Legislature(2005 - 2006)BELTZ 211

04/06/2005 01:30 PM COMMUNITY & REGIONAL AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 158 MUNI TAX ON STATE CONSTRUCTION CONTRACTS TELECONFERENCED
Moved SB 158 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
= SB 114 SERVICE AREAS IN SECOND CLASS BOROUGHS
Moved CSSB 114(CRA) Out of Committee
Senate Bill:
TAXATION OF MINING PROPERTY; CONTRACTS
CONTRACTS APPROVED BY MUNICIPALITIES FOR
PAYMENT IN LIEU OF TAXES
<Pending Introduction & Referral>
                    ALASKA STATE LEGISLATURE                                                                                  
    SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                  
                         April 6, 2005                                                                                          
                           1:34 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Gary Stevens, Chair                                                                                                     
Senator Bert Stedman                                                                                                            
Senator Thomas Wagoner                                                                                                          
Senator Johnny Ellis                                                                                                            
Senator Albert Kookesh                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 158                                                                                                             
"An Act prohibiting the imposition of municipal sales and use                                                                   
taxes on state construction contracts and certain subcontracts;                                                                 
and providing for an effective date."                                                                                           
                                                                                                                                
     MOVED SB 158 OUT OF COMMITTEE                                                                                              
                                                                                                                                
SENATE BILL NO. 114                                                                                                             
"An Act relating to consolidating or abolishing certain service                                                                 
areas in second class boroughs."                                                                                                
                                                                                                                                
     MOVED CSSB 114(CRA) OUT OF COMMITTEE                                                                                       
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 158                                                                                                                  
SHORT TITLE: MUNI TAX ON STATE CONSTRUCTION CONTRACTS                                                                           
SPONSOR(s): SENATOR(s) HUGGINS                                                                                                  
                                                                                                                                
04/01/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/01/05       (S)       CRA, FIN                                                                                               
04/06/05       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
                                                                                                                                
BILL: SB 114                                                                                                                  
SHORT TITLE: SERVICE AREAS IN SECOND CLASS BOROUGHS                                                                             
SPONSOR(s): COMMUNITY & REGIONAL AFFAIRS                                                                                        
                                                                                                                                
02/23/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/23/05       (S)       CRA                                                                                                    
03/09/05       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
03/09/05       (S)       Heard & Held                                                                                           
03/09/05       (S)       MINUTE(CRA)                                                                                            
04/04/05       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
04/04/05       (S)       Heard & Held                                                                                           
04/04/05       (S)       MINUTE(CRA)                                                                                            
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Senator Charlie Huggins                                                                                                         
Capitol Building                                                                                                                
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Sponsor SB 158                                                                                           
                                                                                                                                
Deborah Grundmann                                                                                                               
Capitol Building                                                                                                                
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:                                                                                                           
                                                                                                                                
Steve Boyd                                                                                                                      
Alaska Chapter                                                                                                                  
National Electrical Contractors Association                                                                                     
Anchorage, AK 99507                                                                                                             
POSITION STATEMENT:  Supported SB 158                                                                                         
                                                                                                                                
Dave Lance, General Manager                                                                                                     
Diamond Electric Co.                                                                                                            
Anchorage, AK 99507                                                                                                             
POSITION STATEMENT:  Supported SB 158                                                                                         
                                                                                                                                
Denise Michels, Mayor                                                                                                           
City of Nome                                                                                                                    
P.O. Box 281                                                                                                                    
Nome, AK                                                                                                                        
POSITION STATEMENT:  Opposed SB 158                                                                                           
                                                                                                                                
Kevin Ritchie, Executive Director                                                                                               
Alaska Municipal League                                                                                                         
217 Second Street, Suite 200                                                                                                    
Juneau, Alaska 99801                                                                                                            
POSITION STATEMENT:  Testified on SB 158 and stated support to                                                                
give municipalities broad purview for sales taxes                                                                               
                                                                                                                                
Jim Dokoozian, General Contractor                                                                                               
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Supported SB 158                                                                                         
                                                                                                                                
John Wheatley, Surety Manager                                                                                                   
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Supported SB 158                                                                                         
                                                                                                                                
Rynnieva Moss                                                                                                                   
Staff to Representative Coghill                                                                                                 
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Explained aspects of SB 114                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  GARY  STEVENS called  the  Senate  Community and  Regional                                                             
Affairs  Standing  Committee  meeting  to order  at  1:34:24  PM.                                                             
Present  were Senators  Stedman,  Wagoner, Ellis  and Chair  Gary                                                               
Stevens. Senator Kookesh arrived momentarily.                                                                                   
                                                                                                                                
        SB 158-MUNI TAX ON STATE CONSTRUCTION CONTRACTS                                                                     
                                                                                                                              
1:34:46 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS announced SB 158 to be up for consideration.                                                                 
                                                                                                                                
1:35:00 PM                                                                                                                    
                                                                                                                                
SENATOR CHARLIE  HUGGINS, Sponsor,  said the  issue is  that some                                                               
construction subcontractors  have had  local sales  taxes imposed                                                               
on  Alaska Department  of  Transportation  and Public  Facilities                                                               
projects. The primary  contractor doesn't pay sales  tax on these                                                               
projects,   but  that   immunity  doesn't   carry  over   to  the                                                               
subcontracts.                                                                                                                   
                                                                                                                                
In the instance of the  Nome Airport Project, a subcontractor was                                                               
assessed  sales  tax  in  excess  of $20,000.  The  tax  was  not                                                               
anticipated or therefore it not considered in the bid.                                                                          
                                                                                                                                
If this  practice continues, subcontractors  will pass  the costs                                                               
along  to  the state  in  the  form  of  higher bids.  While  all                                                               
municipalities  don't assess  this  sales tax,  the policy  needs                                                               
statewide consistent.                                                                                                           
                                                                                                                                
1:38:59 PM                                                                                                                    
                                                                                                                                
DEBORAH  GRUNDMANN, Staff  to  Senator  Huggins, reiterated  some                                                               
subcontractors in certain areas of  the state had local sales tax                                                               
levied on  DOT funded projects. The  tax was levied on  the value                                                               
of the subcontract and not on food, lodging and incidentals.                                                                    
                                                                                                                                
1:40:26 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS  said he wanted a clear  understanding of what                                                               
is taxable and  what is not. He heard that  a subcontractor would                                                               
pay  tax on  food, lodging,  and car  rentals, but  he questioned                                                               
whether  tax  would  be  due on  local  purchases  of  electrical                                                               
supplies and lumber.                                                                                                            
                                                                                                                                
MS. GRUNDMANN  said each  municipality has  its own  ordinance so                                                               
the tax  could be different  in every municipality.  According to                                                               
the  contractors, they  pay  tax on  the  purchase of  incidental                                                               
materials.  This  bill isn't  designed  to  change that.  SB  158                                                               
addresses local  sales tax  levied on  the value  of subcontracts                                                               
for state projects.                                                                                                             
                                                                                                                                
1:42:24 PM                                                                                                                    
                                                                                                                                
SENATOR  THOMAS   WAGONER  said   subcontractors  in   the  Kenai                                                               
Peninsula Borough  that are licensed  through the state and  as a                                                               
tax-exempt  business through  the  borough, have  the ability  to                                                               
purchase job related  items locally without paying  sales tax. At                                                               
the  end of  the job  a  tax is  due, but  the  cap is  $25 or  2                                                               
percent. In the Nome instance, there was no cap.                                                                                
                                                                                                                                
1:43:14 PM                                                                                                                    
                                                                                                                                
SENATOR HUGGINS said  that until recently, the  practice has been                                                               
that state contracts are not  taxed. Now that some municipalities                                                               
have started to  impose a tax on  subcontractors, the Legislature                                                               
has to pass this  bill or the state will pay the  tax in the form                                                               
of higher contract bids.                                                                                                        
                                                                                                                                
1:44:02 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS opened public testimony.                                                                                     
                                                                                                                                
1:44:29 PM                                                                                                                    
                                                                                                                                
STEVE  BOYD,  Alaska  Chapter,  National  Electrical  Contractors                                                               
Association, stated that the association  feels that the scope of                                                               
state  projects logically  links  subcontractors  to the  general                                                               
contractor  so  the  local  tax exemption  that  applies  to  the                                                               
general contract should also apply to subcontract values.                                                                       
                                                                                                                                
Contract bids  are typically  solicited from  general contractors                                                               
for  a   total  product,   which  includes   subcontractor  work.                                                               
Subcontractors do work for the  state through a state established                                                               
conduit. They  are bound  to the general  contractor in  much the                                                               
same way and  with the same language that  the general contractor                                                               
is bound to  the state and should therefore receive  the same tax                                                               
exemption.                                                                                                                      
                                                                                                                                
The association  learned that subcontractors were  assessed local                                                               
sales tax  on work  done on  state airport  projects in  Nome and                                                               
Sandpoint, which  sets up an inequity  between subcontractors and                                                               
the general contractor. It is  the association's goal to create a                                                               
consistent  and equitable  practice  statewide. Clarification  of                                                               
the statute  would be in the  best interest of the  state and the                                                               
industry.                                                                                                                       
                                                                                                                                
1:47:30 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS asked how much  sales tax was collected on the                                                               
Nome airport project.                                                                                                           
                                                                                                                                
MR. BOYD said he didn't have that information.                                                                                  
                                                                                                                                
SENATOR JOHNNY  ELLIS said that  although he liked  the direction                                                               
of the bill,  he questioned why some  subcontractors bill through                                                               
the general contractor and some don't.                                                                                          
                                                                                                                                
MR. BOYD  reiterated the general contractor  typically provides a                                                               
price   for   the  entire   project   and   solicits  bids   from                                                               
subcontractors. In  some instances  a project might  only include                                                               
electrical  work or  mechanical work  and then  the subcontractor                                                               
would  work  directly  for the  state,  municipality  of  federal                                                               
government.                                                                                                                     
                                                                                                                                
SENATOR WAGONER  suggested the defining  point of  the discussion                                                               
is who does the certified payroll.                                                                                              
                                                                                                                                
MR. BOYD said that would be an obligation on the contract.                                                                      
                                                                                                                                
SENATOR ALBERT KOOKESH made the point  that if a contractor did a                                                               
non-state job, then sales tax would be paid.                                                                                    
                                                                                                                                
MR. BOYD agreed that the issue relates just to state contracts.                                                                 
                                                                                                                                
SENATOR KOOKESH  said he wanted that  on record to make  it clear                                                               
that contractors  or subcontractors that aren't  doing state jobs                                                               
pay municipal taxes if there are any.                                                                                           
                                                                                                                                
MR. BOYD agreed this relates to state contracts.                                                                                
                                                                                                                                
SENATOR  GARY STEVENS  remarked this  could  be a  problem for  a                                                               
number of  reasons. If a  subcontractor bids a project  and isn't                                                               
aware that  tax is due  it's unfair. Neither  is it fair  if some                                                               
subcontractors include the tax in the bid and others don't.                                                                     
                                                                                                                                
MR. BOYD agreed this creates  uncertainty and an imbalance in the                                                               
playing field.                                                                                                                  
                                                                                                                                
1:52:23 PM                                                                                                                    
                                                                                                                                
DAVE LANCE,  Diamond Electric General  Manager, said  his company                                                               
worked on  the Nome project. The  project was bid in  2001 and it                                                               
happened  in the  summer of  2002. As  part of  the process,  the                                                               
Department  of  Transportation  and  Public  Facilities  (DOT/PF)                                                               
approved  Diamond  Electric  and   the  other  subcontractors  to                                                               
provide bona fide subcontract work.                                                                                             
                                                                                                                                
Part way through the project the  City of Nome issued a sales tax                                                               
bill  to Diamond  Electric on  the  full amount  of its  $400,000                                                               
subcontract.  The company  purchased about  $75,000 in  goods and                                                               
services  from  the  city  and  paid sales  tax  on  those  local                                                               
purchases  as anticipated.  What they  didn't anticipate  was the                                                               
tax bill on the amount of the contract.                                                                                         
                                                                                                                                
Because this  was a change  in conditions, they submitted  a bill                                                               
to the state for reimbursement,  but that went nowhere. It became                                                               
a legal issue and finally, to  cut their losses, they settled out                                                               
of court and  paid the city $20,000 and $11,000  more in attorney                                                               
fees.                                                                                                                           
                                                                                                                                
He pointed out that they  were actually double taxed because they                                                               
paid tax  on incidental goods and  services and then paid  tax on                                                               
the total project.                                                                                                              
                                                                                                                                
CHAIR  GARY  STEVENS summarized  that  they  paid tax  when  they                                                               
purchased incidental  amounts of cement, lumber,  room and board,                                                               
and then  they paid  an additional  5 percent  tax on  the entire                                                               
project.                                                                                                                        
                                                                                                                                
SENATOR  KOOKESH noted  the  effective date  is  immediate so  it                                                               
wouldn't resolve any past problems.                                                                                             
                                                                                                                                
MR. LANCE agreed.                                                                                                               
                                                                                                                                
SENATOR KOOKESH  said he  wanted that  to be  part of  the record                                                               
because he  didn't want subcontractors  looking back  and seeking                                                               
reimbursement.                                                                                                                  
                                                                                                                                
MR. LANCE replied he realizes he wouldn't be reimbursed.                                                                        
                                                                                                                                
1:58:01 PM                                                                                                                    
                                                                                                                                
DENISE  MICHELS,  Mayor,  City  of Nome,  stated  that  the  city                                                               
opposes  the bill.  From the  city  perspective this  is a  local                                                               
government  option  for  getting  revenue.  Since  1990,  revenue                                                               
sharing has  been reduced from  $600,000 to nothing. In  fact the                                                               
city is looking at operating at a deficit this year.                                                                            
                                                                                                                                
She explained  that the city  receives revenue from  property tax                                                               
and sales  tax and  charging sales tax  to subcontractors  is one                                                               
way  for  the city  to  stay  afloat financially.  Removing  this                                                               
option  would impose  one more  cut on  the city.  She asked  the                                                               
committee to view this as a local option and not pass the bill.                                                                 
                                                                                                                                
2:00:22 PM                                                                                                                    
                                                                                                                                
CHAIR GARY  STEVENS remarked it's  a bit of a  double-edged sword                                                               
because if subcontractors were to  include tax in their bids then                                                               
the community would ultimately receive less work on a project.                                                                  
                                                                                                                                
MAYOR  MICHELS  agreed  that  the  situation  is  difficult.  She                                                               
explained that DOT takes a 5  percent cut before project funds go                                                               
out and  although the  city believes in  partnering, it  needs to                                                               
maintain local  options and  the citizens of  Nome choose  to tax                                                               
subcontractors.                                                                                                                 
                                                                                                                                
2:01:52 PM                                                                                                                    
                                                                                                                                
SENATOR BERT  STEDMAN said Sitka  has a  $1,000 cap on  sales tax                                                               
and he was curious whether Nome has a cap.                                                                                      
                                                                                                                                
MAYOR MICHELS replied  the tax is 5 percent of  purchases and for                                                               
building projects  it's a percentage  based on the amount  of the                                                               
project.                                                                                                                        
                                                                                                                                
SENATOR STEDMAN questioned  how much the sales  tax would decline                                                               
if the bill passes.                                                                                                             
                                                                                                                                
MAYOR MICHELS  estimated between $100,000 and  $200,000 and added                                                               
that Nome is  lucky to get one or two  state projects every three                                                               
to five years.                                                                                                                  
                                                                                                                                
SENATOR  WAGONER stated  he  didn't know  about  the fairness  of                                                               
taxing the state when it put  $8 million into benefiting Nome. He                                                               
suggested this is  a protection for small contractors  as much as                                                               
a protection for the state.                                                                                                     
                                                                                                                                
MAYOR  MICHELS responded  it is  part  of due  diligence for  the                                                               
contractor  to call  the  city and  make sure  you  know what  to                                                               
expect  when bidding  a project.  She reiterated  this should  be                                                               
considered a local option.                                                                                                      
                                                                                                                                
CHAIR GARY  STEVENS said he  heard Mr.  Lance say that  he wasn't                                                               
taxed  on previous  projects in  Nome but  that part  way through                                                               
this project  he was taxed.  He asked whether the  city shouldn't                                                               
assume the  responsibility of letting contractors  know that they                                                               
would be taxed.                                                                                                                 
                                                                                                                                
MAYOR MICHELS replied the option has been on the books.                                                                         
                                                                                                                                
CHAIR GARY STEVENS asked if  the city simply hadn't collected the                                                               
tax in the past                                                                                                                 
                                                                                                                                
MAYOR  MICHELS replied  she  wasn't sure;  she  was elected  just                                                               
three years ago.                                                                                                                
                                                                                                                                
2:06:18 PM                                                                                                                    
                                                                                                                                
SENATOR KOOKESH thanked  Mayor Michels for the job  she was doing                                                               
and made  the point that  being mayor  is a difficult  and unpaid                                                               
job  in a  small  community.  A lot  of  communities are  closing                                                               
because  they can't  afford to  operate so  he doesn't  blame the                                                               
city for looking for additional revenues.                                                                                       
                                                                                                                                
He  asked that  the record  reflect the  clarification that  very                                                               
little general fund  money goes into airports in  the state. It's                                                               
mostly federal dollars that build airports.                                                                                     
                                                                                                                                
SENATOR  WAGONER said  he doesn't  care whether  it's federal  or                                                               
state dollars  because they are  all taxpayer dollars.  There's a                                                               
big  difference  in the  amount  of  work  that  gets done  in  a                                                               
community if tax is figured into  the bid. He reiterated the City                                                               
of Kenai has a $25 tax cap.                                                                                                     
                                                                                                                                
2:08:16 PM                                                                                                                    
                                                                                                                                
SENATOR STEDMAN opined  it's not equitable or  good public policy                                                               
to  structure   the  sales  tax   with  no  cap  and   to  target                                                               
subcontractors on  state projects. Certainly the  lack of revenue                                                               
sharing  and   dropping  revenues  are  cause   for  concern  and                                                               
legislators need to work on that as a policy issue.                                                                             
                                                                                                                                
2:10:37 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS thanked Mayor Michels for serving as mayor.                                                                  
                                                                                                                                
2:10:58 PM                                                                                                                    
                                                                                                                                
KEVIN RITCHIE, Executive Director  of the Alaska Municipal League                                                               
(AML),  commented everyone  recognizes that  there are  issues on                                                               
both  sides  and  the  point Senator  Stedman  brought  up  about                                                               
helping communities  is the  work of  this committee.  Since last                                                               
year,  ten  cities  have   stopped  city  government  operations.                                                               
Although it  isn't clear why  the cities  no longer exist,  it is                                                               
clear that  the work  that the city  governments did  isn't being                                                               
done now  unless a tribe  or other organization took  over. Based                                                               
on current  information, another  25 cities will  stop government                                                               
operations by next year.                                                                                                        
                                                                                                                                
With  the  loss  of  revenue  sharing and  the  loss  of  capital                                                               
matching grants  coupled with fuel  and insurance  increases many                                                               
communities can no longer afford  to operate. Looking from larger                                                               
to smaller cities you can see  different aspects of sales tax. In                                                               
some larger  cities, getting  sales tax  isn't key  for operating                                                               
revenue,  but for  smaller communities  that  have fewer  options                                                               
you'll see fewer caps.                                                                                                          
                                                                                                                                
AML would  like municipalities to  have the broadest  purview for                                                               
creating  a local  tax  structure that  works.  As Mayor  Michels                                                               
said, the community  made the decision to  tax subcontractors. He                                                               
suggested that might  be the best forum to resolve  an issue such                                                               
as this.                                                                                                                        
                                                                                                                                
Although it's  unfortunate that the contractor  didn't know about                                                               
the tax, that isn't the real  issue. The real and important issue                                                               
is the relationship between communities and the state.                                                                          
                                                                                                                                
He pointed  out that the  State of Alaska represents  the largest                                                               
local  tax exemption  in  the state  and if  it  operated like  a                                                               
business, it would  pay about $60 million in property  tax on the                                                               
various state  facilities and services in  communities around the                                                               
state.  But with  no revenue  sharing  there is  no general  fund                                                               
offset for the  costs that communities have for  fire, police and                                                               
roads. Although  that might not  be relevant  to the bill,  it is                                                               
relevant to the work the Legislature is doing.                                                                                  
                                                                                                                                
2:15:47 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS noted that if  no changes are made then nearly                                                               
every community could  impose a local tax.  He questioned whether                                                               
it  wouldn't amount  to a  reduction in  projects throughout  the                                                               
state if all communities levied sales tax on subcontractors.                                                                    
                                                                                                                                
MR.  RITCHIE   agreed  and  added   the  City  of   Nome  charged                                                               
subcontractors 5  percent, which  is equal to  the administrative                                                               
charge  DOT/PF   took  on  the   contract.  DOT/PF   charges  the                                                               
administrative  fee to  help cover  department expenses  and Nome                                                               
has a sales tax  to help to pay the cost of  running Nome. It's a                                                               
choice that communities make.                                                                                                   
                                                                                                                                
He  suggested  this wouldn't  be  an  issue in  all  communities,                                                               
particularly the larger  ones. Most large communities  have a cap                                                               
so even if  they taxed the entire contract it  wouldn't amount to                                                               
much. That's  a local choice  that Nome, Sand Point  and Unalaska                                                               
have made.  There might  be a  better way, but  it's tied  in the                                                               
financial relationship between the state and its communities.                                                                   
                                                                                                                                
2:18:23 PM                                                                                                                    
                                                                                                                                
CHAIR  GARY  STEVENS   said  if  no  change  is   made  then  all                                                               
subcontractors  would  have  to  be  made aware  of  the  tax  in                                                               
different communities.                                                                                                          
                                                                                                                                
MR. RITCHIE agreed.                                                                                                             
                                                                                                                                
JIM  DOKOOZIAN,  General  Manager of  Dokoozian  and  Associates,                                                               
stated  support for  the bill.  The  company bid  on a  federally                                                               
funded FAA  contract in Nome and  included sales tax in  the bid.                                                               
The  FAA neglected  to do  the same  and had  to go  back to  the                                                               
federal government to get more money to pay the tax.                                                                            
                                                                                                                                
Dokoozian  paid sales  tax  on  the total  price  of the  project                                                               
including  subcontractor amounts.  Nome not  only raised  the tax                                                               
more  than once  during the  job,  it also  levied a  tax on  the                                                               
subcontractors,  sub-subcontractors  and   the  suppliers,  which                                                               
amounted to a double tax. He  suggested that the bill should make                                                               
it clear that sub-subcontractors and  suppliers would be included                                                               
as well.                                                                                                                        
                                                                                                                                
SB  158 would  clarify the  issue,  add certainty  and level  the                                                               
playing field among contractors.                                                                                                
                                                                                                                                
2:22:36 PM                                                                                                                    
                                                                                                                                
CHAIR  GARY STEVENS  asked about  the  change in  tax during  the                                                               
contract.                                                                                                                       
                                                                                                                                
MR. DOKOOZIAN explained that the  FAA reimbursed the company only                                                               
after they  were educated to the  fact that this was  an unknown,                                                               
unanticipated  condition  that fit  the  definition  of a  change                                                               
order.                                                                                                                          
                                                                                                                                
2:23:31 PM                                                                                                                    
                                                                                                                                
JOHN  WHEATLY,  Senior Vice-President  of  Marsh  USA and  Surety                                                               
Manager,  spoke on  behalf of  Associated General  Contractors in                                                               
support of SB  158. They would like to see  uniformity across the                                                               
state in the  application of taxes on state  projects. It doesn't                                                               
matter  whether it's  federal  or state  money,  tax dollars  are                                                               
being  spent  to improve  the  community  and  to tax  those  tax                                                               
dollars flies in the face of good public policy.                                                                                
                                                                                                                                
2:25:30 PM                                                                                                                    
                                                                                                                                
CHAIR  GARY  STEVENS asked  Senator  Huggins  if he  had  further                                                               
comments.                                                                                                                       
                                                                                                                                
2:25:47 PM                                                                                                                    
                                                                                                                                
SENATOR HUGGINS  said this isn't  just the practice in  Nome it's                                                               
part of a strategy that is  based on legal advice. His concern is                                                               
threefold. The  rules aren't clear,  there will be  an escalating                                                               
affect, and it's just not fair.                                                                                                 
                                                                                                                                
2:28:25 PM                                                                                                                    
                                                                                                                                
SENATOR KOOKESH  asked if  he thought there  was a  loophole that                                                               
should be closed.                                                                                                               
                                                                                                                                
SENATOR HUGGINS replied  he introduced the bill after  it came to                                                               
his attention  as the Chair  of the Transportation  Committee. He                                                               
reiterated his three concerns.                                                                                                  
                                                                                                                                
SENATOR KOOKESH  asked if  he believes he  is closing  a loophole                                                               
regarding taxation of subcontract work on state projects                                                                        
                                                                                                                                
SENATOR HUGGINS said yes.                                                                                                       
                                                                                                                                
SENATOR KOOKESH  said he  wanted that point  to be  clear because                                                               
Nome is  taxing subcontractors according to  their interpretation                                                               
of the law. It's incorrect  to insinuate that anyone did anything                                                               
wrong; this is a loophole.                                                                                                      
                                                                                                                                
SENATOR HUGGINS  replied it's part  of a legal strategy  based on                                                               
legal  advice.  He  acknowledged  that Nome  didn't  do  anything                                                               
wrong.                                                                                                                          
                                                                                                                                
SENATOR  KOOKESH said  his point  is  that Nome  has every  legal                                                               
right to tax  subcontractors now because the law  is unclear. The                                                               
intent is to clarify the law.                                                                                                   
                                                                                                                                
SENATOR HUGGINS  replied that's the  "fogginess factor"  and most                                                               
people don't  agree with you. His  point is that if  there is any                                                               
theme  that will  create an  uncertainty  for a  business or  the                                                               
community then  the Legislature needs  to clear that up.  His fix                                                               
is to make both contracts  and subcontracts exempt. "It's a foggy                                                               
area."                                                                                                                          
                                                                                                                                
SENATOR KOOKESH  replied that  is the  point exactly;  Nome isn't                                                               
doing  anything wrong.  It's  a  foggy area  and  the sponsor  is                                                               
trying to close it.                                                                                                             
                                                                                                                                
SENATOR HUGGINS agreed that Nome is doing nothing wrong.                                                                        
                                                                                                                                
SENATOR  KOOKESH  said   he'd  like  to  review   the  5  percent                                                               
administrative charge the  state takes because $350  million on a                                                               
DOT/PF contract  amounts to a  huge amount of  money. Legislators                                                               
should  find out  how DOT/PF  is benefiting  from that  5 percent                                                               
charge because  they might be able  to operate on just  3 percent                                                               
and the  other 2 percent could  be used for a  community dividend                                                               
program.                                                                                                                        
                                                                                                                                
SENATOR HUGGINS said  he could look at  that, but philosophically                                                               
he opposes taxing a visitor.                                                                                                    
                                                                                                                                
2:33:33 PM                                                                                                                    
                                                                                                                                
SENATOR STEDMAN remarked  there is a low  correlation between the                                                               
5 percent DOT/PF administrative fee  and a sales tax structure to                                                               
generate money to  run a community. Taking  an administrative fee                                                               
is a standard way of  operating government so costs are allocated                                                               
to the appropriate divisions.                                                                                                   
                                                                                                                                
CHAIR  GARY STEVENS  called a  brief  recess from  2:34:57 PM  to                                                             
2:36:48 PM                                                                                                                    
                                                                                                                                
CHAIR  GARY  STEVENS  reconvened  the meeting  and  asked  for  a                                                               
motion.                                                                                                                         
                                                                                                                                
SENATOR  STEDMAN motioned  to  report SB  158  and attached  zero                                                               
fiscal note from committee with individual recommendations.                                                                     
                                                                                                                                
2:37:08 PM                                                                                                                    
                                                                                                                                
SENATOR KOOKESH objected to make a comment.                                                                                     
                                                                                                                                
     I think  there is a  loophole here and we're  fixing it                                                                    
     and I  think everything that  people like Nome  did was                                                                    
     certainly  within  the  law, but  now  that  the  basic                                                                    
     premise is  that when  the state  has a  contract, that                                                                    
     all  subcontractors  should  be exempt  just  like  the                                                                    
     general contractor.  It was our  fault for  having that                                                                    
     loophole in  there. I think we're  fixing that loophole                                                                    
     and people like Nome are  going to understand that that                                                                    
     door  is  closed and  they're  going  to have  to  look                                                                    
     farther away to  raise revenues. ... I'm  going to vote                                                                    
     for this  to move  on to the  next committee  because I                                                                    
     believe that we  have a job to do as  Senators and that                                                                    
     is to close that little  loophole because I think state                                                                    
     contracts have to have a certain degree of standard.                                                                       
                                                                                                                                
SENATOR KOOKESH removed his objection.                                                                                          
                                                                                                                                
2:38:09 PM                                                                                                                    
                                                                                                                                
CHAIR GARY  STEVENS thanked the  Senator for the  explanation and                                                               
said everyone understands that Nome did nothing at all wrong.                                                                   
                                                                                                                                
SB 158 and attached fiscal note moved from committee.                                                                           
                                                                                                                                
         SB 114-SERVICE AREAS IN SECOND CLASS BOROUGHS                                                                      
                                                                                                                              
2:38:27 PM                                                                                                                    
                                                                                                                                
CHAIR GARY  STEVENS announced SB  114 to be up  for consideration                                                               
and that the \G version  committee substitute (CS) was before the                                                               
committee.                                                                                                                      
                                                                                                                                
He explained that  he held the bill over because  the letter from                                                               
the attorney general was confusing.  Tam Cook subsequently sent a                                                               
letter explaining her position. He  asked Ms. Moss to explain Ms.                                                               
Cook's response to the attorney general's letter.                                                                               
                                                                                                                                
2:40:11 PM                                                                                                                    
                                                                                                                                
RYNNIEVA  MOSS,  Legislative  Aide  for  Representative  Coghill,                                                               
stated agreement with Tam Cook's  opinion that the language in SB                                                               
114 would stand up under a constitutional challenge.                                                                            
                                                                                                                                
It would  be a violation  of the constitution if  the legislation                                                               
took away  home rule borough  powers, but the language  is giving                                                               
second-class  boroughs the  authority to  dissolve service  areas                                                               
that  are  dysfunctional and  create  a  liability. This  is  not                                                               
giving or taking away any powers from a home rule borough.                                                                      
                                                                                                                                
Referencing a  chart that Ms.  Lesh distributed, she  pointed out                                                               
that home rule borough can determine  what it takes to dissolve a                                                               
service area. The bill doesn't  deprive home rule boroughs of the                                                               
ability to do something about dissolving service areas.                                                                         
                                                                                                                                
The second  point is that  it would be unconstitutional  to limit                                                               
the ability to dissolve a  dysfunctional service area to one area                                                               
of the state.  That isn't the case. The bill  gives the authority                                                               
to all second-class boroughs statewide.                                                                                         
                                                                                                                                
According to Tam  Cook, the language in SB 114  would stand up to                                                               
a constitutional challenge.                                                                                                     
                                                                                                                                
2:41:56 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS noted there  were no questions or comments and                                                               
he asked for a motion.                                                                                                          
                                                                                                                                
SENATOR  STEDMAN motioned  to report  CSSB 114(CRA),  \G version,                                                               
and  attached   fiscal  note   from  committee   with  individual                                                               
recommendations. There being no objection, it was so ordered.                                                                   
                                                                                                                                
There being  no further  business to  come before  the committee,                                                               
Chair Gary Stevens adjourned the meeting at 2:42:50 PM.                                                                       
                                                                                                                                

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