Legislature(1993 - 1994)
04/26/1994 09:10 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
April 26, 1994
9:10 a.m.
TAPES
SFC-94, #72, Side 1 (213-end)
SFC-94, #72, Side 2 (575-end)
SFC-94, #74, Side 1 (000-542)
CALL TO ORDER
Co-chair Drue Pearce convened the meeting at approximately
9:10 a.m.
PRESENT
In addition to Co-chairs Pearce and Frank, Senators Kelly,
Rieger, and Sharp were present. Senator Kerttula arrived
soon after the meeting began. Senator Jacko did not attend.
ALSO ATTENDING: Jim Baldwin, Assistant Attorney General,
Dept. of Law; Deborah Vogt, Contract Attorney, Dept. of Law;
Larry E. Meyers, Director, Income and Excise Audit Division,
Dept. of Revenue; Chris Christensen, Staff Counsel, Alaska
Court System; Patrick Sharrock, Director, Alcoholic Beverage
Control Board, Dept. of Revenue; Rod Mourant, Deputy
Commissioner, Dept. of Revenue; Ken Swisher, Executive
Director, Alaska Municipal League; Resa Jerrel, Local
Representative, National Federation of Independent
Businessmen; Jerry Burnett, aide to Senator Phillips; Kevin
Sullivan, aide to Senator Robin Taylor; and aides to
committee members and other members of the legislature.
SUMMARY INFORMATION
SB 56 - REPAYMENT OF BUDGET RESERVE FUND
Discussion was had with Jim Baldwin. The bill was
subsequently HELD in committee for development of
amendment language.
SB 161 - INTEREST RATES: JUDGMENTS/TAXES/ROYALTIES
Discussion was had with Deborah Vogt, Larry
Meyers, and Chris Christensen. The bill was
subsequently HELD in a subcommittee consisting of
Senator Rieger and Senator Sharp.
SB 372 - ALCOHOLIC BEVERAGES: LOCAL OPTION & MISC.
Discussion was had with Patrick Sharrock, Kevin
Sullivan, and Ken Swisher, and Amendment No. 1 was
adopted. CSSB 372 (Finance) then FAILED to MOVE
from committee. (See minutes of May 5, 1994, for
further action on this bill.)
SJR 52 - BUDGET RESERVE FUND AMENDMENT
Discussion was had with Jim Baldwin in conjunction
with SB 56. The resolution was HELD in committee
pending passage of the bill.
SENATE JOINT RESOLUTION NO. 52
Proposing amendments to the Constitution of the State
of Alaska relating to the budget reserve fund.
Co-chair Pearce directed that SJR 52 be brought on for
discussion. She then explained that Jim Baldwin of the
Dept. of Law worked with members on language for both SB 56
and SJR 52 to bring both pieces of legislation into
compliance with the state argument presently before the
supreme court. The Co-chair further advised that the House
is working on similar legislation.
(Senator Kerttula arrived at this time.)
Co-chair Pearce next directed attention to a proposed
Amendment No. 1 and asked that Mr. Baldwin speak to the
amendment. JIM BALDWIN, Assistant Attorney General, Dept.
of Law, explained that the amendment would remove reference
to "funds" and insert "revenue of the state." The Dept. of
Law argued in court that the amount referred to in 17(b) was
"revenues of the state" and not an amount that was
"accessible" to the legislature. Use of the words "revenue
of the state" excludes federal funds which were not intended
to be included in the mix.
Mr. Baldwin suggested that the original resolution was
deficient in one respect. The term "funds" appears nowhere
else in the Constitution whereas the term "revenue" does and
is better understood. The term "unrestricted revenue of the
state" was also used since that terminology is used in the
Dept. of Revenue revenue forecast. It is a familiar term
and should be given the same meaning as applied by the
department. Mr. Baldwin further advised:
[I] also added the idea that . . . even though . .
. it was general fund money that it not be
considered to be held in trust upon receipt. And
I think that this would pick up the mental health
trust money which is subject to a first call trust
under federal law . . . .
"Unrestricted money of the state" means money in the general
fund from state sources (the intent is to exclude federal
funds) that is not held in trust or has not been
appropriated for a particular purpose or to a separate fund
or account established by law within the general fund. That
would exclude special general fund account group funds.
Rather than repeal the repayment obligation, Sec. 2 of the
resolution is in line with the Dept. of Law argument before
the court that the source of money for repayment was
intended to be the general fund carry-forward. In terms of
the annual financial report that means the "unreserved fund-
designated balance of the general fund at year end." Carry-
forward amounts for continuing appropriations, capital
appropriations, etc. would not be included. The foregoing
reflects language used in the annual financial report. The
hope is that in construing this section, reliance will be
placed upon use of terminology in that report. The report
is required by law and issued by the Dept. of
Administration.
Senator Rieger asked if, under Sec. 1, the carry-forward
balance would fall under the label "unrestricted revenue of
the state." Mr. Baldwin responded affirmatively.
Referring to proposed language for Sec. 2, Senator Rieger
asked how it would tie into ongoing litigation. Mr. Baldwin
noted a policy call by the legislature whether or not it
wants to propose repeal. He explained that, in drafting
amendment language, he was asked to "bring forward a bill
that was consistent with the state's position." Proposed
language highlights Dept. of Law arguments. He stressed
that he was not attempting to talk the legislature out of
repeal. Senator Rieger noted that House legislation mirrors
the original Senate approach and continues to contain repeal
language.
Co-chair Frank asked how amendments proposed by the
resolution would appear on the ballot. Mr. Baldwin
responded, "That's a good question . . . . He further
remarked, "I've never seen one quite like this, where just a
word is being changed or a line is being deleted." He
acknowledged that it would be difficult to present the issue
to the voters and voiced his belief that voters concentrate
on the ballot description--the ballot language put together
by the Attorney General and Lt. Governor.
Discussion followed between Mr. Baldwin and Co-chair Frank
regarding the process involved in developing ballot
language.
Senator Rieger observed that the first portion of Amendment
No. 1 contains a definition for "unrestricted revenue of the
state." He then asked if there was need for definition of
"undesignated balance" as well. Mr. Baldwin explained that
the term is used by "generally acceptable government
accountants." It is also used in the state financial
report. He acknowledged that he struggled with the concept
of attempting to use both terms in the same sense, but they
are different. Mr. Baldwin explained that when viewing the
general fund at the end of the fiscal year, there are
"reservations" and "designations." They are not the same as
an encumbrance or an obligation. Funding contained within
capital appropriations which continues for two or three
years is not obligated or encumbered. Those moneys are,
however, designated balances for appropriations made by the
legislature. They are thus not included in the year-end
balance.
Co-chair Frank asked if a constitutional amendment could
include findings to further explain the issue on the ballot.
Mr. Baldwin attested to limited duration transition
provisions "in the back of the Constitution." Co-chair
Frank voiced need to provide a brief description of what the
legislature is attempting to do. He then expressed a
preference for moving toward requiring the three-quarter
vote and repealing repayment provisions. Senator Rieger
concurred in need for clarification and simplification. Mr.
Baldwin suggested that a simple fix for the problem might
consist of a provision saying that "The legislature shall
implement 17(b) by law." Trade-offs and other issues could
then be dealt with next session. Co-chair Frank concurred
in that approach.
Co-chair Pearce suggested that SJR 52 be HELD in committee
for development of simplified language that can be concurred
in by the House.
SENATE BILL NO. 56
An Act relating to the budget reserve fund established
under art. IX, sec. 17, Constitution of the State of
Alaska.
Co-chair Pearce directed that SB 56 be brought on for
discussion, referenced a draft CSSB 56 (Fin) (work draft 8-
LS0453\U, Cook, 4/25/94), advised that the draft had been
approved by Senator Phillips, and noted that Jim Baldwin
worked with Legislative Legal Services to develop language
that reflects the state's position. Co-chair Frank MOVED
for adoption of CSSB 56 (Fin), "U" version, and requested
unanimous consent. No objection having been raised, CSSB 56
(Fin) was ADOPTED.
JIM BALDWIN, Assistant Attorney General, Dept. of Law, and
JERRY BURNETT, aide to Senator Randy Phillips, came before
committee. Mr. Burnett explained that the Finance draft
repeals "the section from HB 58 and reenacts it with new
numbers." Mr. Baldwin said that the bill was constructed to
protect against the fact that a court may find the
interpretation in HB 58 to be valid but not severable from
other provisions. If passed, CSSB 56 (Fin) would clearly
state the legislature's intent that it be separately enacted
from HB 58 provisions found to be unconstitutional.
In response to a question from Co-chair Frank, Mr. Baldwin
said that language within the Finance draft is "fairly
equivalent" to that within Amendment No. 1 for SJR 52. He
acknowledged that language within CSSB 56 (Fin) does not
answer "the succeeding fiscal year question." The bill
merely defines the source of funding but does not solve the
timing issue. Under art. IX, sec. 17(d) of the state
Constitution, repayment to the constitutional budget reserve
fund is to be made from the balance of the succeeding fiscal
year. Under a literal interpretation, that means that
repayment of 1994 withdrawals would be made from the
remaining balance at the end of 1995. Mr. Baldwin noted that
need to withdraw moneys from the budget reserve fund would
indicate there would be no balance at the end of that fiscal
year. Language thus speaks to the succeeding year when
there possibly could be a balance. The state has argued
that Judge Reese should be reversed on that point.
Directing attention to language within CSSB 56 (Fin), Mr.
Baldwin noted the definition of "unreserved, undesignated
general fund balance" and the fact that transfer is to be
made on or before December 16 of the following fiscal year.
The bill requires that once the state has determined it has
a surplus, payment be made by December 16 of the year
following the year in which the surplus was determined. Co-
chair Frank presented a scenario whereby the legislature
withdrew moneys from the reserve to balance FY 94. The
price of oil subsequently increased, and there is a balance
of unrestricted revenues at the end of FY 94. He then
voiced his understanding that bill language would "not
necessarily sweep it in until FY 95 was finished, and we saw
whether or not we had a balance after FY 95." Both Mr.
Burnett and Mr. Baldwin acknowledged that that was the
intent. Mr. Baldwin voiced his understanding that the
amendment contemplates waiting "for another fiscal year to
see if there was going to be a surplus." The amendment thus
means that "If there is any outstanding obligation to the
budget reserve fund, you're going to have to use that
surplus to repay it." Both Co-chair Frank and Mr. Baldwin
acknowledged that while the amendment might mean as above
stated, that is not necessarily what it says. The amendment
simply says, "When you have a surplus, you compute it and
pay it by a certain date." Co-chair Frank asked if it is
within legislative power to implement language to resolve
the question. Mr. Baldwin responded affirmatively. The Co-
chair than suggested that the issue be resolved at this
time.
End, SFC-94, #72, Side 1
Begin, SFC-94, #72, Side 2
Mr. Baldwin advised that he would develop language to
accomplish that end. Co-chair Frank asked that the language
cover situations where there are remaining balances in the
fiscal year during which a withdrawal is made as well as
succeeding fiscal years. He suggested that it would most
likely "take years and years to pay back the budget reserve
fund." Mr. Baldwin concurred.
Co-chair Frank directed that CSSB 56 (Fin) be HELD in
committee pending development of the new language.
SENATE BILL NO. 161
An Act relating to interest rates and calculation of
interest under certain judgments and decrees and on
refunds of certain taxes, royalties, or net profit
shares; and providing for an effective date.
Co-chair Pearce directed that SB 161 be brought on for
discussion and referenced the original bill, CSSB 161 (STA),
CSSB 161 (Jud), a $39.3 fiscal note from the Alaska Court
System, four zero fiscal notes, the Governor's transmittal
letter, and a position paper from the Dept. of
Transportation and Public Facilities. She then directed
attention to two amendments.
DEBORAH VOGT, Contract Attorney for the Dept. of Law, and
LARRY MEYERS, Director, Division of Oil and Gas, Dept. of
Revenue, came before committee. Ms. Vogt explained that the
bill was introduced by the Governor to address two issues:
1. Pre-judgment and post-judgment interest in civil
litigation. The current rate is 10.5%. That is
dramatically out of proportion to the current
market.
2. Interest on back taxes and royalties.
Speaking to pre- and post-judgment interest, Ms. Vogt
explained that the original bill proposed to calculate
interest on judgments in accordance with the system used by
federal courts: a market-rate indicator tied to sales of
federal treasury bills. Interest rates on judgments would
then be tied to a realistic market rate that will fluctuate
over time so that the statute does not subsequently have to
be amended as the market rises and falls. Since the state
is frequently the defendant in litigation, it seeks the new
calculation because the current 10.5% is too high.
Ms. Vogt noted that the legislature amended statutes dealing
with interest on back taxes and royalties in 1991, setting a
rather high floating market rate of five points above the
federal discount rate, with an 11% floor. The taxpayer thus
pays whichever is higher. The rationale for the relatively
high rate of interest is the fact that taxes and royalties
are the life-blood of the state. It is thus important that
payments be timely made. The high rate encourages prompt
payment and provides an incentive to resolve large,
outstanding disputes.
Since enactment of amendments in 1991, it has been perceived
that the high interest rates could provide an incentive for
"people to intentionally overpay" taxes in order to take
advantage of a rate of return that could not be achieved in
the market. That is the reason the issue is addressed in
this legislation.
Ms. Vogt next directed attention to CSSB 161 (Jud) and said
that it accomplishes neither of the Governor's purposes. It
sets a rate for pre- and post-judgment interest of five
points above the federal discount rate--the intentionally
high rate chosen for taxes and royalties. That is
substantially higher than the rate proposed by the Governor.
It is also higher than what the state can earn on its
investments. The short-term rate of return for the past
twelve to twenty-four months has been "in the three to four
percent neighborhood rather than the eight percent" required
under CSSB 161 (Jud). The state is opposed to the floating
market indicator selected by Senate Judiciary.
On the tax and royalty side, CSSB 161 (Jud) no longer does
what the Governor intended. It does not establish a
disparate rate between underpayments and overpayments. The
Governor proposed the legislation to establish a
differential--an element of federal tax law and tax law in
many states. The Senate Judiciary Committee removed that
provision as well as the 11% floor. That substantially
lowers accruing interest on large, outstanding taxes and
royalties. As the legislation presently stands, the
administration can no longer support it.
Ms. Vogt next spoke to Amendment No. 2. She explained that
current law and proposed amendments submitted by the
Governor use the language "percentage points above the
federal discount rate." CSSB 161 (Jud) uses "percent
above." That could be construed to mean that if the
discount rate is three percent, five percent of three
percent is .15 percent--a tremendous difference from the
original intent. Amendment No. 2 thus replaces "percent"
with "percentage points above" throughout the legislation.
Senator Rieger asked if constitutional issues would be
raised by application of differential rates of interest.
Ms. Vogt explained that legislation proposed by the Governor
did not differentiate between "types of civil suits." It
differentiates between underpayment and overpayment of taxes
and royalties. She further acknowledged that royalties
involve civil dispute. That question was addressed in 1991
when royalties were separated out of other civil litigation
and "lumped together with taxes," for purposes of interest
rates.
Discussion followed between Senator Rieger and Mr. Meyers
regarding differential rates. Mr. Meyer noted that the
Internal Revenue Services and ten states use different rates
for underpayment and overpayment. Rates average 15% for
underpayment and 9% for overpayment.
In response to an additional question from Senator Rieger,
Ms. Vogt explained that AS 45.45.010 sets both the legal
rate of interest and the usury rate. The legal rate is
currently 10.5%. Usury statutes speak to five points above
the federal discount rate. That was not changed in 1991.
Those provisions were merely incorporated into the tax and
royalty statute. Further discussion of the usury rate
followed.
Responding to a question from Co-chair Frank, Ms. Vogt
advised that CSSB 161 (STA) is similar to the Governor's
bill, with minor changes.
In further discussion of changes within CSSB 161 (JUD), Ms.
Vogt explained that the Governor proposed interest equating
to the federal reserve discount rate, plus two, for
overpayments. Senate Judiciary changed that to five points-
-current law. For underpayments current law requires "fed
plus five or 11%, whichever is higher."
Co-chair Frank asked why the federal reserve discount rate
was not used for pre- and post-judgment interest as well.
Ms. Vogt said that the administration based judgment
interest on federal treasury bills since that standard is
used by the federal court system. It is currently 3.49%.
She then distributed a tabulation (copy on file) listing
judgment interest rates under the federal discount rate,
CSSB 161 (Jud), and treasury coupons.
Co-chair Pearce referenced an arrangement whereby the former
attorney general lowered the interest rate on taxes owed by
a taxpayer in exchange for other considerations (statute of
limitations was mentioned). Noting that that action was
outside of statutory authority, the Co-chair then asked if
changes in the proposed bill would allow that flexibility.
Ms. Vogt said that if the action was improper under current
law, it would be improper under the proposed bill.
Statutory amendments contained therein do not address
changes in discretion for enforcement of interest
provisions.
As a final issue, Ms. Vogt expressed concern that provisions
of CSSB 161 (Jud) may no longer be consistent with the title
because the legislation is no longer confined to judgments
and refunds of taxes and royalties. It also addresses
underpayments of those items since it removes the 11% floor
and changes the manner in which interest changes and is
compounded. Current law tracks the federal rate quarterly
and is compounded quarterly. CSSB 161 (Jud) tracks annually
and is compounded annually.
Discussion followed between Co-chair Frank and Ms. Vogt
regarding pre- and post-judgment interest. Ms. Vogt
explained that, under current law, interest accrues from the
date a suit is filed. Under both Senate Committee
Substitutes, interest would accrue from the date of injury.
Both the original bill and CSSB 161 (STA) set the interest
rate as of the initial event (the date of injury or the date
on which a suit is filed). That rate remains in effect
until the date of judgment, at which time a new post-
judgment rate is set and continues until payment of the
judgment. Under the Senate Judiciary version, the rate
changes. Ms. Vogt advised that the court system staff would
speak to that impact.
In response to further comments by Senator Frank regarding
interest rates and inflation, Ms. Vogt said that the
administration seeks to find "that number" which neither
benefits nor penalizes the party "who didn't have the money
who was supposed to have the money." It is not the intent
to make pre- and post-judgment interest either a benefit or
penalty to the litigant. It should provide neither an
incentive to settle nor incentive to drag out a lawsuit in
the hope that interest will continue to accrue at an
unusually high rate. The administration believes that the
treasury coupon rate is close. Five points above the
federal discount rate is too high. Co-chair Frank noted
that the treasury rate generally reflects the market while
the federal discount rate may be used to effect the market.
Senator Rieger voiced support for two separate rates of
interest. He noted that in commercial transactions, the
value of possession of the cash is much higher. In
commercial transactions the five percent premium is probably
necessary as an inducement to avoid dragging out the case.
Ms. Vogt advised that the original bill and both Senate
versions leave in current law provisions that allow parties
to contract for different rates. That is likely to cover
commercial litigation and is different from the default rate
set in statutes.
Mr. Meyers noted that refunds from the treasury currently
earn between 3 and 4%. Those refunds are presently paid out
at 11%. Lack of fluctuation and variance of the two rates
is costing the state a considerable amount. The
administration is proposing to do no different than banks
which use different types of rates. Since the 11% floor was
established in 1991, the state collected over $1.7 billion
in settlements. The interest rate was a primary motivator
in reaching agreements. Mr. Meyer expressed concern that if
rates are too low, there will be no incentive for parties to
"get together." The floating floor is intended to provide
inducement. The department has over $3 billion in interest,
relating to outstanding settlements, on the books.
In response to questions from Senator Rieger, Mr. Meyer
advised of "provisions for failure to file or failure to pay
of 5% a month, not to exceed 25%." There are thus penalties
in addition to interest. Penalties only arise in instances
relating to filing and compliance in payment of tax returns.
They do not apply to settlements whereby taxpayers have
filed and paid what they believe they owe, and the amount is
in dispute. Penalties are not imposed in those instances.
Co-chair Frank inquired regarding overpayments following
1991 interest rate changes. Mr. Meyers said for the period
commencing July 1, 1991, and ending March 15, 1992, the
state paid out $8.8 million. For the same period through
1993, a total of $22 million was paid. From July 1, 1993,
to March 15, 1994, payments total $65 million. In one
instance for which the department "paid out a refund of the
tax of $31 million, interest was $8 million." On that $8
million in interest, the state treasury earned $2 million.
The taxpayer earned 11% on the refund which sat in the state
treasury for two years, and the interest payment cost the
state $6 million.
CHRIS CHRISTENSEN, General Counsel, Alaska Court System,
next came before committee. He explained that CSSB 161
(Jud) establishes an immediate effective date for the
legislation. At the request of the Court System, CSSB 161
(STA) provided a delayed effective date of sections relating
to court judgments. Mr. Christensen directed attention to
proposed Amendment No. 1 and explained that it changes the
effective date for judgment interest to January 1, 1995. At
the present time, court system computers cannot perform the
interest calculations required by the bill. They will have
to be reprogrammed, associated forms and booklets provided
to litigants will have to be revised, and personnel will
have to receive additional training. A six-month window
would be helpful.
Reviewing the amendment, Mr. Christensen noted need to
change the January 1, 1995, date to January 2, 1995. He
said that would be in keeping with a further change within
CSSB 161 (Jud), requiring that the interest rate change on
January 2 of every year.
Mr. Christensen further remarked that additional changes
made by Senate Judiciary have the effect of doubling
personal services costs on the fiscal note from $7.4 per
year to $19.5. Proposed Amendment No. 1 would reduce the
note by approximately $10.0 for FY 95 since new interest
rates would only be in effect for half of the fiscal year.
The Senate State Affairs bill calls for two interest
calculations: one for pre-judgment interest and one for
post-judgment interest. CSSB 161 (Jud) calls for the
interest rate to be recalculated every year for ongoing
cases. An individual who is injured and files suit two
years thereafter and receives a judgment three years hence
is entitled to pre-judgment interest for five years. The
specific rate will be different for each of the five years.
Further if payment on the judgment is not made for
approximately three years, post-judgment interest will also
be different for each year. In a number of cases, instead
of performing two interest calculations, the court system
will perform six or eight or ten. That translates into
extra clerical time. The court system presently makes
approximately 10,000 calculations annually. Most are small
claims cases, however it takes equally as long to calculate
interest on small amounts as it does for larger cases.
Further, the court system is responsible for recalculating
figures presented by attorneys. If this is not done, and an
incorrect interest figure is applied, the state may be
liable for the difference.
Co-chair Pearce queried members concerning disposition of
the bill. Co-chair Frank voiced a preference for the
original bill. Senator Rieger acknowledged that he also was
more comfortable with the original version. Senator Sharp
termed the Senate Judiciary version "too fat" because of
provisions allowing for 5 points over the federal discount
rate. That more than doubles the market interest rate for
the past several years. He voiced a preference for the
Senate State Affairs bill. Co-chair Pearce asked that
Senators Rieger and Sharp work on an alternate draft to
bring back to the next meeting. SB 161 was thus HELD in
subcommittee.
SENATE BILL NO. 372
An Act relating to community local options for control
of alcoholic beverages; relating to the control of
alcoholic beverages; relating to the definition of
`alcoholic beverage'; and providing for an effective
date.
Co-chair Pearce directed that SB 372 be brought on for
discussion. PATRICK SHARROCK, Director, Alcoholic Beverage
Control Board, Dept. of Revenue, and KEVIN SULLIVAN, aide to
Senator Taylor, came before committee. The Co-chair
referenced CSSB 372 (Jud) as well as a draft CSSB 372 (Fin)
(work draft 8-LS1848\K, Ford, 4/26/94). Senator Kelly MOVED
for adoption of CSSB 372 (Fin) "K" version. No objection
having been raised, version "K" of CSSB 372 (Fin) was
ADOPTED.
[Temporary tape malfunction. Minutes of this portion of the
meeting reflect transcription of shorthand notes.]
Mr. Sharrock explained that the primary element of the
legislation would allow villages and communities local
options for control of alcoholic beverages. He directed
attention to a handout (copy on file) and noted the menu of
options, provisions relating to changing or removing an
option, and new provisions relating to delivery sites and
catering permits.
Mr. Sharrock next directed attention to a recent article
highlighting a situation at St. Marys. He explained that
the proposed legislation would make it easier for
communities to change the options they elect to be under.
It allows communities to change or remove local options. At
the present time, 112 villages are under one local option
provision or another. Some wish to change the current
status.
Mr. Sharrock further spoke to products from which alcohol
can be extracted and the fact that some communities seek to
prohibit the import of those products. The bill provides
some law enforcement authority to intervene in instances
where prohibited products are being utilized. Mr. Sharrock
alluded to the fact that the chief of police in one
community identified 25 drug-store products he requested not
be shipped into his community.
[The recording problem was corrected at this point.
Remaining minutes reflect transcription of the tape
recording of the meeting.]
Mr. Sharrock noted that Senator Kelly previously introduced
legislation requiring server training for those who serve or
sell alcoholic beverages. Common carrier dispensary
licenses were included in the list of entities to which
training applies. Common carriers that are in Alaska for a
limited time feel that the criteria and subject matter
relating to server training, as set forth by the board in
regulations, is burdensome, cumbersome, and includes matters
that do not apply to them. That is the rationale for
language within CSSB 372 (Jud), listing only statutes that
apply to the serving of alcohol in Alaska by employees
aboard common carriers. In response to a question from Co-
chair Pearce, Mr. Sharrock advised that the amendment
applies to cruise ships, the ferry system, airlines, and the
Alaska Railroad. Sec. 48, at page 27, specifies the
statutes common carriers must address in training employees
who sell alcohol. Training requirements for these carriers
is more limited than for other dispensers statewide. Need
for the accommodation has been demonstrated.
Kevin Sullivan next spoke to municipal tax exemptions. He
said that provisions do not limit municipal taxing
authority. However, they do not allow a municipality to
single out alcohol and apply a "sin tax" to it alone. The
thinking was that if municipalities are able to apply a
specific tax to alcohol, that presents a strong argument
against future imposition of alcohol taxes by the state. In
uncertain economic times, the state must protect its sources
of revenue. CSSB 372 (Jud) calls for a 20%, across-the-
board increase on alcoholic beverages--malt liquor, wine,
and distilled spirits. Tax moneys would flow directly to
the general fund.
Senator Sharp directed attention to Sec. 45, page 26, and
asked what changes in the Senate Judiciary version
accomplish in terms of municipal options. Mr. Sharrock
explained that the board was not involved in the changes
because they relate to policy questions. He then said that
language at line 27 appears to delete municipal ability to
impose a property tax on inventories. Line 29 states that a
sales tax on alcoholic beverages may be imposed if a general
sales tax is in place on other sales within the
municipality. Mr. Sharrock further pointed to related
language at Sec. 58, page 30. Kevin Sullivan reiterated
need to protect state revenue sources for the future. He
again noted that if each municipality imposes a different
tax structure, that presents a strong argument against
increased state taxes. The prohibition also provides some
certainty to the industry.
Co-chair Pearce noted an inconsistency in the Senate
Judiciary approach in that it seeks to prohibit
municipalities from singling out alcohol for taxation, yet
it allows the state to do just that and increases the state
tax by 20%. Mr. Sullivan responded that the state tax is
presently in statute. He concurred that the issue reflects
a policy call: Is the state going to give municipalities
the ability to levy such a tax or retain tax on alcohol to
the "exclusive domain of the state." Senate Judiciary
determined it should be a state issue.
Senator Sharp voiced his belief that the prohibition would
substantially impact the Fairbanks area, particularly if it
is retroactive to July 1, 1985. Mr. Sullivan noted that
provisions within CSSB 372 (Jud) would not apply to
municipal sales taxes in effect before the effective date of
the instant legislation. It would not retroactively claim
sales tax revenues generated in the past.
Senator Kelly inquired concerning the ABC board position on
the issue. Mr. Sharrock reiterated that the board has never
involved itself in tax matters. Senator Kelly asked what
amounts might be involved and questioned whether the
legislature should do away with those revenues without
knowing how much they are. Mr. Sullivan voiced his
understanding that a new fiscal note was being generated.
Co-chair Pearce concurred that the change would have an
impact and asked if the Dept. of Revenue was preparing a new
note. ROD MOURANT, Deputy Commissioner, Dept. of Revenue,
advised that the note would be available later in the day.
Discussion followed between Senator Rieger and Mr. Sharrock
concerning a situation in Anchorage. Mr. Sharrock advised
that the board resolved the issue three or four weeks ago
through adoption of regulations for restaurant licenses with
Karoake entertainment. The regulations allow that form of
entertainment in those restaurants between 6:00 and 9:00
p.m. He also acknowledged ongoing review and need for
revision of restaurant licensing. The board does not
believe revisions can be accomplished by regulation and has
discussed introduction of legislation.
Kevin Sullivan told members that CSSB 372 (Jud) incorporates
an additional change which prohibits the sale of beverages
containing more than 76% alcohol--152 proof. Everclear is
the only commonly sold beverage in excess of that limit. It
is 95% alcohol (190 proof) and is sold only in Georgia and
Alaska. Mr. Sharrock explained that, in the original
version of the bill, the board intended to prohibit shipping
of that product in response to written orders to package
stores. The board limitation was 75%. Senator Halford
offered an amendment in Senate Judiciary which changed the
percentage to 76. Senator Kerttula asked why the committee
sought to preclude the sale of Everclear. Mr. Sullivan said
that one is more susceptible to death from consumption of
great amounts of alcohol in concentrated form.
Senator Sharp pointed to subsection (1) in Sec. 28, page 21,
and asked if the prohibition on sale of an alcoholic
beverage if it "is not in liquid form" reflects new
language. Mr. Sharrock advised that the language is
currently in law. It was inserted in 1980 to address import
of powdered alcoholic drinks.
KEN SWISHER, Executive Director, Alaska Municipal League,
next came before committee and voiced concern regarding
Secs. 45 and 58, which he said reduce municipal taxing
authority. Tax on alcohol would be precluded in the absence
of a general sales tax at the local level. In the face of
declining municipal assistance and revenue sharing,
municipalities need the flexibility to raise revenues at the
local level and structure local taxes to fit the community.
Mr. Swisher advised that the Municipality of Fairbanks would
be impacted by the bill if its municipal sales tax was not
enacted before 1985. The current 5% liquor tax generates
approximately $850.0 per year for Fairbanks. That is one-
third of the amount received from revenue sharing and a
substantial amount for the community.
Sec. 58 removes municipal ability to impose property taxes
on liquor, and Sec. 45 deals with inventory and sales taxes.
Legislation that creates a further decline in municipal
revenues is unacceptable.
Mr. Swisher suggested that alcoholic beverages are one of
the most "price-elastic" purchases. He questioned
suggestions that a modest increase in the price would
dissuade people from purchasing it. Experience has not
shown that. Mr. Swisher then suggested that concern for
protecting the state's tax base by preventing local
governments from imposing such taxes is not well founded.
RESA JERREL, National Federation of Independent Business,
next came before committee on behalf of the federation's
4,800 members. She voiced opposition to provisions within
Sec. 59 (page 30) which would increase the alcohol tax. A
poll of members evidenced 92% in favor of reduction of state
spending prior to increases or imposition of new taxes. A
poll of taxing preferences resulted in 43% in support of a
state sales tax, support for a personal income tax, and 13%
for increased taxing of alcohol and liquor products. Ms.
Jerrel requested that Sec. 59 be removed from the bill.
Co-chair Pearce called for additional testimony on the bill.
None was forthcoming. She then queried members regarding
amendments and disposition of the bill. Senator Kelly MOVED
to delete Sec. 45 prohibiting both a municipal property tax
on alcoholic beverage inventories and the levying of a tax
on alcohol unless a general sales tax is in place. Co-chair
Pearce asked if the motion includes Sec. 58, the prohibition
against a property tax on alcoholic beverages. Senator
Kelly advised that he wished to incorporate Sec. 58 within
his motion. He explained that the state has always conceded
that sales and property taxes provide a source of revenue
for municipalities. It is not good public policy for the
state to attempt to solve its fiscal problems by extending
those problems to municipalities. Co-chair Pearce called
for a show of hands on the motion. The motion to delete
Secs. 45 and 58 CARRIED unanimously.
Brief discussion followed between Senator Rieger and Co-
chair Pearce concerning tobacco taxes contained within
pending health care legislation.
Senator Kelly requested that the Dept. of Revenue provide
updated fiscal note information on CSSB 372 (Jud). He
voiced need for information to support the Senate Finance
position when the bill is before the full Senate for action.
Senator Sharp directed attention to page 31 of the bill and
raised concern over opt-out provisions, unified
municipalities, and organized boroughs. He noted a number
of unincorporated communities in the Fairbanks vicinity and
suggested that new language might fragment borough policy.
Mr. Sharrock explained that under current law "established
village" is defined as:
An unincorporated community that is in the
unorganized borough and that has twenty-five or
more permanent residents or (b) an unincorporated
community that is in an organized borough has
twenty-five or more permanent residents and (1) is
on a road system and is located more than 50 miles
outside the boundary limits of a unified
municipality or (2) is not on a road system and is
located more than 15 miles outside the boundary
limits of a unified municipality.
The problem with the foregoing definition, in relation to
local option elections, is that local option statutes
presently provide that after a local option election
alcoholic beverages cannot be brought into:
the perimeter of an established village or a
certain distance from the perimeter.
Statutes contain no definition for either "perimeter" or
"distance." The instant bill proposes to establish a ten-
mile perimeter. If the perimeter is not established by the
village, the board could establish the perimeter.
Amendments to Title 29 attempt to make language consistent,
absent the perimeter aspect. The perimeter only comes into
play with regard to local options. Mr. Sharrock referenced
language in Secs. 50 and 51 at pages 28 and 29.
In response to a question from Senator Sharp, Mr. Sharrock
explained that, under current law, a village within a
borough could hold a local option election and the perimeter
would apply. The perimeter the board established under
regulation is a five-mile radius. That will have to be
amended or changed if the instant legislation is adopted.
An adequate and defining geographic area had to be
established in order to provide specific enforcement.
Senator Sharp inquired concerning need for Sec. 60. Mr.
Sharrock voiced his understanding that it attempts to "make
the definition consistent throughout other statutes."
In response to questions from Senator Kerttula, Mr. Sharrock
said that the board has promoted the proposed legislation
for a number of years. Although it was initially drafted in
October, it was introduced approximately two weeks ago by
Senate Judiciary. It is lengthy because it changes all
current-law section numbers relating to local option
provisions.
Co-chair Pearce asked if members were in accordance with
alcohol tax increases within the bill. No response was
forthcoming. The Co-chair then queried members regarding
disposition. Senator Rieger MOVED that CSSB 372 (Fin) pass
from committee with individual recommendations. Senator
Kerttula OBJECTED. Co-chair Pearce called for a show of
hands. Lacking a majority of four affirmative votes
required for passage, CSSB 372 (Fin) FAILED to move from
committee on a vote of 3 to 2. (Co-chair Frank and Senators
Rieger and Sharp voted in favor of passage, and Co-chair
Pearce and Kerttula were opposed. Senator Kelly did not
vote, and Senator Jacko was absent from the meeting.)
ADJOURNMENT
The meeting was adjourned at approximately 11:35 a.m.
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