02/20/2018 03:15 PM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HJR26 | |
| Confirmation Hearing(s)|| Confirmation Hearing(s) | |
| Presentation: Indirect Expenditure Hearing | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HJR 26 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
February 20, 2018
3:19 p.m.
MEMBERS PRESENT
Representative Jonathan Kreiss-Tomkins, Chair
Representative Gabrielle LeDoux, Vice Chair
Representative Chris Tuck
Representative Adam Wool
Representative Chris Birch
Representative DeLena Johnson
Representative Gary Knopp
MEMBERS ABSENT
Representative Andy Josephson (alternate)
Representative Chuck Kopp (alternate)
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 26
Proposing amendments to the Constitution of the State of Alaska
relating to the membership and actions of the Redistricting
Board and relating to district boundaries and the establishment
of a nonpartisan statewide district map.
- HEARD & HELD
CONFIRMATION HEARING(S)
- CONFIRMATION(S) ADVANCED
PRESENTATION: INDIRECT EXPENDITURE HEARING
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HJR 26
SHORT TITLE: CONST. AM: REDISTRICTING;BOARD MEMBERSHIP
SPONSOR(s): REPRESENTATIVE(s) GARA
01/08/18 (H) PREFILE RELEASED 1/8/18
01/16/18 (H) READ THE FIRST TIME - REFERRALS
01/16/18 (H) STA, JUD, FIN
01/22/18 (H) SPONSOR SUBSTITUTE INTRODUCED
01/22/18 (H) READ THE FIRST TIME - REFERRALS
01/22/18 (H) STA, JUD, FIN
02/20/18 (H) STA AT 3:15 PM GRUENBERG 120
WITNESS REGISTER
REPRESENTATIVE LES GARA
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented SSHJR 26, as prime sponsor.
JUSTIN LEVITT, Professor
Loyola Law School
Los Angeles, California
POSITION STATEMENT: Testified during the hearing on SSHJR 26.
MARGO WARING, League of Women Voters of Juneau (LWVJ)
Juneau, Alaska
POSITION STATEMENT: Testified during the hearing on SSHJR 26.
LESLIE RIDLE, Commissioner Designee
Department of Administration (DOA)
Juneau, Alaska
POSITION STATEMENT: Testified as appointed commissioner of the
Department of Administration (DOA).
DAN STICKEL, Chief Economist
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Co-presented an overview of DOR's Indirect
Expenditure Report for fiscal years 2011-2015 (FY 11-15), with
the use of a PowerPoint presentation.
KY CLARK, Economist
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Co-presented an overview of DOR's Indirect
Expenditure Report for fiscal years 2011-2015 (FY 11-15), with
the use of a PowerPoint presentation.
ALEXEI PAINTER, Fiscal Analyst
Legislative Finance Division (LFD)
Legislative Affairs Agency (LAA) Juneau, Alaska
POSITION STATEMENT: Presented an overview of the Legislative
Finance Division's indirect expenditure reports with the use of
a PowerPoint presentation.
ACTION NARRATIVE
3:19:55 PM
CHAIR JONATHAN KREISS-TOMKINS called the House State Affairs
Standing Committee meeting to order at 3:19 p.m.
Representatives Birch, Johnson, Knopp, and Kreiss-Tomkins were
present at the call to order. Representatives LeDoux, Tuck, and
Wool arrived as the meeting was in progress.
HJR 26-CONST. AM: REDISTRICTING;BOARD MEMBERSHIP
3:20:47 PM
CHAIR KREISS-TOMKINS announced that the first order of business
would be SPONSOR SUBSTITUTE FOR HOUSE JOINT RESOLUTION NO. 26,
Proposing amendments to the Constitution of the State of Alaska
relating to the membership and actions of the Redistricting
Board and relating to district boundaries and the establishment
of a nonpartisan statewide district map.
3:20:58 PM
REPRESENTATIVE LES GARA, Alaska State Legislature, as prime
sponsor, presented SSHJR 26. He noted that a proposed committee
substitute (CS) for SSHJR 26, Version 30-OS0155\N, Bullard,
1/31/18 [included in the committee packet and referred to as
Version N] would attempt to eliminate politics from
redistricting, which is also referred to as gerrymandering. He
said that roughly ten states have adopted a non-partisan method
of drawing district lines so as not to favor one party or
another. He maintained that both parties have tried to take
advantage of the redistricting process.
3:22:49 PM
JUSTIN LEVITT, Professor, Loyola Law School, relayed his
experience in the field of redistricting and voting rights. He
testified that he agrees with Representative Gara's assessment
that neither party has a monopoly on abusing the redistricting
process when possible. He stated that in most states, sitting
legislators draw both their own district lines and where
applicable, districts of members of Congress. He said that it
is often legislative leadership that wields redistricting power,
not the "rank and file" legislators. He reported that in many
states, leadership is at least tempted to use redistricting
power as a cudgel against both members of the opposing party and
occasionally against members of their own party.
MR. LEVITT continued by saying that the process is rarely
transparent; because redistricting can be very personal when it
is pursued as an exercise in raw partisan power, it often
appears to be overflowing with ill will, creating significant
conflict among legislators that carries over into the
legislative sessions. He maintained that when this happens, it
creates substantial cynicism among the public, even if the
process did not actually put personal and partisan interests
ahead of the public interest. He said that in his experience
and in the experience of many other redistricting commentators,
it often appears to the public eye that the system is rigged,
that is, members exercising the power granted to the state to
act on behalf of all its constituents but exercising that power
to benefit just a few.
MR. LEVITT offered his belief that the U.S. is the only
industrialized western democracy that allows those with the
greatest potential for conflict of interest to draw their own
electoral district lines. He said that many countries have
observed the U.S. practice and determined that they can find a
better way.
3:26:59 PM
MR. LEVITT relayed that a few states, including Alaska, have
taken a different approach to drawing state legislative
districts. Connecticut and Maine allow the legislature to draw
redistricting lines that have supermajority requirements, which
can increase the likelihood of a more bipartisan outcome. He
reported that seven states - Arkansas, Colorado, Hawaii,
Missouri, New Jersey, Ohio, and Pennsylvania - have established
commissions to draw redistricting lines but allow elected
officials to serve on those commissions. In most instances
these bodies are also structured in a manner designed to be
bipartisan; therefore, they differ from the legislature. In two
other states - Iowa and New York - there are advisory bodies
with substantial independence from the legislature, but
theoretically they are subject to legislative override. He said
that New York's system is new for the year 2020, so it remains
to be seen how it will work. Iowa's experience in the last four
decades shows that its independent body substantially drives the
process and has never been overridden by the legislature, even
though the legislature has that authority.
MR. LEVITT referred to several other states - Arizona,
California, Idaho, Montana, Washington, and as of 1998, Alaska -
that have asked commissions with substantial amounts of
independence from the legislature to draw legislative lines.
These states are often considered leaders of establishing
redistricting processes in that the processes correspond more to
public interest than to partisan or private interests. Members
of the commissions in all these states must not be current
sitting state legislators or other specified public officials;
the list varies from state to state. He said that members of
the commissions of these states are precluded from running for
office in the districts for which they have drawn lines, at
least for a few years. In the states with independent
commissions, all but one are designed so that the membership of
the commission is balanced in a bipartisan fashion. He offered
that California, in addition, provides specific membership on
the commission for those who are affiliated with neither major
party.
MR. LEVITT relayed that the one state that does not, at present,
have a directly and intentionally bipartisan structure is
Alaska. States have created a diverse array of options to
perform legislative and congressional redistricting; even within
the rough categories described, there is substantial variance in
how each structure is designed and substantial variance in how
each works in practice. He added that some of the systems work
quite well; some work fairly well; and some work fairly poorly.
Each likely could be improved - sometimes incrementally and
sometimes exponentially.
3:30:53 PM
MR. LEVITT maintained that he firmly believes that there is no
single correct "cookie cutter" answer for every state; there is
no "magic bullet" that can or should be uniformly implemented
everywhere and in the same way, without concern for demography,
history, or political context. He expressed that Iowa's system
works well for Iowa but would not work well for California.
California's system works well for California but is unnecessary
for Idaho. Idaho's system works well for Idaho but isn't likely
to work well in New York. He asserted that each system, even
when it functions well for its own state, can likely be
improved.
3:31:39 PM
MR. LEVITT related that the present system in Alaska has many
elements to commend it, but it, too, can be improved. He opined
that the process was improved in 1998, when control passed from
the governor alone to the current reapportionment board. He
expressed his belief that Version N of SSHJR 26 would make even
greater advancements to the process. At present, Alaska has
some safeguards for the public. Those who draw the lines may
not be public employees or officials at the time they are
appointed or throughout the tenure of their appointments. There
are provisions for geographic diversity; there must be a member
from each judicial district on the board. There was substantial
transparency in the manner that redistricting was conducted in
the 2000 and 2010 redistricting cycles.
MR. LEVITT said that in theory, appointment to the
reapportionment board is to be made without regard to partisan
political affiliation; the members of the board are not supposed
to be partisan. He pointed out that currently, four out of five
members of the reapportionment board are themselves appointed by
officials elected to political positions; it is often the case
that the officials of one political party will do most of the
appointing. He explained that when elected officials with
partisan allegiance make the appointments, even while the text
precludes appointment regarding partisan affiliation, the public
may be misled into perceiving that the board itself has a
partisan slant.
MR. LEVITT stated that Version N would continue Alaska's hardy
tradition of a redistricting body distinct from the legislature
and continue the tradition of precluding current public
employees and officials. In addition, it would add a welcome
measure of incremental independence by precluding former
political party operatives and former elected officials from
serving on the board. He maintained that Version N would
prevent someone from retiring from a legislative office and
serving on the board the next day. It would also add a measure
of partisan balance to the reapportionment body itself with two
members from each of the major parties and several members from
neither. He opined that this would more closely approximate the
structure of independent commissions in other states, such as
Arizona, Idaho, Montana, and Washington; he noted the political
and partisan diversity of this group of states. He opined it
would strengthen the measures of incremental independence and
incremental balance; it would strengthen the Alaskans' faith in
the redistricting process.
3:35:16 PM
MR. LEVITT relayed that Version N also would strengthen the
redistricting process's focus on criteria that benefit Alaskans
- retaining the state's very strong protections for communities
of interest - and thus, legislators would really know who they
are representing, and that would be felt and perceived by the
public. The criteria would still be embodied in the requirement
that districts contain relatively integrated socioeconomic areas
but would add specific language that would preclude drawing a
map to unduly favor a party or candidate. He maintained that
aspect being important both for the substance of the map and the
public perception of it. He said that the Alaska Supreme Court
has emphatically enforced the redistricting provision of state
law and that he expects it would enforce the provision of
Version N, if it became law, which should give Alaska citizens
incremental confidence that the process is defined for them.
MR. LEVITT stated that he has focused his testimony on fair
process, not results, which he said is appropriate. Alaskans
are diverse with various protected racial and ethnic communities
and many citizens who prefer one of the major political parties.
He offered that there is a fierce independent streak among
Alaskans; some citizens prefer neither major party. Districts
that are drawn through a fair process will inevitably in any
given cycle or election end up creating some natural advantages
for certain candidates; it is impossible to remove all political
results from the redistricting process. However, he opined that
a fair process - one designed to be independent of the candidate
running in the districts drawn and one with natural balance -
will give Alaskans increased confidence that the electoral
contests, whatever their outcomes, have not been unfairly
tilted. He expressed his belief that Version N brings Alaska's
process closer to that ideal and moving in an incrementally
positive direction.
3:38:46 PM
REPRESENTATIVE LEDOUX moved to adopt the proposed CS for SSHJR
26, Version 30-LS0155\N, Bullard, 1/31/18, as the working
document. There being no objection, Version N was before the
committee.
3:39:06 PM
REPRESENTATIVE GARA relayed that there are six changes in
Version N. He referred to Section 1 of Version N, on page 1,
lines 8-10, which read, "The map may not be drawn to unduly
favor a political party, and a district may not be drawn to
unduly favor a political party or candidate." He mentioned that
the language was recommended by Mr. Levitt and was used in
Hawaii's statutes.
3:39:57 PM
REPRESENTATIVE LEDOUX asked for the difference between "favoring
a political party" and "unduly favoring a political party."
REPRESENTATIVE GARA responded that could be amended; the intent
is to not favor a political party [through redistricting]. He
stated that there are districts that favor the Democratic Party,
the Republican Party, the Green Party, or the Alaska
Independence Party (AIP); by virtue of the way even a non-
partisan redistricting map is drawn, not every district will be
fifty-fifty. He offered that technically a district may favor a
[political] party, but the intent of the proposed legislation is
to avoid unfairly favoring a party; the map should be written
such that it does not unduly, unwarrantedly favor a party.
REPRESENTATIVE LEDOUX asked if the language might be interpreted
as the map may not be drawn with the intention of favoring one
party or another.
REPRESENTATIVE GARA answered, "Yes, the whole map." He added
that the statewide map is intended to be nonpartisan, with the
recognition that one district or another may favor one party or
another.
REPRESENTATIVE LEDOUX restated Representative Gara's answer by
saying, "It may end up that way, but that shouldn't be the
intention of how you draw the whole map or even the district
map."
REPRESENTATIVE GARA replied, "That's true."
REPRESENTATIVE GARA referred to Section 2, on page 2, lines 4-
18, and relayed that the number of members on the redistricting
board has changed over the years; under Version N, it would
consist of seven members - two from the party with the most
votes in the prior election, two from the party with the second
most votes, and because most voters in Alaska are independent,
three members who are independent. The first four political
party members would choose the three independent members.
REPRESENTATIVE GARA referred to Section 4, on page 3, lines 6-7,
and relayed that there had been language banning political
contributions by those appointed to the board; Mr. Levitt
explained that might be unconstitutional; therefore, it was
removed. He added that with the four party members choosing the
three independent members, the political leanings of the three
would become evident.
REPRESENTATIVE GARA referred to Section 4, page 3, lines 9-11,
which states that the four party members would appoint the three
independent nonpartisan members.
REPRESENTATIVE GARA referred to Section 4, page 3, lines 13-21,
and explained that if the four party members can't agree on the
three independent members by a certain deadline, the Alaska
Supreme Court would appoint the three independent members.
REPRESENTATIVE GARA relayed that Section 6, on page 4, lines 1-
3, contains conforming language.
3:43:53 PM
REPRESENTATIVE TUCK asked if "independent" refers to a member of
the Alaska Independence Party or to someone who is [registered]
undeclared nonpartisan.
REPRESENTATIVE GARA explained that the three members who are not
members of the two major parties are non-party affiliated.
REPRESENTATIVE LEDOUX referred to Section 4 (d), on page 3,
lines 6-8, and asked whether a person appointed to the
redistricting board is required to have never been elected to
office. She asked whether someone elected 20 years ago would
not be allowed to serve on the board currently.
REPRESENTATIVE GARA responded that Version N would allow local
officials to be appointed, since in Alaska they are often
nonpartisan. He relayed that state and federal elected
officials are usually affiliated with one party or another. He
said he is open to an amendment but feels that these officials
should not be on the redistricting board.
REPRESENTATIVE LEDOUX expressed that she understands that
reasoning for the nonpartisan members, but not for the [four]
partisan members, because they are supposed to be partisan.
REPRESENTATIVE GARA stated that he is amenable to a committee
change on that provision. In either case, the result would be
two members from each party and three independent members, who
will be the "power brokers" on the board.
3:46:50 PM
REPRESENTATIVE TUCK referred to page 2, lines 16-18, which read,
"three members who are not registered as affiliated with a
political party and who have not been registered as affiliated
with a political party within the preceding ten years". He
expressed his understanding that it does not preclude someone
who only has been a registered voter for five years.
REPRESENTATIVE GARA replied that there is a requirement that the
member would have to have voted in the last few general
elections. He agreed that someone who has been in Alaska for
six years, if he/she has been independent for the entire six
years, would qualify for appointment to the board.
3:47:50 PM
REPRESENTATIVE LEDOUX referred to Section 2, on page 2, lines 5-
6, which read, "members, all of whom shall be residents of the
State and registered voters who have voted in each of the
previous four state general and primary elections". She offered
the scenario of a person selected for the board in 2017, who
would have had to have voted in the general and primary
elections in 2016 and 2014. She suggested that some of the most
partisan people are the ones who vote in primaries; she asked,
"If you're actually trying to eliminate partisanship ... why
would you make voting in a primary mandatory?"
REPRESENTATIVE GARA responded that he welcomes an amendment
eliminating "primary elections." He reiterated that since the
two Democrats and two Republicans would appoint three
independent members who will outnumber them, the independents
will be the power brokers, and making that change should not
affect the outcome of creating a nonpartisan redistricting
board.
3:50:14 PM
MARGO WARING, League of Women Voters of Juneau (LWVJ), testified
that the League of Women Voters (LWV) has long been concerned
with reapportionment and redistricting in the U.S. She
mentioned that she has belonged to the national LWV
Redistricting Task Force (RTF) for the three years it has been
in existence. She relayed that RTF has studied the structure of
redistricting boards in every state and the improvements that
states have made in their processes. The RTF developed a
position on redistricting, which is now held by LWV. She
expressed that she supports Representative Gara's efforts to
devise a fair way to redistrict Alaska and asked for House
support.
MS. WARING said that Alaska's redistricting process has always
been contentious. She relayed the following history: The
Alaska State Constitution originally made redistricting a
function of the governor; the [Alaska] constitutional
convention, reacting to the problems other states had with
conducting reapportionment in a timely and fair manner, selected
the governor model. In 1964, the U.S. Supreme Court affirmed
the rule of one person one vote. The redistricting maps of
1970, 1980, and 1990 were found by the Alaska Supreme Court to
be unconstitutional. In 1998, the legislature initiated, and
the public narrowly supported the creation of Alaska's current
five-member redistricting board, in which two members are
appointed by the governor, one by the Speaker of the House, one
by the President of the Senate, and one by the chief justice -
all "without regard to political affiliation." She offered that
these words imply that the board would be nonpartisan; however,
in practice, nonpartisanship was not achieved. The maps of 2000
and 2010 were challenged in court, and portions were found to be
unconstitutional. The criteria cited in the Alaska Constitution
are that districts be nearly equal in population and that one
senate district encompass two house districts. The districts
are to be compact and contiguous; they should be integrated
socioeconomically as much as possible; and attention should be
paid to local government boundaries and geographic features as
much as possible.
MS. WARING opined that the theme of this history is that
Alaskans, aware of the possibilities of partisanship and
gerrymandering and desirous of a nonpartisan apportionment of
districts, have, since statehood, favored approaches that are
fair; they support the one person one vote rule; and they do not
allow legislators to pick their own voters. She maintained that
Alaska has yet to achieve this goal. She expressed her belief
that Representative Gara's effort to achieve this goal is to be
commended. Representative Gara has studied a variety of
approaches and selected one that can work for Alaska, one that
provides the kind of fair redistricting process consistent with
the concept of one person one vote, and one in which voters
select legislators rather than legislators select voters.
3:54:04 PM
CHAIR KREISS-TOMKINS announced that SSHJR 26 would be held over.
^CONFIRMATION HEARING(S)
^CONFIRMATION HEARING(S)
CONFIRMATION HEARING(S):
Commissioner, Department of Administration
3:54:32 PM
CHAIR KREISS-TOMKINS announced that the next order of business
would be a hearing for the consideration of the confirmation of
the appointment of Leslie Ridle as commissioner of the
Department of Administration.
3:54:51 PM
LESLIE RIDLE, Commissioner Designee, Department of
Administration (DOA), directed the committee's attention to her
resume, included in the committee packet, and relayed that she
grew up in Douglas, moved to Anchorage in eighth grade and
attended high school there, and went to college at Oregon State
University on a student loan from the State of Alaska. She
mentioned that at that time, Alaska forgave 50 percent of
student loans for students who returned to the state.
COMMISSIONER RIDLE relayed that she taught seventh grade for one
year and eighth grade for six years at Gruening Middle School;
she taught English and Social Studies. She stated that she
moved to Juneau in her late twenties, because she wanted to see
"government in action"; she worked for the legislature and loved
it. She added that she has been involved with the government
and the legislature for 27 years. She related that she worked
for the House for a couple years, the Senate for a couple years,
for Governor Knowles for eight years, for Mark Begich as Mayor
of Anchorage and as U.S. Senator for some years, and for
Governor Bill Walker. She pointed out that she has worked in
various levels of government and two branches of government, and
she expressed that has given her a broad spectrum that has
served her well in her current position.
COMMISSIONER RIDLE mentioned that she worked under [former]
commissioner of DOA, Sheldon Fisher and learned a great deal
from him. She stated that her goal is to move the projects
forward that she and Mr. Fisher started. She relayed those
initiatives as follows: consolidating information technology
(IT); creating a streamline system for state offices through
shared services; negotiating fair contracts for employees;
reducing and streamlining the procurement process and tracking
procurement through the state accounting system, Integrated
Resource Information System (IRIS); space consolidation;
expanding customer service in divisions such as the Division of
Motor Vehicles (DMV) and the Division of Retirement and Benefits
(DRB); saving money on healthcare for both state retirees and
active plan employees; and examining the possibility of a Health
Care Authority (HCA). She offered that in the next few years,
she expects these large projects to be "solid." She added that
along with these large initiatives are the everyday little
initiatives.
3:59:54 PM
CHAIR KREISS-TOMKINS thanked Commissioner Ridle for her service
to Alaska in her various positions.
4:01:13 PM
REPRESENTATIVE LEDOUX moved to forward the name of Leslie Ridle
to the joint session of the House and Senate for confirmation.
There being no objection, the confirmation of Leslie Ridle was
advanced from the House State Affairs Standing Committee.
^Presentation: Indirect Expenditure Hearing
Presentation: Indirect Expenditure Hearing
4:01:45 PM
CHAIR KREISS-TOMKINS announced that the final order of business
would be a presentation on the Department of Revenue (DOR)
Indirect Expenditure Report, presented by Dan Stickel and Ky
Clark in DOR and Alexei Painter in the Legislative Finance
Division (LFD).
4:02:08 PM
The committee took an at-ease from 4:02 p.m. to 4:03 p.m.
4:03:02 PM
DAN STICKEL, Chief Economist, Tax Division, Department of
Revenue (DOR), explained that the presentation would give a
high-level overview of what an indirect expenditure is and
review the report that DOR publishes to inform the committee.
4:04:37 PM
CHAIR KREISS-TOMKINS expressed his hope that the presentation
would inspire the committee to explore ways of creating greater
efficiencies and reducing indirect expenditures through
statutory change.
4:04:53 PM
KY CLARK, Economist, Tax Division, Department of Revenue (DOR),
began the PowerPoint presentation, entitled "Overview of DOR's
Indirect Expenditure Report, Preliminary Report for FY 2011-FY
2015," included in the committee packet. He referred to slide
4, entitled "Indirect Expenditure Report Overview," and stated
that the legislation authorizing the report was signed on July
7, 2014. He relayed that AS 43.05.095 requires DOR to submit a
report to the Legislature biennially on July 1 detailing the
indirect expenditures of all agencies in the State. It also
requires the Legislative Finance Division (LFD) to provide a
report to the legislature on the indirect expenditures of
certain agencies. The first Indirect Expenditure Report was
released July 8, 2014, a day after the legislation was signed;
the second report was released July 1, 2016; and the third will
be released July 1, 2018.
MR. CLARK referred to slide 5, entitled "Indirect Expenditure
Defined," and relayed that an indirect expenditure is any
foregone revenue by the state designed to encourage an activity
to benefit the public in the form of a credit, exemption,
deduction, deferral, discount, exclusion, or other differential
allowance. He gave an example of each as follows: An example
of a tax credit is Alaska's oil and gas tax credit. An example
of an exemption is DOA's motor vehicle and license fees being
waived for disabled persons. An example of a discount is the 50
percent discount on annual food safety and sanitation permits
offered by the Department of Environment Conservation (DEC) to
non-profit organizations. An example of a deduction that
doesn't include costs incurred in the ordinary course of
business is the mining license tax percentage depletion
deduction, which is allowed by DOR for certain types of mining.
An example of a differential allowance is the Pioneer Home
Payment Assistance Program offered by the Department of Health
and Social Services (DHSS), which allows a resident to live in
an Alaska Pioneer Home even if not able to pay the monthly rate.
4:09:10 PM
MR. CLARK referred to slide 6, entitled "DOR Indirect
Expenditure Report." He relayed that the most recent indirect
expenditure report was released July 1, 2016, and details 231
indirect expenditures across 11 departments and agencies - 78 of
which are administered by DOR. The report was a cooperative
effort by all departments and agencies involved; DOR followed
the process established for the 2014 report but with an improved
presentation, an expanded introduction, enhanced methodologies,
and other refinements.
4:10:18 PM
MR. CLARK referred to slide 8, entitled "Methodology-
Internally," to delve into the actual methodology of the report.
He relayed that staff surveyed all Tax Division workgroups and
all divisions within DOR to ensure a complete list of all
indirect expenditures in the department. Staff queried the tax
database to generate information and develop the reports. He
mentioned one improvement to the methodology - the development
of a consistent definition for "fiscal year (FY)" - as taxes
come in according to different time schedules. He maintained
that "nailing down" a FY definition was important for comparing
indirect expenditures and determining the revenue impact for any
given FY. He referred to slide 9, entitled "Methodology-
Internally," to explain the definition used for FY: the FY
includes any tax returns received during the FY and covering a
period that began in the FY. For FY 2015, the beginning dates
of the returns are July 2014 through June 2015. Because some
returns are not received until a year or a year and a half
later, they were available at the time of publication of the
report.
MR. CLARK referred to slide 10, entitled "Methodology-
Externally," and relayed that DOR met with other departments and
agencies and sent out a survey for them to report their indirect
expenditures. Each agency examined their operations to identify
indirect expenditures, and a few of the departments identified
provisions that did not actually meet the definition of an
indirect expenditure. He turned to slide 11, entitled
"Methodology- Externally cont.," to point out examples of
provisions not meeting the definition: the Alaska Housing
Finance Corporation (AHFC) identified a potential indirect
expenditure - reduced loan rates; however, because setting the
rates was part of AHFC normal operations and not required by
statute, AHFC is permitted, by statute, to set the rates.
4:13:40 PM
REPRESENTATIVE TUCK offered a situation in which a rate is set
and then discounted by an agency for a certain class of people.
He asked whether that would qualify as an indirect expenditure.
4:14:12 PM
MR. STICKEL responded that according to the statutory
definition, the differential must be set in statute. An agency
with a fee setting authority may be able to provide a reduction
to a fee or rate, but it would not qualify as an indirect
expenditure for the report.
4:14:42 PM
MR. CLARK continued his review of the examples of provisions not
meeting the indirect expenditure definition as described on
slide 11. The Department of Commerce, Community & Economic
Development (DCCE) has licensing fees set by statute to cover
program costs; reduced licensing fees for residents versus non-
residents was determined not to be foregone revenue, because the
fee differential does not affect total revenue. The University
of Alaska (UA) awards tuition waivers to UA employees and their
dependents; however, because the waivers are included in the
employee benefit package, they are not considered foregone
revenues. He relayed another example related to UA - non-
resident versus resident tuition - and explained that UA does
not discount the resident tuition rate, rather the out-of-state
student is paying a non-resident surcharge; therefore, it does
not constitute foregone revenue.
4:15:55 PM
REPRESENTATIVE TUCK referred to the example of the DCCED
licensing fees being reduced for residents and stated that he
did not understand why the fees would be exempt from the
indirect expenditure report, since they are set in statute. He
asked for an explanation why the DCCED reduced fees are not
considered lost revenue.
MR. CLARK answered that the fees do not meet the definition of
indirect expenditure, because the DCCED program is completely
funded by the fees collected; therefore, they are not foregone
revenue.
4:17:41 PM
REPRESENTATIVE LEDOUX maintained that the DCCED example appears
to be foregone revenue and perhaps the statutory definition of
foregone revenue should be changed.
4:18:22 PM
MR. STICKEL explained that DCCED licensing fees are set in such
a manner that they provide all the revenue needed to administer
the program; therefore, the total revenue, which includes lower
fees from residents and higher fees from non-residents, covers
the total cost of program.
REPRESENTATIVE LEDOUX asserted that if higher fees were
collected from residents, the revenue would exceed the cost of
the program thereby decreasing the unrestricted general revenue
(UGF) needed to fund the department. She said, "To me it's
still foregone revenue."
MR. STICKEL replied that DOR recognizes a deficiency in the
statutory definition and, therefore, is bringing these examples
of exceptions to the legislature to reconsider. Based on DOR's
interpretation of indirect expenditures, the DCCED fees cited
are not included.
CHAIR KREISS-TOMKINS expressed his understanding that with the
DCCED example, covering the cost of the program is the only
concern; nonetheless, it is "flagged" for committee
consideration.
4:20:12 PM
REPRESENTATIVE TUCK asked how DMV is different from the DCCED
example; it charges fees to pay for its operations but does not
collect additional revenue.
MR. STICKEL replied that he is not prepared to speak to the DMV
indirect expenditure but will follow up.
4:20:55 PM
REPRESENTATIVE KNOPP offered that the difference is that the
DCCED licensing fees are set in statute to raise funds to manage
a program; with DMV, there are set fees but not a statutory
requirement to cover only the cost of administering the DMV
[programs].
MR. STICKEL responded that Representative Knopp's explanation
sounds plausible and will provide that information. He added
that the goal of the presentation is to provide a high-level
overview.
4:21:44 PM
MR. CLARK moved on to slide 12, entitled "Reported Information,"
to review the data points requested from each department for the
report. They are as follows: the name of the indirect
expenditure; a brief description; the statutory authority; the
repeal date, if applicable; the intent of the legislature in
enacting the statute authorizing the indirect expenditure; the
public purpose that is served by the indirect expenditure; the
estimated revenue impact of the indirect expenditure for the
previous five fiscal years excluding the fiscal year immediately
preceding the publication of the report; the estimated cost to
administer the indirect expenditure, if applicable; and the
number of beneficiaries who benefit from the indirect
expenditure. He added that along with this required
information, DOR asks the type of indirect expenditure, as
listed in AS 43.05.095(d) and shown on slide 5, as well as the
year the indirect expenditure began or was enacted.
4:23:50 PM
MR. CLARK referred to slide 13, entitled "Overview of DOR's
Indirect Expenditure Report," and described the contents of the
report. The introduction includes the purpose of the report,
what is included in the report, and an explanation of the
limitations of the report's methodology. The indirect
expenditures are organized by department alphabetically, by
division alphabetically, and grouped by program name for each
division, if applicable. For example, the Tax Division consists
of various program groups such as corporate income tax,
fisheries taxes, and mining taxes.
MR. CLARK referred to slide 14, entitled "Future Plans." He
stated that DOR has and will continue to solicit suggestions for
improvements from the Office of Management and Budget (OMB) and
LFD, which will be incorporated into the July 1, 2018, report.
He stated that DOR works with agencies to obtain missing data -
data that is unavailable or difficult to locate.
4:25:31 PM
MR. STICKEL referred to slide 16, entitled
"Recommendations/Considerations," and relayed that DOR was asked
by the legislative finance committees to recommend areas of
indirect expenditures that the legislature could examine in more
detail. Slide 16 lists five areas that DOR identified for the
committees to consider.
MR. STICKET turned to slide 17, entitled "House Bill 155 from
2015-2016," to describe the first area for consideration. He
relayed that House Bill 155, introduced during the Twenty-Ninth
Alaska State Legislature (2015-2016), would have repealed four
specific indirect expenditures: tobacco products tax; cigarette
tax; motor fuel tax, and large passenger vessel gambling tax
deduction. He stated that HB 96, introduced during the current
legislative session [the Thirtieth Alaska State Legislature
(2017-2018)] is like House Bill 155 but does not include the
motor fuel tax repeal.
MR. STICKEL continued with slide 18, entitled "Largest Indirect
Expenditures," and offered that if the state wants to save
money, it should look at the list of the largest indirect
expenditures. This list includes oil and gas tax credits, which
the legislature has changed significantly since FY 16, the
Mining License Tax depletion deduction, and Sport Fishing,
Hunting and Trapping senior discount, among others.
MR. STICKEL referred to slide 19, entitled "Recommendations from
Legislative Finance," which lists indirect expenditures that LFD
recommends be terminated, reconsidered, or reviewed by the
legislature.
MR. STICKEL moved on to slide 20, entitled "Fee Setting
Authority," to explain that the legislature has granted fee
setting authority to several agencies. Examples of agencies
with fee setting authority are as follows: the Alaska Marine
Highway System (AMHS) fee setting authority within the
Department of Transportation & Public Facilities (DOT&PF);
tuition setting authority within UA; and the rate setting
authority within the Alaska Housing Finance Corporation (AHFC).
He said that the indirect expenditure report does not include
the foregone revenue related to discounts offered by the
agencies with fee setting authority.
4:28:32 PM
CHAIR KREISS-TOMKINS suggested the possibility of the
legislature changing the statutes so that the DCCED licensing
fees would cover the cost of DCCED administration costs rather
than only the cost of administering the licensing program.
MR. STICKEL replied that it is possible. He maintained that
informing the legislature about the areas for which it has
granted agencies fee setting authority is a useful place to
start.
REPRESENTATIVE TUCK suggested that DMV fees are set in statute
and not through fee setting authority.
4:30:46 PM
REPRESENTATIVE BIRCH asked whether DOR has any recommendations
based on the information compiled in the report.
MR. STICKEL answered that slides 16-20 gives ideas for different
areas that could be examined, and his recommendation is for
legislators to look at them.
4:31:38 PM
ALEXEI PAINTER, Fiscal Analyst, Legislative Finance Division
(LFD), in response to the question about DMV fees, said that
those fees are not set based on the costs of the programs;
therefore, an increase in the fees could be used to replace UGF.
On the other hand, if a statutory exemption for fees for a board
was eliminated, it would merely "shift two pays" but not bring
in more revenue to the state, unless the statute was changed.
He maintained that the exemption is not an indirect expenditure,
because of the way the statute is written; however, if the
statute were written to include any discount resulting in
reduced payments by an individual or business, then it would be
an indirect expenditure in the report.
MR. PAINTER referred to the PowerPoint presentation, entitled
"Overview of Legislative Finance Division Indirect Expenditure
Reports," included in the committee packet, and relayed that the
LFD report is a follow up to the DOR report. He turned to slide
2, entitled "LFD Indirect Expenditure Reports," and relayed that
DOR prepares a report every two years that covers all state
agencies with indirect expenditures; LFD makes recommendations
to the legislature based on the data in the DOR report but
focuses on certain agencies; and the LFD report is released at
the beginning of the legislative session - six months after the
DOR report. He explained that some of the agencies examined in
2015, were not "revisited"; therefore, the most recent data
examined was FY 13 - now five-year-old data. Most of the
related recommendations may be a useful starting point, but not
particularly valid. He mentioned that there are several
references to the corporate income tax rate, and that has
changed; therefore, the impact of the recommendations may be
different now than at the time of the report.
4:34:14 PM
MR. PAINTER referred to slide 3, entitled "Agencies in 2015
Report," and relayed that in 2015, the agencies covered were
DCCED, Alaska Department of Fish & Game (ADF&G), DHSS,
Department of Labor & Workforce Development (DLWD), and DOR. He
moved on to slide 4, entitled "Summary of 2015 Recommendations,"
to point out the LFD recommendations as follows: terminate 17
provisions, which would result in a total known revenue impact
of $5 million - for 3 provisions, the impact was unknown at the
time; modify or review 59 provisions; continue 37 provisions;
and for 25 provisions, LFD could not make recommendations due to
the provision recently having been instituted, the statute
recently having been changed, or insufficient information. He
mentioned that the subsequent DOR report, released in 2016,
provided more information on the revenue impacts of those
provisions.
MR. PAINTER referred to slide 5, entitled "2015 Report Key
Points," to report that one of the 17 provisions recommended for
termination was repealed under House Bill 247 [during the
Twenty-Ninth Alaska State Legislature (2015-2016)].
CHAIR KREISS-TOMKINS asked for examples of the other 16
provisions that LFD recommended for termination and that come
under the jurisdiction of the House State Affairs Standing
Committee.
MR. PAINTER responded that many of the provisions are related to
the corporate income tax; the main corporate income tax
structure has not been updated since the '70s. He offered that
some of the assumptions at that time do not align with modern
tax law, and some provisions reference sections of the federal
tax law that no longer exist. He gave an example: When Alaska
created the corporate income tax provision, there was a
differential in the federal tax code between the capital gains
tax and regular income. For uniformity, Alaska applied those
percentages to its own corporate income tax and taxed capital
gains at a lower rate based on the percentages used by the
federal government. The federal government no longer engages in
that practice; therefore, Alaska is left with differentials
based on the 1970s federal tax code. He opined that these
differentials should be revisited by the legislature.
MR. PAINTER mentioned that another provision recommended for
termination involved the commercial fisheries entry commission,
but he expressed that he was not familiar with the details. He
stated that the House Finance Subcommittee for DOR reviewed the
recommendations in 2017 line by line and recommended
modification, repeal, or further review of 17 of the provisions
within DOR; these are not the same 17 that were recommended by
LFD for termination, although there is overlap between the two
groups.
4:39:09 PM
MR. PAINTER referred to slide 6, entitled "Agencies in 2017
Report," and relayed that in 2017, LFD's report covered more
agencies but fewer indirect expenditures, because the clear
majority of them are within DOR. The agencies covered in the
2017 report were as follows: DOA; the Department of Education
and Early Development (DEED), including the Alaska Student Loan
Corporation (ASLC) and the Alaska Commission on Postsecondary
Education (ACPE); DEC; the Department of Natural Resources
(DNR); the Department of Transportation & Public Facilities
(DOT&PF); and the Alaska Court System (ACS) ("Judiciary"). It
also reviewed the Education Tax Credit due to its sunset at the
end of 2018. He added that since the legislature had just
modified the Education Tax Credit the year before, there was no
data yet for the modified credit to be analyzed for the 2015
report; therefore, that analysis was completed for the 2017
report and recommendations offered for modification of the
statute.
MR. PAINTER moved on to slide 7, entitled "Summary of 2017
Recommendations," and relayed that LFD offered the following
recommendations: the termination of 2 provisions that had no
known revenue impact; the modification or review of 13
provisions; and the continuation of 56 provisions. There was no
recommendation for 6 provisions. He explained that the large
number of provisions recommended for continuance was because of
the agencies reviewed and the types of provisions.
MR. PAINTER referred to slide 8, entitled "2017 Report Key
Points," to point out that for some provisions, revenue
generation is not the goal of the fee. He said that the most
prominent example of that is someone getting a ticket from ACS,
and often the ticket is waived upon correction of the offense.
It will show up as an indirect expenditure because it
constitutes foregone state revenue. He maintained that the goal
of the ticket is for the action to be corrected; it is foregone
revenue, however, fulfills the purpose. For example, the point
of fining someone for a broken tail light is not to generate
revenue but to have the tail light fixed.
MR. PAINTER mentioned that there are other provisions for which
their authorities set the fee structure. The Alaska Marine
Highway System (AMHS) reported all the fee variants for the
report, but the legislature delegated the authority to set the
fee structure to AMHS; therefore, the legislature does not have
that authority unless the statute is changed. He added that
departments may provide information on fee variants that
technically do not qualify as indirect expenditures; however,
they are not forced to do so.
4:42:43 PM
REPRESENTATIVE LEDOUX asked for clarification on the comment
that departments do not have to provide data.
MR. PAINTER responded that statute requires the departments to
submit data to DOR, but there is no punishment for not doing so.
He gave the example of UA tuition discounts: these discounts
may be on the border of qualifying, but DOR has no authority
over UA and cannot require it to do something against its will.
REPRESENTATIVE LEDOUX pointed out that in statute the
legislature said "shall." She asked for a list of departments
and agencies that have interpreted that to mean "we can if we
want to and we can't if we don't want to."
MR. PAINTER answered that no agencies with identified indirect
expenditures have declined to participate; no agencies are out
of compliance. If there were such agencies, LFD would highlight
it in its report. He added that UA has a valid reason for not
participating.
REPRESENTATIVE LEDOUX posed the question: If DOR asks for the
data, the statute says "shall," and the agency has not provided
the data, "why aren't they out of compliance?"
MR. PAINTER replied that UA maintained that it does not meet the
statutory requirement, therefore, did not provide the data. He
stated that UA is correct in its assessment.
REPRESENTATIVE LEDOUX asked, "Isn't that a little bit like
telling the IRS [Internal Revenue Service] when they want to
audit you that you don't have to provide the data because you're
not out of compliance with the tax laws?"
MR. PAINTER explained that the difference is that the agencies
determine what is an indirect expenditure and what is not. If
the agencies determine that they do not have indirect
expenditures under the statute, then that is the binding
interpretation. He added that if the legislature desires UA to
participate, then it should change the statute to address UA
matters. He expressed his belief that the sponsor [of House
Bill 306] did intend agencies such as UA to participate;
however, the statute was not written in such a way to accomplish
that.
4:46:09 PM
MR. PAINTER continued with slide 8 by saying that the House
[Finance] Subcommittees for DEC and DNR reviewed the indirect
expenditures of the two departments as recommended by LFD. The
subcommittees determined that some of the provisions were
appropriate; for example, the collection of one of the DEC fees
would cost more money than would be generated by the fee;
therefore, retaining the fee exemptions made sense.
4:46:56 PM
REPRESENTATIVE LEDOUX asked for confirmation that within DEC and
DNR, the cost of eliminating an exemption would be greater than
leaving it in place.
MR. PAINTER replied that his example refers to the DEC fee
exemptions for inspections of facilities; there are 125 such
facilities in Alaska; and there is a reasonable fee that can be
charged for such inspections. The cost of the fee study, which
requires regulation changes, makes the effort economically
unfeasible. The determination of the subcommittee was that the
group paying the fees would be too small to make going through
the process worthwhile.
REPRESENTATIVE LEDOUX suggested that for one year, it may not be
worthwhile, but after ten years, could generate much more in
revenue.
4:48:46 PM
REPRESENTATIVE JOHNSON mentioned proposed legislation [HB 322]
changing DEC spill penalties for residents that are not
businesses and asked whether it would be considered an indirect
expenditure if the proposed legislation passed.
MR. PAINTER expressed his belief that the proposed legislation
is currently being held in the House Resources Standing
Committee and added that he has not reviewed the bill. He said
that his understanding is that the waived fees for spills below
a certain volume would fall into the category of indirect
expenditure.
4:50:08 PM
MR. PAINTER moved on to slide 9, entitled "2019 Report," to
relay that according to statute, LFD has no agencies to review
for the next report. Statute provided for agencies to be
reviewed in the first two years; in the third year LFD was to
review all the remaining agencies; however, there are no
agencies remaining. He stated that instead of a blank report,
LFD will submit a report that reviews the two tax credits
scheduled to sunset - the Community Development Quota (CDQ) tax
credit and the Salmon and Herring Product Development tax
credit.
4:50:48 PM
REPRESENTATIVE TUCK asked Mr. Painter what the fiscal note was
for House Bill 306.
MR. PAINTER responded that he did not know the exact amount; he
offered his belief that it was the equivalent of three DOR
positions; the supplemental budget reduced the number of
positions to one. He added that LFD was given a small amount
for contractual services with which he was hired.
4:52:27 PM
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 4:52
p.m.