Legislature(1993 - 1994)

02/15/1994 09:03 AM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              SENATE COMMUNITY & REGIONAL AFFAIRS                              
                       February 15, 1994                                       
                           9:03 a.m.                                           
  MEMBERS PRESENT                                                              
 Senator Randy Phillips, Chairman                                              
 Senator Robin Taylor, Vice Chairman                                           
 Senator Loren Leman                                                           
 Senator Al Adams                                                              
 Senator Fred Zharoff                                                          
  MEMBERS ABSENT                                                               
 All Members Present                                                           
  COMMITTEE CALENDAR                                                           
 SENATE BILL NO. 261                                                           
 "An Act relating to municipal sales and use taxes involving air               
 carriers; and providing for an effective date."                               
 SENATE BILL NO. 282                                                           
 "An Act relating to matching funds for state grants for public                
 water supply, treatment, and distribution systems, public sewage              
 collection, treatment, and discharge facilities, solid waste                  
 processing or disposal facilities, and programs or facilities for             
 enhancing or protecting water quality; and providing for an                   
 effective date."                                                              
  PREVIOUS SENATE COMMITTEE ACTION                                             
 SB 261 - See Transportation minutes dated 2/1/94.                             
 SB 282 - No previous action to record.                                        
  WITNESS REGISTER                                                             
 Senator Bert Sharp                                                            
 State Capitol                                                                 
 Juneau, AK 99801-1182                                                         
  POSITION STATEMENT:   Prime Sponsor of SB 261                                
 Dave Palmer, Deputy City Manager                                              
 City & Borough of Juneau                                                      
 155 S. Seward St.                                                             
 Juneau, AK 99801                                                              
  POSITION STATEMENT:   Opposes SB 261                                         
 Reed Stoops                                                                   
 Alaska Air Carriers Association                                               
 240 Main St., #600                                                            
 Juneau, AK 99801                                                              
  POSITION STATEMENT:   Supports SB 261                                        
 Crystal Smith                                                                 
 Alaska Municipal League                                                       
 217 2nd St.                                                                   
 Juneau, AK 99801                                                              
  POSITION STATEMENT:   Opposes SB 261                                         
 Senator Fred Zharoff                                                          
 State Capitol                                                                 
 Juneau, AK 99801-1182                                                         
  POSITION STATEMENT:   Offered information on SB 282                          
 Keith Kelton, Director                                                        
 Division of Facility Construction & Operation                                 
 410 Willoughby Ave., Suite 105                                                
 Juneau, AK 99801-1795                                                         
  POSITION STATEMENT:   Offered information on SB 282                          
  ACTION NARRATIVE                                                             
 TAPE 94-13, SIDE A                                                            
 Number 001                                                                    
 The Senate Community & Regional Affairs Committee was called to               
 order by Chairman Randy Phillips at 9:03 a.m.  He introduced  SB 261     1    
 (NO MUNICIPAL SALES TAXES ON AIR CARRIERS) as the first order of              
 SENATOR BERT SHARP, prime sponsor of SB 261, said the legislation             
 reinforces the Federal Preemption Provision of the Federal Aviation           
 Act of 1958, which reserves to the federal government the power to            
 regulate and tax air carriers engaged in air transportation or air            
 commerce.  That law explicitly states that no state or political              
 subdivision may enact laws that affect the rates, routes or                   
 services of an air carrier engaged in air transportation.                     
 Senator Sharp said that despite the provision in the federal Act,             
 several communities in Alaska have proposed sales and use taxes of            
 this sort.  Allowing such provincial taxing authority could soon              
 strangle even the most effective transportation networks.                     
 Substantial case law demonstrates that this practice violates the             
 Act, but communities, believing they have found yet another                   
 loophole in the law, periodically test the waters with a new tax.             
 This has resulted in confrontation and costly litigation between              
 the aviation community and the municipalities.  SB 261 eliminates             
 the illusions on which past efforts have been based and restates              
 federal intent in the preemption provision.                                   
 Senator Sharp informed the committee that the Transportation                  
 Committee CS makes one minor to the bill by specifying "federally             
 certificated air carriers" rather than just "air carriers" as                 
 specified in the original bill.  He also noted that the municipal             
 impact fiscal note prepared by the Department of Community &                  
 Regional Affairs is not precise in its determination of fiscal                
 impact because the department is not actually required to supply              
 this information until a bill is in the Finance Committee.                    
 Number 098                                                                    
 SENATOR ADAMS noted that this issue is before the court at this               
 time, and he asked Senator Sharp if he knows when the court will be           
 making a decision.  SENATOR SHARP responded that he did not know.             
 He added that the retroactive date in Section 4 of the committee              
 substitute was designed to force settlement and to save ongoing               
 legal costs.  However, he said he would be receptive to that being            
 a prospective date instead of a retroactive date.                             
 Number 152                                                                    
 DAVE PALMER, Deputy City Manager, City & Borough of Juneau, stated            
 opposition to SB 261.                                                         
 Mr. Palmer said if the city were allowed to impose such a tax on              
 air carriers, it is estimated that it would be worth approximately            
 $300,000 to the city.  Any tools that the city has to be able to              
 raise revenue through sales taxes is a help in meeting its budget             
 problems.  The city would prefer that the ability to grant any                
 exemptions to any sales taxes be left at the local level.                     
 Mr. Palmer suggested that the term "use tax" needs to be clearly              
 defined in the bill so as to not preclude other taxes and fees that           
 the airport charges.  The term "federally certificated air carrier"           
 also needs to be clearly defined.                                             
 Mr. Palmer pointed out that a lot of the flights that the city                
 would anticipate taxing begin, end and occur completely within the            
 city's boundary, and it was suggested that bill be amended to allow           
 the city and borough to tax flights that begin and end within the             
 Number 245                                                                    
 REED STOOPS, representing the Alaska Air Carriers Association,                
 stated their support for SB 261.                                              
 Mr. Stoops pointed out that the current law permits municipalities            
 to establish landing taxes, to levy fuel flowage fees, etc.                   
 However, he said there has been no municipality that has                      
 successfully collected a tax on passengers or air cargo.  The                 
 Federal Aviation Act is clear on that point, and where have there             
 have been cases, the municipalities haven't been successful in                
 demonstrating that they do have the power to tax.                             
 The Air Carriers Association believes that the federal law is clear           
 and that clarifying the state statute will help to avoid this type            
 of litigation in the future.                                                  
 Mr. Stoops also said he didn't see any reason why the law should              
 not be retroactive to pick up any cases that are in court right               
 Number 299                                                                    
 SENATOR TAYLOR questioned the need for the legislation if this tax            
 has never been collected and collecting would violate federal law.            
 REED STOOPES answered that from time to time municipalities have              
 filed litigation over the federal law and this could be avoided if            
 the state statute is clarified.                                               
 Number 352                                                                    
 CRYSTAL SMITH, representing the Alaska Municipal League, testified            
 in opposition to SB 261.                                                      
 She said she has discussed this issue with some municipal attorneys           
 and there is a question on the federal law.  If, in fact, the                 
 municipalities have the ability under federal law to tax a portion            
 of this business, then the League believes that ought be left to              
 Ms. Smith cautioned that SB 261, as well as a similar measure in              
 the House, have been moving very fast and it has been very                    
 difficult for DCRA to get the necessary information for a fiscal              
 Ms. Smith expressed her concern with the retroactive clause,                  
 stating that she does not believe it would be good public policy              
 for the Legislature to preempt the court's ability to make their              
 Number 425                                                                    
 SENATOR ADAMS suggested holding the legislation until the committee           
 has a briefing on the Kenai case, as well as looking at defining              
 "user tax" and "federally certificated air carrier" as suggested by           
 Mr. Palmer.  SENATOR ZHAROFF stated he has concerns with the                  
 retroactive clause.  SENATOR LEMAN expressed his desire to have               
 more information on the legislation.  SENATOR PHILLIPS stated SB
 261 would be back before the committee at its next meeting on                 
 Number 445                                                                    
 WATER/SEWER GRANTS) as the final order of business.                           
 SENATOR ZHAROFF explained that SB 282 came about as a result of a             
 meeting with the Department of Environmental Conservation in trying           
 to resolve a water and sewer problem in Yakutat.  The community of            
 Yakutat was awarded a grant last year for a water and sewer                   
 project.  Before the money was transmitted to the community,                  
 Yakutat was incorporated as a borough and the borough is lacking              
 the required matching funds because they couldn't use federal                 
 dollars for a state match.  SB 282 allows a community to use                  
 federal funds to provide the local match in the state's matching              
 grant programs for water and sewer projects.                                  
 Number 460                                                                    
 KEITH KELTON, Director, Division of Facility Construction and                 
 Operation, said the statute that is in question was originally                
 enacted in 1972 and has been amended several times.  The original             
 portion of that statute tied federal funding to the state match,              
 and it was keyed to a federal program that has been out of                    
 existence for a long time.  However, they have found that the                 
 provision is now costing the state money.                                     
 Using Yakutat as an example of the problem, Mr. Kelton said Yakutat           
 was awarded a $500,000 grant and they also had $500,000 in federal            
 money from the Public Health Service to build a waste water                   
 treatment plant.  The way the statute is currently written, since             
 Yakutat had the $500,000 in federal money, the state can only put             
 in $250,000, which leaves $250,000 for the local government to come           
 up with.  This is preventing Yakutat from building a treatment                
 system unless they can find another source of funding.                        
 Mr. Kelton said because of this provision in statute these small              
 communities have to come up with a local match that they can't                
 afford, so instead of going after the federal dollars that they               
 can't match, they go after the state for 100 percent funding on               
 these projects.   DEC supports removing this clause from the                  
 statute because they believe it will save the state capital dollars           
 by encouraging the federal participation.                                     
 Number 511                                                                    
 SENATOR ADAMS asked if there was a priority list of communities               
 that do not have a water system or a sewer system and if they would           
 get first call on the funds.  KEITH KELTON responded that this                
 program is primarily the urban counterpart to the Village Safe                
 Water program.  Because this program has the matching requirement,            
 it has never been readily utilized by the smaller communities.  He            
 also explained that when Yakutat incorporated as a borough, their             
 population went over the 600 level and dropped them out of                    
 eligibility for the Village Safe Water program and put them into              
 the matching grants program of a 50/50 match.                                 
 Number 532                                                                    
 SENATOR LEMAN asked if legislation has been introduced to do                  
 additional cleanup to the statute as proposed by the department.              
 KEITH KELTON acknowledged that SB 330 has been introduced and it              
 addresses several other problems in the statute.                              
 Number 563                                                                    
 SENATOR RANDY PHILLIPS asked if this legislation would apply to               
 other areas of the state.  KEITH KELTON answered that the bill                
 would apply to all incorporated communities, and any community that           
 has the ability to get federal dollars or state dollars will be               
 treated equally under this legislation.  He explained that the                
 department sends out questionnaires to all the urban communities to           
 get their responses of water, waste water and solid waste projects            
 under this particular program.  Those projects are then ranked with           
 a criteria system that evaluates public health and environment.               
 Those factors go into a list that generates scores for these                  
 projects and the department prepares a priority list which is                 
 submitted as a governor's capital project list for urban                      
 TAPE 94-13, SIDE B                                                            
 SENATOR LEMAN commented that a pride of ownership encourages people           
 to take care of their facilities and maintain and operate them.               
 If a community has invested some of its own resources into a                  
 project, there is a higher likelihood that they will maintain it.             
 He asked if it was possible to get some consistency with these                
 programs.  KEITH KELTON responded that his point has been discussed           
 many times.  The last time it was actively debated was during the             
 governor's matching grants program where the question was whether             
 the Village Safe Water program could be included in that concept.             
 However, there is a very specific prohibition in the statutes                 
 against requiring a match for Village Safe Water projects.  The               
 Administration cannot require that match unless the Legislature was           
 to make a change authorizing in-kind service match.  He added that            
 it would be real difficult in most places to find much of a                   
 contribution other than maybe a gravel source or land for the                 
 treatment facility.                                                           
 SENATOR PHILLIPS said it was his intention to hold SB 282 until the           
 following week and take it up in conjunction with SB 330.                     
 Number 045                                                                    
 There being no further business to come before the committee, the             
 meeting was adjourned at 9:52 a.m.                                            

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