Legislature(1993 - 1994)
02/15/1994 09:03 AM CRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 business. 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 borough. 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 now. 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 them. 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 note. 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 decision. 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 Thursday. Number 445 SENATOR RANDY PHILLIPS introduced SB 282 (ELIGIBLE MATCH MONEY 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 communities. 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.