Legislature(1997 - 1998)
04/04/1997 10:17 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
4 April 1997
10:17 a.m.
TAPES
SFC-97, #76, Side 1, (000 - 592)
76, Side 2, (592 - 570)
CALL TO ORDER
Senator Bert Sharp, Co-chairman, convened the meeting at
approximately 10:17 a.m.
PRESENT
In addition to Co-chairman Sharp, Senators Phillips,
Torgerson, Parnell and Adams were present when the meeting
was convened. Senators Pearce and Donley arrived
respectively shortly thereafter.
ALSO ATTENDING: Jack Chenoweth, Legal Services, Legislative
Affairs Agency; Bob Bartholomew, Deputy Director, Division
of Income and Excise Audit, Department of Revenue; Pat Carr,
Division of Public Health, Department of Health and Social
Services; Jeannie Monk, SEARHC; Don Dapcevich, State
Advisory Board on Alcohol and Drug Abuse; Joyanne Bloom,
Juneau Tobacco Prevention Network; aides to committee
members and other legislators.
SUMMARY INFORMATION
Co-chair Sharp convened the meeting. He called SB 13.
CS FOR SENATE BILL NO. 13(HES)
"An Act relating to taxes on cigarettes and tobacco
products, and to the filings of returns for and the use
of the proceeds of those taxes; and providing for an
effective date."
Senator Adams moved CSSB 13(FIN) "Q" version as work version
before the committee. Senator Torgerson objected. He noted
that he had an amendment for the committee to consider. It
was to the HES version. If the latitude would be allowed he
would offer the amendment under the FIN version. Co-chair
Sharp said it would be no problem and therefore Senator
Torgerson removed his objection. CSSB 13(FIN) "Q" was
adopted without objection for working purposes.
Co-chair Sharp explained that this was a Revenue and
Education bill as well as a Health bill. Section 1 detailed
the legislative intent of the bill. Items (1) and (2), line
6, directs cigarette tax be deposited to the existing
dedicated school fund and could only be used for
rehabilitation, construction and repair of State school
facilities as per AS 43.50.140. Item (3), page 1, lines 12
- 14 and page 2, lines 1 - 3 stated legislative intent
subject to appropriation, as all future expenditures are,
that the new tobacco tax revenue be used for the
establishment and maintenance of an anti-tobacco campaign
targeting children and also to establish and maintain a
program of pass-thru grants to municipalities who desire to
participate for programs to detect and prosecute those who
sell or supply tobacco products to children. Sections 3 and
4 increase the tax on each pack of cigarettes by $0.71.
Section 5, a change from the previous version, increases
excise tax on non-cigarette type tobacco products from 25%
of wholesale value to 75% of wholesale value, which tracks
close to the same percentage as the $0.71. Section 6 amends
AS 43.50.350 to bring the statute in line with legislative
intent. The new CS revises AS 43.50.350, disposition of
proceeds, and expanded it to cover the use of the proceeds
for criminal prosecution involving the sale of tobacco
products to persons under the age of 19. Sections 7, 8 and
9 set varying conditions and effective dates depending on
possible Court decisions. An accompanying fiscal note
analysis breaks the estimated revenue from cigarettes and
other tobacco products, because of the constitutional
constraints and proposed different uses in the legislation.
These amounts represent a significant portion of the $66
million of new revenue that has been committed to as far as
the long range fiscal plan for the year '98. He urged
careful scrutiny of the CS draft now before the committee.
Jack Chenoweth, Legal Services, Legislative Affairs Agency
was invited to join the committee. He explained the
legalities of the bill in response to a specific request by
Senator Phillips. The bill proposed to increase the school
tax levy from 2-1/2 mills to 38 mills, as reflected on page
2, line 5, with the understanding that the increase would be
handled as it presently is in the dedicated school fund
provisions. He referred to a provision in section 3, which
would take the increase rate which supports the dedication
back down to 2-1/2 mills and moves the 35-1/2 mill increase
over to the non-dedicated portion, which is AS
43.50.190(a)(4). They were trying to give the Legislature
the benefit of using the increase to support the school
fund. The excise provision in section 5, was a non-
dedicated provision and the use of the proceeds was set over
in section 6. He explained the reason for the disclaimer
added in section 7.
Senator Torgerson asked if section 11 were challenged in
Court would sections 3 and 4 kick in and Mr. Chenoweth
indicated they would. Senator Torgerson then asked what
would happen to the tax or the time line between the
collection of money until the Court would decide the issue.
Mr. Chenoweth indicated that he did not know. The only real
question was whether the Legislature could pass a law that
dedicates the money or not. The rate would remain the same
and a Court would be able to sort this out and would not put
a hold on the proposed increase. The bill basically says
that if the Court rules one way, the money will be
dedicated. If the Court rules the other way, another
provision will kick in and the money will continue to come
into the general fund and be available for appropriation.
He did not feel the Court could make the money be held in
escrow.
Senator Torgerson sought approval to discuss his amendment
with Mr. Chenoweth and the Co-chair allowed the request.
Senator Torgerson noted that the amendment had not been
offered yet, but it would place this question before the
voters for voter approval. He felt that the Legislature was
setting itself up for a Court challenge. It was not a
question of "if", but rather "when". Mr. Chenoweth
responded saying that there was a difference of opinion
between Legislative Legal and the Attorney General. Senator
Torgerson felt voter approval was a quicker vehicle and
would prevent cat-and-mouse games. Senator Torgerson
thanked the Co-chair for latitude in discussing his
amendment with Mr. Chenoweth.
Senator Pearce referred to section 6, disposition of
proceeds, it was clearly indicated that the tax money would
go into the general fund and it may be used by the
Legislature to make appropriations. She wanted to know if
that was any more of a dedication than an ASCF endowment,
where the Legislature chose to set aside an endowment and
the money flows through, but the Legislature still had to
appropriate it. It is not a constitutional set-aside, but
rather a Legislative accounting set-aside. She said that
Senator Faikes had referred to it as "white picket fences".
Mr. Chenoweth advised that section 6 was not the dedicated
funds. Section 6 supported the use of the money from the
tax placed on cigars, snuff, pipe tobacco and things of that
nature. The dedicated fund is AS 43.51.040 which was not
amended in the bill. It has been around since 1955. The
proceeds derive from the payment of taxes, fees and
penalties under the cigarette tax, AS 43.50.090(a). The
license fees received by the department shall be paid into a
state fund, entitled "school fund" and shall be used
exclusively to rehabilitate, construct and repair the State
school facilities and for cost of insurance on buildings
comprised of school facilities during the rehabilitation,
construction and repair and for the life of the buildings.
That was a true dedication and one of the very few that were
left. It was the maintenance of that dedication that would
be put in issue by the proposed increase in the tax rate
under section 2. Senator Pearce indicated then that it
would be a separate section and not a dedication and Mr.
Chenoweth concurred.
Bob Bartholomew, Deputy Director, Division of Income and
Excise Audit Division, Department of Revenue was invited to
join the committee. He gave a brief summary of fiscal
effects of the CS and potential amendments or areas that
could be considered for amendments. He noted that the
increase was $0.71 plus the current $0.29 combining to equal
$1.00 per pack of cigarettes if adopted. The increased
taxes that would go into the school fund would be
approximately $30 million. Other items he pointed out were
in the House version of the tobacco bill. Under current
statute tax payers were allowed to maintain 1% of the taxes
paid to cover administrative costs in processing and paying
the tax. By increasing the tax without addressing that rate
of administrative fee and there is a large increase in the
rate, next year the taxpayers would be allowed to maintain
$450,000. The department supported adjusting the percentage
to four-tenths of 1%. That would give the taxpayers a
slight increase in fees to cover their costs, but it would
not be the windfall that would happen under the current
version. Only two sections of the bill would have to be
amended on page 2 in order to accomplish that. The other
area would also be the non-tobacco tax products. Co-chair
Sharp asked if the four-tenths would produce an estimated
equivalent of $180 thousand. Mr. Bartholomew concurred. If
left as it is it would be $450 thousand. Co-chair Sharp
requested a new fiscal note reflecting the changes. Mr.
Bartholomew said the numbers had been run against the new
draft and it would be a total of approximately $33 million.
There was a brief pause on record.
Pat Carr, Division of Public Health, Department of Health
and Social Services was invited to join the committee. She
said there was a packet of information provided to members
to give them guidance in terms of the Department's position
and the health consequences for tobacco use. Due to the
high death rate attributed to tobacco use in the State the
department took a position in support of increasing taxation
on tobacco. Twenty-three percent of the deaths in Alaska,
for individuals 35 years or older were attributed to
smoking. She pointed out the following important issues in
the department's handout: page 5, the heavy use of tobacco
(approximately 20% of today's youth are regular users of
tobacco and 83% of adults reported they started smoking
before the age of 20); page 11, direct medical costs
involved; page 14, an increase in tax will cause consumption
to fall; and page 15, with $1.00 increase there will be a
32% reduction in youth smoking.
Senator Phillips referred to page 11, direct medical costs.
Ms. Carr explained further.
Jeannie Monk, SEARHC was invited to join the committee. She
said she was also part of the Juneau Tobacco Prevention
Network and the Alaska Tobacco Control Alliance. She urged
support of the tobacco tax increase. She said there was
widespread support of the tax increase. Without this,
18,000 youngsters today will become addicted and will die.
She said the Juneau Tobacco Prevention Network and the
Alaska Tobacco Control Alliance were working together to
provide enforcement, education and pricing. A Teens Against
Tobacco Use had also been coordinated and smoking cessation
classes at JDHS had been formed and well attended. There
were compliance checks to keep children from being able to
smoke. It was necessary for everyone to work together to
help Alaska's children not smoke. Ms. Monk reviewed briefly
many student comments in support of the bill. Most
teenagers themselves believe other teenagers would not smoke
if the tax were high enough and the cigarettes not so
readily available. She requested the Senators to pass this
bill and urged their counterparts in the House to do the
same.
Senator Phillips asked about the telephone survey and how
was the question raised regarding the tobacco tax. Ms. Monk
responded that it was a telephone survey done during 1996.
It was phrased asking individuals about a significant
tobacco increase. Senator Phillips asked if it was worded
basically to state raise the taxes for health purposes and
Ms. Monk indicated that was correct. To raise the taxes for
health purposes was the emphasis.
Don Dapcevich, State Advisory Board on Alcohol and Drug
Abuse was invited to join the committee. He also urged
passage of the bill. It had been shown that raising the
price of cigarettes that youth consumption would go down.
Joyanne Bloom, Juneau Tobacco Prevention Network was invited
to join the committee. She noted that the Network was
recognized by the Alaska Public Health Association and
received the 1996 community service award because of the
education and compliance work that was being done to see
that the laws that are already in place are being
implemented. The Network has made great strides. She asked
support for the committee's support for the bill. She
further noted that the bill was supported statewide,
specifically by young teenagers.
Co-chair Sharp noted pending amendment #2. Senator Pearce
moved amendment #2. Co-chair Sharp explained that under
current law wholesalers and distributors were allowed to
retain one percent of the tax to cover their administrative
and bookkeeping expenses for filing. Because of the
increase the actual time in doing the same work does not go
up appreciatively and if it is not reduced it would result
in a $300,000 more or less windfall because of the increase
of tax. This amendment would hold them harmless plus would
give about a $30,000 increase. He said this amendment was
to the "Q" version of the work draft CS. Without objection
amendment #2 was adopted. He reviewed the evening schedule,
stating the committee would continue on with the tobacco tax
and the capital overview.
ADJOURNMENT
Co-chair Sharp recessed the meeting at 11:04 a.m. until 6:00
p.m. this evening.
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