendment and requested that the committee adopt it.
Number 1175
REPRESENTATIVE FATE moved that the committee adopt the
aforementioned amendment [Amendment 1].
REPRESENTATIVE JAMES objected. She explained that she isn't
enamored with the CBR [because it] requires repayment of any
money taken out, which she views as problematic. Representative
James specified that either the CBR should be filled up, as
[state statute] specifies, or it should be eliminated.
Furthermore, she felt that the three-quarters vote required to
access the CBR is problematic because it empowers the
[legislative] minority to ignore the intentions of the majority.
However, in our system the majority rules. Therefore,
Representative James said she would be more comfortable if the
CBR were changed to the earnings reserve account (ERA) [of the
permanent fund], where she felt the money would best be managed.
Although she believes it laudable to have a trigger mechanism,
she said she isn't sure this is the appropriate trigger.
Number 1360
REPRESENTATIVE FATE recalled that Representative Hudson had said
this bill would be a stimulus for oil exploration and
development, which bothered Representative Fate. He suggested
that usually a tax is a disincentive for economic development.
Furthermore, the trigger mechanism doesn't seem to allow room
for capital growth. He stressed that part of Alaska's problem
is that there is no economy beyond the oil fields. "It just
seems to me that ... this still keeps the capital growth of the
state in check," he said. He noted his confusion with regard to
how [SSHB 199] could be used and still maintain the capital
growth that is necessary.
REPRESENTATIVE HUDSON answered that he believes [Amendment 1]
encourages the state, now and in the future, to place more money
into the CBR, [in order] to do more oil exploration and other
things that can direct money into the CBR and thus reduce taxes.
The reduction in taxes would be the stimulus to increase the
money in the reserves, which could be made available for
economic development. Admittedly, making this money available
would require a [three-quarters] vote. Representative Hudson
recalled that the goal of the [three-quarters] vote was to
restrain the growth of government by placing a higher vote
requirement to access the money. Therefore, Representative
Hudson said he believes that the maintenance, development, and
growth of the CBR is one of the only opportunities to have money
available to do economic development and expansion, as well as
to provide for emergency services.
CHAIR COGHILL reminded everyone that if [SSHB 199] were
implemented with the trigger mechanism, it wouldn't be the only
income that would be coming into the state.
REPRESENTATIVE FATE acknowledged that may be true, but pointed
out that [SSHB 199] is what the committee is dealing with now.
He said taking money from the CBR, regardless of the vote
required, politicizes it. He suggested that by taking money
from the CBR for capital growth, therefore, there will be a
political fight, which may misdirect the capital growth.
Representative Fate emphasized that he has concerns with regard
to what "we" expect Alaska to be in the future.
Number 1613
REPRESENTATIVE JAMES acknowledged that there will be other bills
[related to the filling the fiscal gap] and thus one has to
think in terms of this bill's fitting in with other issues.
Representative James identified one purposes of a tax as trying
to fill [the fiscal gap]; therefore, it's difficult to discuss
[SSHB 199], which doesn't fill the gap. Furthermore, there is a
[proposed] constitutional amendment that would require a
spending cap, which could be increased with more than a majority
vote.
REPRESENTATIVE JAMES said it seems that at the spending cap
would be where the excess money would materialize, which she
estimated to be "down the road a ways." Therefore, she said she
wouldn't be bothered by stopping the income tax when it appeared
that more money would be taken in than necessary for the budget;
that would seem to be a valid trigger. However, the [trigger in
Amendment 1] seems to be a pacifier for people to believe that
the tax won't be present forever. Representative James said
during this period in Alaska's history when there has been no
personal [state] income tax, an unhealthy attitude has been
created. A 1-percent tax on the adjusted gross income is
miniscule in relation to the services provided to citizens of
the state.
REPRESENTATIVE HUDSON noted his agreement. He explained that he
wasn't certain the trigger [in Amendment 1] could be reached.
Furthermore, once a flat tax is started, perhaps no less than 1
percent should be charged because there is the need for the
mechanism to be available. Representative Hudson pointed out
that [Amendment 1] was offered at Chair Coghill's request, and
that its fate is the committee's prerogative.
CHAIR COGHILL related his understanding that once a tax is
implemented, it would endure. He characterized the [previous]
repeal of Alaska's personal income tax as an anomaly. Chair
Coghill expressed his desire to discuss how to trigger tax
relief at the point when there's enough.
Number 1905
REPRESENTATIVE WILSON related her belief that some trigger is
necessary because it would reassure the public. However, this
trigger is nothing more than smoke and mirrors. It would be
some time before it would kick in. Instead, triggers reflecting
reality should be in place. Representative Wilson stated her
dislike of [Amendment 1] and her agreement with Representative
James that this trigger should relate to [the ERA].
Number 2010
LARRY PERSILY, Deputy Commissioner, Office of the Commissioner,
Department of Revenue, explained that the trigger was placed in
the governor's bill [HB 413] because he felt it was necessary to
provide the public with hope that the tax rate would decrease if
times got much better. Mr. Persily offered his belief that
government shouldn't collect more than it needs. Therefore, $2
billion to $2.5 billion would be more than necessary for a shock
absorber, and thus the amount coming in should be reduced.
REPRESENTATIVE FATE highlighted the fact that some capital needs
haven't been met. He expressed concern that the CBR would never
be replenished, although there would be a scramble to do so with
money that should be going into the capital sector.
Furthermore, the public's expectation to raise the level of the
CBR such that taxes can be reduced would remain. Therefore, on
one hand there is the attempt to develop the state, while on the
other hand there is the task of building the CBR, which takes
money from that. Again, the public would have the expectation
[that the tax rate would decrease during good times].
MR. PERSILY informed the committee that the Department of
Revenue has a few increment requests for the 2003 budget, which
will help raise more revenue. Therefore, if those come to a
vote, he hoped that he could count on Representative Fate for
support for those increment requests.
MR. PERSILY turned to Representative Fate's concern. He
explained that the legislature would be replenishing the CBR
because [the tax would be generating] more than necessary.
However, if the legislature - before the money gets to the CBR -
says with a simple majority vote that it wants to spend money on
a railroad or road development, for example, then the
legislature can spend it. Then there wouldn't be a surplus to
return to the CBR. "Until it gets to the CBR, it's a simple 21
and 11 [vote] to spend it," he explained. "So if the needs are
there, you'd have the freedom to meet those needs."
REPRESENTATIVE FATE commented that it's never a simple 21-11
vote. He reiterated that [the CBR] will politicize it.
MR. PERSILY agreed that spending limits, putting money in the
CBR to cut the budget, and spending it for infrastructure will
all be political.
Number 2235
CHAIR COGHILL recalled Representative James's comments in regard
to the replenishment of the CBR under the legislature's current
mandate. He inquired as to Mr. Persily's view of that.
MR. PERSILY explained that a constitutional amendment says the
accounts are to be "swept" at the end of fiscal year June 30 and
that money is to be put back in [the CBR]. Since establishment
of the CBR in 1991, that has happened twice, and about $100
million has been repaid. He estimated that the state general
fund (GF) owes the CBR $4.2 billion to $4.3 billion as of today.
He highlighted the advantage of the state GF, which is that it
has no interest, forever. Mr. Persily related his belief that
no one believes the state will ever be able to repay $4.3
billion.
Number 2293
REPRESENTATIVE JAMES expressed the need to discuss whether there
should even be a CBR, which she doesn't believe serves a
purpose. Representative James pointed out that there is no
interest accruing on the CBR to begin with. She reiterated that
the CBR should either be repealed or refilled. She noted that
the other piece is the spending limit, which she believes
illustrates that the government won't run amok. Furthermore,
there is a statutory budget reserve, which has been empty for
quite some time. With the statutory budget reserve, if there
were more money than actually spent, that money would
automatically be placed in the statutory budget reserve.
MR. PERSILY replied that he wasn't familiar with that account.
REPRESENTATIVE HUDSON explained that the [excess] money has to
be appropriated into the account; it isn't automatically placed
into the statutory budget reserve.
REPRESENTATIVE JAMES related her understanding that the
statutory budget reserve account existed before the CBR. She
inquired as to how the statutory budget reserve account worked.
REPRESENTATIVE HUDSON recalled that it worked as a shock
absorber that was available with 21 votes. He also recalled
that it came into existence in 1980 or 1982 when there was some
[extra] money due to high oil revenues and heavy [oil]
production.
REPRESENTATIVE JAMES reiterated her suggestion that perhaps any
extra money should be placed in the earnings reserve [account]
(ERA) of the permanent fund - which would have political
consequences - if the intent is to create an incentive regarding
keeping a handle on spending. Representative James emphasized
that spending requests come from the public, not the
legislature. Therefore, if the money is in the ERA - from where
the money is taken - it seems that it would be an incentive to
keep the legislature in line because it would impact the amount
of the PFD, provided the dividend program is kept over the long
term.
Number 2499
MR. PERSILY posed a situation in which the CBR is abolished, the
money is placed in the ERA, and the percentage of market value
is adopted, which would limit the distribution from the
permanent fund to 5 percent per SSHB 199. The ERA is [part of]
the permanent fund, and no more than 5 percent of the total
market value of the fund can be taken. If there were a bad year
for oil prices and dividends had to paid, there could be a
problem with that 5 percent.
REPRESENTATIVE JAMES pointed out that the 5 percent has been
discussed as a statutory requirement, not as a constitutional
requirement. She announced that she wasn't willing to go with a
constitutional amendment on that because she wasn't convinced
that some inflation-proofing might have to be reduced. However,
she said she felt that a spending limit was reasonable based on
the money being spent. With regard to infrastructure,
Representative James mentioned that she had constituents from
Arctic Village and the Circle school showing her photos of what
their schools look like. She remarked that it's almost criminal
that there are children trying to obtain an education in such
conditions. "We just haven't been spending the correct amount
while we've been not paying any taxes," she said. She concluded
by reiterating her opposition to [Amendment 1].
CHAIR COGHILL remarked that anytime the word "permanent" is
attached to any "shock absorber" fund, there will be a political
problem. He said that's why he favors using the CBR. Chair
Coghill asked Mr. Goldsmith to comment on the trigger mechanism
incorporated in [Amendment 1].
Number 2670
SCOTT GOLDSMITH, Director, Institute of Social and Economic
Research, University of Alaska Anchorage, said he hasn't seen
[Amendment 1]. In general terms, Mr. Goldsmith said he believes
trigger mechanisms are a good idea. In regard to SSHB 199, Mr.
Goldsmith expressed the need to think carefully about the
structure of it. In some instances, Alaskans might end up
paying income tax to the state while having no federal
liability, because in calculating the federal liability, people
are able to take exemptions from the standard deduction.
Therefore, those with lower incomes could end up not paying a
federal tax while still having a state liability. Perhaps some
thought should be given with regard to the implications of that.
Number 2731
REPRESENTATIVE HAYES referred to a document from Mr. Goldsmith
regarding the impact on the economy in relation to the measure
that is chosen. He said there was no such impact as relates to
SSHB 199. He asked if the impact to the economy [from] SSHB 199
would be the same as from the governor's income tax bill [HB
413].
MR. GOLDSMITH explained that he hadn't reviewed the income tax
measures specifically, but had reviewed the impact of an income
tax that raised $350 million. Although there would be
differences in whom the money would be extracted from and what
the economic incentives would be, he felt those were of
secondary importance in relation to the amount of money
extracted from the private sector, which reduces the purchasing
power in the private sector.
Number 2787
CHAIR COGHILL returned to [Amendment 1] and its trigger
mechanism. He explained that he likes two things about it.
First, there has to be some end in sight for those who pay
taxes. The idea that the tax could diminish has to be forwarded
in order to illustrate that the government doesn't need to take
all it can get all the time. Second, the political pressure
with regard to keeping the CBR whole creates another layer of
political pressure. In regard to how the CBR could be repaid,
Chair Coghill [indicated agreement] with Mr. Persily's
assessment that perhaps there is no intention to repay it.
There is no incentive to repay the CBR. Chair Coghill specified
that one of the reasons he likes the trigger mechanism is
because of the incentive that the tax could diminish. He didn't
feel that taxes would provide a connection [between the people
and the government] in regard to how the money is spent.
Number 2909
REPRESENTATIVE CRAWFORD related his belief that [SSHB 199] must
be considered in the context of the entire package being
considered. One component that has been discussed the most
lately is taxing 50 percent of the dividend, which is a flat tax
that is bottom-loaded and thus takes a larger percentage of
income from those at the bottom. [Another component] is the
statewide sales tax, which also takes a larger percent of the
income from those at the bottom.
TAPE 02-18, SIDE B
Number 2970
REPRESENTATIVE CRAWFORD pointed out that when [revenue] is in
excess of $2 billion, the amount of tax would only be
[decreased] from the income tax, rather than from [the other
options such as the sales tax]. There has been testimony that
the income tax is trying to balance, with its "progressive"
side, the nonprogressive side of the flat tax on the dividend
and the sales tax. Therefore, it seems if there is to be a
trigger on the income tax, then there should be one on the
dividend tax and the sales tax, and perhaps even the alcohol
tax. Representative Crawford requested that this fairness issue
be discussed.
REPRESENTATIVE HUDSON replied that although he has introduced
legislation that would tax the dividend, he hasn't requested a
hearing because he isn't convinced that is the path to follow.
Therefore, there is no active legislation that would tax the
dividend. He explained that HB 35 isn't a tax on the dividend,
but is a distribution method that takes 50 percent of the 5-
percent payout and gives half to the dividend and the other half
to the GF. Representative Hudson explained that SSHB 199 is the
reimposition of an income tax at an extremely low level. This
legislation would bring in $285 million.
REPRESENTATIVE HUDSON remarked that the committee would need to
determine whether it believes there should be a trigger, and
this is the place to do so. If the committee doesn't like the
CBR as the trigger, then it could find something else. However,
the important thing is to not get weighted down with regard to
whether there should be a trigger or not. He pointed out that
the legislature can always refund taxes. Representative Hudson
offered that the committee could amend [Amendment 1] by deleting
[both occurrences of] paragraph (3) [in Amendment 1]; therefore,
the tax would never fall below 1 percent or rise above 2.25
percent. Furthermore, it would tied to the amount of money in
the CBR.
REPRESENTATIVE HUDSON said he doesn't personally believe the CBR
will be eliminated until Alaskans are convinced to do so. The
[three-quarters] vote provides the public some satisfaction that
a simple majority [vote by legislators couldn't] make decisions
that use the money to expand the size of government.
Representative Hudson specified, "We're here to serve the people
of Alaska, not some particular party." He opined that the CBR
has worked, although he expressed the need to eliminate the
"sweep provision." He said he didn't foresee the state's
ability to repay the $4.4 billion that has been borrowed from
the CBR.
Number 2685
REPRESENTATIVE JAMES moved that the committee adopt the
following conceptual amendment to [Amendment 1]. She explained
that [first] the conceptual amendment would delete [both
occurrences of] paragraph (3), which read as follows:
"(3) zero if the unaudited balance in the budget
reserve fund created by art. IX, sec. 17, Constitution
of the State of Alaska, on September 30, was
$2,500,000,000 or more ."
REPRESENTATIVE JAMES referred to paragraph (2) on page 1, line
16, of Amendment 1, which read:
"(2) one percent of the individual's taxable income
if the unaudited balance in the budget reserve fund
created by art. IX, sec. 17, Constitution of the State
of Alaska, on September 30, was more than
$2,000,000,000 but less than $2,500,000,000; or"
REPRESENTATIVE JAMES specified that [second] the conceptual
amendment to Amendment 1 would change paragraph (2) to read as
follows:
"(2) one percent of the individual's taxable income
if the unaudited balance in the budget reserve fund
created by art. IX, sec. 17, was completely
replenished as required by law"
REPRESENTATIVE JAMES clarified that the change to paragraph (2)
would also be necessary on the second page of Amendment 1.
Number 2580
CHAIR COGHILL objected for discussion purposes. He remarked, "I
think that takes the smoke and mirrors to a higher level."
REPRESENTATIVE JAMES disagreed.
CHAIR COGHILL reiterated his like of the trigger mechanism.
REPRESENTATIVE JAMES said this state could have a huge economy,
which could replenish the CBR over time. She stressed that the
purpose for [the amendment to Amendment 1] is because the law
specifies that the CBR be replenished.
CHAIR COGHILL asked if the language proposed by the amendment
[to the Amendment 1] would work.
Number 2521
KATHRYN KURTZ, Attorney, Legislative Legal Counsel, Legislative
Legal and Research Services, Legislative Affairs Agency,
speaking as the drafter, answered that she didn't view the
amendment to Amendment 1 as changing a lot or as problematic,
offhand.
CHAIR COGHILL removed his objection. Therefore, the amendment
to Amendment was adopted and Amendment 1 as amended was before
the committee.
Number 2459
REPRESENTATIVE WILSON commented that the amendment to Amendment
1 is an improvement, especially regarding the elimination of
paragraph (3).
REPRESENTATIVE FATE highlighted the need to be aware that what
[the legislature] does now will impact Alaska's future economic
development. He noted that he didn't want to discourage [the
state's] progress [with economic development] because the state
needs more than just the oil and gas industry. He highlighted
that the gas industry will not take the place of the oil
industry as far as dollars into the state government.
Therefore, broad-based economic progress needs to occur in this
state. He expressed the need to keep that thought in mind with
every decision.
Number 2351
REPRESENTATIVE HAYES moved that the committee adopt Amendment 1
[as amended]. There being no objection, Amendment 1 [as
amended] was adopted.
Number 2320
CHAIR COGHILL announced that he had an amendment to the
effective date that he wanted the committee to review. He
surmised that the policy call is with regard to whether there is
a desire to have [SSHB 199] be retroactive.
Number 2298
REPRESENTATIVE JAMES began discussion of what would become
conceptual Amendment 2. She said she didn't want [SSHB 199] to
be retroactive because she viewed that as a slap in the face of
the public. Furthermore, [such retroactivity] makes it
difficult to administer. Therefore, she suggested [SSHB 199]
should be effective January 1, 2003.
REPRESENTATIVE JAMES offered the foregoing as conceptual
[Amendment 2].
CHAIR COGHILL referred to page 4, Section 6, subsection (a), and
asked if the December 31, 2002, date would have to be moved up
one year as well.
REPRESENTATIVE JAMES replied no. She pointed out that December
31, 2002, is the day before [the tax withholding on wages]
starts. Representative James clarified that the bill would
merely have an effective date of January 1, 2003.
CHAIR COGHILL announced that he would request that a conceptual
amendment for an effective date of January 1, 2003, be drafted
[in a committee substitute].
CHAIR COGHILL, after determining that there was no objection,
indicated conceptual Amendment 2 was adopted.
Number 2165
REPRESENTATIVE JAMES turned to the issue of a flat tax on the
adjusted gross income. She said she agreed with not going to
the itemized deductions and credits - the parts that the federal
government manipulates in order to determine the tax. She
suggested perhaps there should be a floor with regard to the
number of exemptions [an individual can claim]. Perhaps it
would be best, she said, to specify an amount per exemption.
However, she didn't want to tie it to the federal tax. Once
it's established, the [exemption] could increase in relation to
the cost of living; perhaps between $3,000-$5,000 would [be
appropriate for this exemption]. Therefore, the decision would
be whether to tax the first dollar an individual earns.
REPRESENTATIVE HUDSON noted that he'd spoken with Representative
James, and although he hadn't developed a proposal, he thought
it might be of value. He pointed out that such a determination
would be left to the federal government. Therefore, it has to
be a reasonable modification to the adjusted gross income in a
way that best serves Alaskans. Representative Hudson said he
didn't know how to rewrite this [to do what Representative James
is suggesting]. He expressed the need to forward a letter to
the House Finance Committee regarding this possible exemption.
REPRESENTATIVE JAMES explained her view that [the proposed tax]
would eliminate the potential for an individual to "play with
this." Representative James said she really likes this flat
tax, which she views as fair and simple. She predicted that
there would be less auditing by the department, which she views
as important. Representative James offered to do this in a
letter to the next committee of referral. However, she said,
she would feel more comfortable having the language incorporated
into the legislation before the bill is forwarded.
CHAIR COGHILL pointed out that the definition of "poverty level"
is really composed of several different levels for various
things. Therefore, he suggested that a number be specified.
REPRESENTATIVE HUDSON highlighted that the money [the tax] would
collect is to sustain programs that, for the most part, impact
those at the lower end of the economic scale. Therefore,
everyone would contribute, while the money would be largely
funneled to the lower end of the economic scale. If the
collections at the lower end of the economic scale are going to
be modified, then one must seriously consider the amount taken
from everyone else. He said he likes the idea that those at the
lower end of the economic scale will have to pay something.
Number 1695
REPRESENTATIVE STEVENS expressed appreciation for Representative
Hudson's approach of keeping this tax simple in order to avoid
more expenses related to the collection of these taxes.
Representative Stevens offered his belief that adjusted gross
income would include the federal cost-of-living allowance
(COLA). He asked whether Representative Hudson had considered
providing credit for property taxes.
REPRESENTATIVE HUDSON confirmed that COLA is included in the
adjusted gross income. However, [SSHB 199] doesn't taken into
consideration exemptions for a property tax or senior
exemptions. He related the difficulty in choosing a base, but
the thought was that the adjusted gross income was the most
equitable way in which to acquire an equitable contribution.
REPRESENTATIVE STEVENS agreed with the need to be simple.
Number 1549
REPRESENTATIVE JAMES recalled that nearly 30 years ago when she
was involved with the Head Start program, she would advise
parents that even saving a little is important. Although 1
percent is small, if everyone pays a little, then it's more
fair. She emphasized that many of the people that are of
concern don't have an adjusted gross income. Therefore, even if
the adjusted gross income is used, Representative James said she
didn't feel anyone would be destroyed with a 1 percent tax.
However, there is the perception that those with more children
need extra money - but to have those children was their choice.
CHAIR COGHILL commented that "we" aren't trying to institute
something that resembles the federal income tax. Chair Coghill
turned to the issue of the trust industry and related his belief
that it will have to deal with this tax. Furthermore, he said
he understood that the trust industry already has a premium tax.
He asked if Representative Hudson had considered any change in
regard to the trust industry.
REPRESENTATIVE HUDSON recalled that when the trust legislation
was passed, the idea was to provide economics in Alaska such
that those who wish could bring their money to Alaska for
management and that Alaska would receive a percentage for its
management. He said he was amenable to modifying the bill to
address the trust industry in order that it continue. However,
he wasn't sure how to make the modification and thus he'd asked
Representative Murkowski to assist with that.
CHAIR COGHILL noted that addressing the trust industry in SSHB
199 would play into his consideration of forwarding the bill.
REPRESENTATIVE HUDSON said it is [the same] for him as well. He
reassured Chair Coghill that he would work on a modification
that would address the trust industry.
Number 1261
CHAIR COGHILL explained to the committee that he'd requested
that the sales tax legislation [HB 303] be heard first because
it included [conditional-effect language] that he had considered
inserting in [SSHB 199]. The amendment he referred to read as
follows:
Page 6, line 4:
Insert new Section 10:
Section 10. The uncodified law of the State of Alaska
is amended by adding a new Section to read:
CONDITIONAL EFFECT. This Act takes effect only if
(1) the Twenty-Second Alaska State Legislature
passes
(A) a version of Senate Joint Resolution 23,
proposing amendments to the Constitution of the State
of Alaska relating to an appropriation limit and a
spending limit,
or
(B) a version of House Joint Resolution 36,
proposing an amendment to the Constitution of the
State of Alaska limiting the rate of state individual
income taxes and sales taxes; and
(2) at least one of the propositions for the
amendments in the resolutions described in (1) of this
section is approved by the voters at the 2002 general
election.
*Sec.[10] 11
CHAIR COGHILL further explained that he was trying to offer
language such that whatever is done with regard to taxation is
equal to what is done to reduce government.
Number 1107
MS. KURTZ informed the committee that there is a potential
constitutional problem if the effectiveness of a bill passed by
the legislature is contingent on a resolution amending the
constitution passed by the legislature and then approved by the
people. She explained that, in effect, the [conditional-effect
language] makes the underlying bill contingent upon the approval
of the voters. The conditional effectiveness sort of blends the
two distinct and parallel processes by which the constitution
[allows] for making law - that is, through the legislature and
by initiative. Although this question hasn't directly been
decided by the courts in Alaska, the majority of states have
decided that such [conditional-effect language] isn't
[appropriate].
MS. KURTZ, in response to Chair Coghill, said she didn't think
making [the bill effective] contingent on its passage out of the
legislature poses the same issues. Still, there are
difficulties when passage of one bill in the legislature is
contingent upon the passage of another bill in the legislature.
Therefore, she expressed the need to be sure that the single-
subject requirement is adhered to in both pieces of legislation.
CHAIR COGHILL specified that he was trying to avoid any
"trouble" while providing a balance between the passage of a tax
and the pressure [to decrease] government. He asked if the
aforementioned amendment without references to the resolutions
would be as powerful as intent language.
MS. KURTZ noted that intent language is different [because] it
wouldn't be codified. Removal of the references to the
resolutions would be helpful in addressing the single-subject
requirement.
REPRESENTATIVE HUDSON inquired as to the effect on the effective
date of the SSHB 199. How would one determine the actual
effective date of the bill and the subsequent increases?
Representative Hudson related his understanding that Chair
Coghill is interested in finding a nexus between developing a
tax-collection mechanism with the approach to reduce or hold the
line with expenditures. Representative Hudson said he could see
how such intent language could be used without upsetting the
intent of the bill. However, he agreed with Ms. Kurtz that the
language in the aforementioned amendment, including references
to the resolutions, would be tantamount to [requiring] a public
vote on something for which the legislature is responsible.
CHAIR COGHILL said that, too, was his concern. Furthermore, he
expressed concern that such a change would make a majority vote
issue [on legislation] contingent upon a super-majority [two-
thirds] vote. He specified that that wasn't his intention,
although he understood that even still, the problem with the
two-thirds vote would surface.
MS. KURTZ agreed and pointed out that it would be problematic
even when the legislation is contingent on the legislature via a
resolution.
CHAIR COGHILL surmised that if [passage of SSHB 199] were made
contingent upon a vote of the people, it wouldn't pass the
constitutional test. Contingency based on passage from the
legislature would probably be safer ground.
MS. KURTZ specified, "It's an undecided question whether hanging
it on a vote of the people would be a problem in Alaska." The
bulk of the decisions elsewhere don't seem to be favorable.
Although conditional-effect language relating to passage from
the legislature would move away from that concern, it would
still be problematic in relation to the majority vote [on the
average tax bill].
CHAIR COGHILL said he is looking for a self-leveling mechanism.
Number 0533
REPRESENTATIVE HUDSON related his perception that a majority of
[legislators] are willing to consider a responsible spending-
limit opportunity on which the people can vote. Although he
indicated agreement with the need for a nexus, he agreed that
tying passage of this to the passage of other specific
legislation would be constitutionally problematic.
CHAIR COGHILL concluded by pointing out that the tax [proposal]
that is forwarded from this committee will likely be an enduring
[tax]. Therefore, he [expressed the need] to balance that tax
with some downward pressure in order to provide some enduring
effect. In the past, the legislature has done a good job
holding the line and placing money into the corpus of the
permanent fund. Chair Coghill announced that he would order a
committee substitute. [SSHB 199 was held over.]
HB 303-STATEWIDE SALES TAX
Number 0343
CHAIR COGHILL announced the final order of business, HOUSE BILL
NO. 303, "An Act relating to the levy and collection of a sales
tax; and providing for an effective date."
CHAIR COGHILL inquired about the need to change the language on
page 3 regarding the conditional effect. He then pointed out
that there was a proposed committee substitute (CS), Version J.
Number 0230
REPRESENTATIVE FATE moved [to adopt the proposed CS, version 22-
LS1206\J, Kurtz, 2/16/02, as the working document]. There being
no objection, Version J was before the committee.
Number 0182
REPRESENTATIVE JIM WHITAKER, Alaska State Legislature, sponsor
of HB 303, referred to the issue of a conditional effect raised
by Chair Coghill [in that day's hearing on SSHB 199]. He said
there are two cost-control mechanisms currently before the
legislature: HB 35 and SJR 23. There are differing opinions
regarding the constitutional validity of attempting to make this
conditional upon a vote of the people. He'd requested a legal
opinion from Legislative Legal and Research Services, he
reported, and Tamara Cook had said it is questionable with
regard to its constitutional validity, but had cited a contrary
opinion of the attorney general.
REPRESENTATIVE WHITAKER read from Ms. Cook's final opinion,
however [dated February 25, 2002, page 4], which stated, "Having
said that, it must also be observed that a law has been
submitted to the voters for a binding vote, and so far as I can
tell, that action has never been challenged." He commented:
I think there's some real question as to whether or
not there is constitutional validity. If we're timid,
we probably accept the notion that it may be
questioned. But [when] we're talking about a subject
that's [as] significant as this, I don't think it's
the time for timidity. And so while we want to be
cautious and approach it with some wisdom, I think,
too, that there's reason to think that ... it would
withstand a constitutional challenge.
Number 0030
REPRESENTATIVE JAMES remarked that whether or not it faces a
constitutional challenge, Kathryn Kurtz [bill drafter from
Legislative Legal and Research Services] had informed the
committee that when legislation is tied to a constitutional
amendment, the legislation itself requires a two-thirds vote.
REPRESENTATIVE WHITAKER concurred. He added, "There's no reason
for us to think that we don't have the opportunity to acquire a
two-thirds vote."
TAPE 02-19, SIDE A
Number 0001
REPRESENTATIVE WHITAKER suggested a measure of that nature will
probably pass if it goes before the [voters].
Number 0088
REPRESENTATIVE JAMES referred to Version J, page 1, beginning at
line 6, which read:
Sec. 29.45.750. Collection of municipal sales and use
tax by the state. The Department of Revenue may
collect a sales and use tax levied by a municipality
under AS 29.45.650 or 29.45.700 and remit it to the
municipality if requested to do so by municipal
ordinance.
REPRESENTATIVE JAMES asked whether there is any requirement that
the municipality must then "succumb to the methodology" used for
the state sales tax.
REPRESENTATIVE WHITAKER said no.
REPRESENTATIVE JAMES noted that it says "may" and asked whether
the department isn't required to do it, then.
REPRESENTATIVE WHITAKER said that was correct.
REPRESENTATIVE JAMES remarked that she would like to hear from
the department, but noted that the department representative was
no longer present.
REPRESENTATIVE WHITAKER offered:
Our intent should not be to impose. Our intent should
be to facilitate. And by having the language "may",
we are indeed accomplishing that end. We are giving
the opportunity to facilitate the collection of the
tax, and if it's most beneficial to a community ... to
do that, then the opportunity is there. If they
choose to do otherwise, they may do so. I don't think
that we can write better language.
Number 0240
REPRESENTATIVE WILSON requested confirmation that the bill
doesn't make any accommodation for the areas that already have a
sales tax, but just says [a municipality] may collect it "the
way the state does."
REPRESENTATIVE WHITAKER affirmed that.
REPRESENTATIVE WILSON said she is highly concerned about that.
Many communities have experienced decreasing options because of
a declining timber industry, for example, or other situations.
Those communities have had to add a sales tax or otherwise
become creative in order to provide services, but at a very high
cost to the people who live there. If there isn't some
accommodation for those situations, she said, it will make it
much more difficult for those communities to survive. Right
now, people are "hanging on" and buying locally, but an added
[state] tax will make a huge difference, and people will start
to buy more over the Internet or go to Seattle or Anchorage.
She reiterated her desire to see some accommodation for those
areas.
REPRESENTATIVE WHITAKER agreed it is an area of concern and that
the concerns raised are valid. He referred to his testimony on
February 12, 2002, that there is no perfect tax.
Number 0438
CHAIR COGHILL remarked that the "whole municipal title kind of
came crashing down on us the very first time this was mentioned,
and how we would fit that into some of the municipality taxing."
He added, "At this point, it ... gives a permissive alignment
and gives them some relief, to benefit from some of the tax
collected, as ... it does the individual collector. So, I think
that's the best incentive without going into a total rewrite of
the municipal title."
REPRESENTATIVE WHITAKER agreed, adding, "If we open Title 29, we
don't know where it stops, and we don't know what it will lead
to. ... And it's certainly a task that goes well beyond the
scope of the subject at hand."
Number 0523
REPRESENTATIVE JAMES began discussion of what would become
Amendment 1 to Version J. She noted that alcoholic beverages
are still [exempt] in the bill and questioned the reasoning.
Referring to separate legislation that relates to a tax on
alcohol at the wholesale level, she said 3 percent on alcoholic
beverages is at least 5 cents a drink, and she would prefer to
have it [included here] "for lots of reasons."
REPRESENTATIVE WHITAKER responded that he would consider an
amendment to that end to be a friendly amendment.
REPRESENTATIVE JAMES said, "I so move, Mr. Chairman."
CHAIR COGHILL clarified that Amendment 1 would delete line 18,
page 2, paragraph (5). He asked whether there was any
objection. There being no objection, Amendment 1 was adopted.
Number 0697
REPRESENTATIVE WILSON referred to an e-mail [from Scott
Goldsmith] relating to the effects of different taxes; she asked
whether it was a good time to discuss it.
CHAIR COGHILL said he was going to invite Mr. Goldsmith to speak
at the end of the discussion. He then said the discussion has
been good, but that the committee will have to address this
further. He advised members that there were other amendments he
would like to include as well; for example, many states have a 1
percent [sales tax] on some medical supplies, prescription
drugs, and food, which he would like to committee to discuss.
Number 0772
REPRESENTATIVE CRAWFORD referred to page 2 [lines 23-24], which
read, "(8) that part of the selling price of a single item or
the periodic selling price of a single service that exceeds
$2,000". He stated, "I have a problem with the tax being the
same, whether a person's buying an '89 Chevy Celebrity or
they're buying a 2002 Mercedes. That seems to fly in the face
of the only part of the 'progressivity' of a sales tax."
Number 0850
REPRESENTATIVE WHITAKER reiterated that the perfect tax won't be
found, and said it is difficult to have a graduated sales tax.
He added that he wouldn't object to any change that would
improve the bill.
REPRESENTATIVE JAMES agreed with Representative Crawford,
adding, "I don't see any reason for [capping] the tax. I think
it's more difficult to manage, and I would prefer that it didn't
have a limit." She then commented that she wasn't pleased about
tying it into "the other amendment of the constitution" but said
she wouldn't "make a lot of noise on that." She concluded:
My evaluation of where we're going on filling this
hole is that I believe we need to have a fair and
equitable, small amount of income tax, and we also
have to have a sales tax, too, and some use of the
earnings of the permanent fund, or we're never going
to get there. And ... we're going to have to take
another look at the way we currently do the permanent
fund dividend and make it be ... more rational, at
this time, if we're going to protect it over the long
term. Otherwise, it will just go away, on its own.
Number 0975
REPRESENTATIVE FATE asked Ms. Kurtz whether there could be an
effective date for the legislation that is contingent upon the
vote of the people on a constitutional question. If the people
didn't vote in the affirmative, the bill would become moot, he
suggested.
Number 1009
KATHRYN KURTZ, Attorney, Legislative Legal Counsel, Legislative
Legal and Research Services, Legislative Affairs Agency,
answered that having an effective date be contingent upon action
by the voters of the state - as opposed to the legislature -
also may be problematic for some of the same reasons. She
offered to provide a more detailed explanation [later].
CHAIR COGHILL remarked that Representative Whitaker had said,
"Either we can be bold and test it or we can just forget it."
Chair Coghill said there needs to be more of that discussion.
Number 1050
REPRESENTATIVE CRAWFORD informed the committee that he wanted to
offer a conceptual amendment, but noted that Representative
James had just left.
Number 1080
CHAIR COGHILL suggested bringing in some other amendments [as
well]. He agreed with the need to look at a sales tax, an
income tax, and permanent fund earnings simultaneously, but
emphasized the desire to make each piece of legislation a "whole
unit" unto itself. He then commented that Mr. Goldsmith's
comparison [in his e-mail] of the three different bills had been
interesting. He invited Mr. Goldsmith to comment further.
Number 1168
SCOTT GOLDSMITH, Director, Institute of Social and Economic
Research, University of Alaska Anchorage, testified via
teleconference, noting that an e-mail he'd sent expands on his
testimony the previous week. He stated:
Whatever sort of tax mechanism or dividend-reducing
mechanism or budget-reducing mechanism we employ to
try to reduce the size of the fiscal gap, it's going
to draw purchasing power out of the private sector.
It's going to take dollars out of the private sector,
and that's going to result in a job loss to the
private sector. There's no way that we can painlessly
take money away from the private sector, reduce the
budget. ...
One of the questions for consideration, then, becomes
what is the impact on the economy - how many jobs
would be lost from the various methods that we're
thinking about? And very, very roughly, it depends
upon three or four things. It depends upon whether
there's any sharing ... by the federal government in
paying for the tax, and that's where the income tax
comes in, because the federal government will, in
effect, pick up part of the cost of paying a state
income tax, because some people ... who itemize their
reductions are able to reduce their federal income tax
if there's a state income tax.
The other measures generally don't have that nice
feature, although reducing the dividend, again,
results in some reduction in federal tax payments.
Number 1336
MR. GOLDSMITH turned attention to nonresidents and said:
The other important factor is how much of this tax or
dividend reduction would be paid by nonresident
Alaskans, by outsiders. And that's where a sales tax
gives the appearance of being attractive, because
there are a lot of visitors during the summer season,
and the appearance is that they spend a lot of money,
and so taxing them would reduce the burden on Alaskans
if there were a sales tax.
But, in fact, if you combine the federal effect and
the nonresident effect, the income tax generally - and
I'm not talking about any specific tax structure now -
but generally the income tax results in fewer dollars
being pulled out of the Alaskan economy for every
hundred dollars collected (indisc.) the sales tax.
... Reducing the dividend falls in the about the same
range as the sales tax.
On the other hand, if we look at cutting the operating
budget, which is primarily personnel, either directly
paid for as state government employees or transfers to
local government and local government employers, most
of the state budget is people. And if you cut the
operating budget - and that's what most of the general
fund is - ... then you're going to be directly cutting
jobs. And in addition to directly cutting those jobs,
[if] those employees lose their income, they have less
[to spend in] the private sector, so purchasing power
in the private sector goes down from that measure as
well.
CHAIR COGHILL interjected to inform Mr. Goldsmith that committee
members had to leave. He expressed appreciation for his e-mail
and said he would formulate questions regarding the methodology
for further discussion. He mentioned that Bob and Jane Murray
were present from Anderson, Alaska, and thanked them for their
patience.
CHAIR COGHILL announced his intention to discuss at a future
hearing what the best approach would be and what effects it
would have, and then to put some "sideboards" on it. [HB 303
was held over.]
ADJOURNMENT
Number 1498
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 10:04
a.m.
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