Legislature(2003 - 2004)
03/17/2004 06:02 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 17, 2004
6:02 PM
TAPES
SFC-04 # 50, Side A
SFC 04 # 50, Side B
SFC 04 # 51, Side A
SFC 04 # 51, Side B
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 6:02 PM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Fred Dyson
Senator Lyman Hoffman
Senator Donny Olson
Senator Ben Stevens
Also Attending: SENATOR JOHN COWDERY; SENATOR GARY STEVENS;
SENATOR GENE THERRIAULT; SENATOR TOM WAGONER;
Testifiers are listed in the minutes in the order they testified.
SUMMARY INFORMATION
Public Testimony on Conference of Alaskans Resolutions
Co-Chair Wilken noted the following witness has submitted
editorials to the Anchorage newspaper regarding income taxes.
DONALD ANDERSON testified via teleconference from an offnet
location in Anchorage about the loss of Alaska's wealth due to
federal income taxes on permanent fund dividends (pfd) and other
distributions. He told of his experience in creating computerized
models to simulate real world events. He reported that in 2001, the
most recent year that information is available from the federal
Internal Revenue Service, Alaskans paid approximately $186 million
in taxes on the pfd. He calculated this at 17 percent of the total
amount distributed. He remarked that the larger dividend payments
proposed by former Governor Hammond would result in 18 percent paid
to the federal government. He furthered that Governor Hammond's
proposed income tax would generate approximately $93 million
annually, but collected at a total cost of $25 million. He
predicted such action would incur the resentments of those citizens
"who know this waste is totally unnecessary." He submitted the
funds should be withdrawn from "the source" before the imposition
of a federal income tax. He asserted that utilizing the minimum
amount necessary to fund government services is "the only viable
long-term strategy" that would produce "minimum damage" to the
State.
Senator Bunde clarified it would cost $25 million for the State to
establish an income tax collection "bureaucracy".
Mr. Anderson corrected the annual cost would be $8.6 million and
$6.1 million in set up costs. He explained the $17 million
difference represents the loss to citizens on the taxes on the $93
million collected.
Mr. Anderson indicated he would submit a spreadsheet to demonstrate
his findings.
Mr. Anderson next addressed the concept of sales tax. He noted this
tax affects more people and therefore receives significant
opposition. He stated that sales tax "captures a fixed proportion
of expenditures" whether purchasing a "Yugo or a Lamborghini".
Mr. Anderson listed four negative impacts of income tax: growth is
affected by income tax, lower income, high government cost, and
unstable revenue. He detailed each of these components, as
represented by actions of other states.
Senator Dyson interjected to question the figures relating to high
government costs incurred by states that impose an income tax,
saying the information did not provide the complete "picture". He
asked the tax revenue generated by the eight states with the
highest per capita expenditures compared to the eight states with
the lowest.
Mr. Anderson did not have this information.
Senator Dyson assumed more factors were involved than reflected.
Mr. Anderson gave the psychological factor and the exposure factor
of income tax as examples.
Mr. Anderson continued speaking against income taxes, asserting it
mostly affects those who are "making it". He remarked that due to
multiple levels of taxation, these people are often "stifled in
their attempts at expansion." He offered his e-mail address:
don.anderson@softwarenorth.com to those interested in receiving the
aforementioned spreadsheet.
Senator Bunde relayed quotes that income tax has minimum
participation, in that about 20 percent of the populous pays 80
percent of the tax. He asked if the witness had additional
information to support this statement.
Mr. Anderson had data relating to the federal income tax, but not
for an Alaska state income tax.
Senator Bunde commented to the broader inclusion of a sales tax.
Mr. Anderson agreed.
Senator Dyson noted that many undertake efforts to avoid paying
taxes, such as making purchases via mail order and without
imposition of a sales tax. He asked the impact of transferring
transactions to the "black market".
Mr. Anderson qualified he has not studied this matter, He surmised
that many purchases made locally are primarily for convenience
reasons, as shipping and other expenses make purchases higher than
in the "Lower 48".
Senator Bunde spoke of teenage strippers earning $250,000 annually
in cash and asked if the witness had information about cash income.
Mr. Anderson did not.
RAPHAEL MURRAN, Administrator, City of Hooper Bay, testified via
teleconference from an offnet site in Hooper Bay about the effect
of State budget reductions on the community. He informed that most
of the police force was eliminated. He remarked that reductions in
State funding results in loss of federal funding as well, due to
matching fund requirements. He stated that a sales tax would result
in less revenue because of the negative impact it would have on
local economies. He opined that if an income tax were enacted "poor
men would get richer and rich men would get poorer."
AT EASE 6:35 PM / 6:46 PM
JANET BIFELT, Mayor, City of Hughes, testified via teleconference
from an offnet location in Hughes that because grants from the
revenue sharing program have not been forthcoming, the community
would continue to suffer. She stated that the community requires
funds for the Village Safe Water program to provide safe drinking
water for the residents and the schools. She spoke to the
difficulties rural residents, accustomed to a subsistence
lifestyle, would have if forced to relocate to urban areas.
AT EASE 6:50 PM / 7:00 PM
ARLISS STURGULEWSKI, former State Senator, and Delegate to the
Conference of Alaskans, testified via teleconference from
Anchorage, in appreciation of the Legislature's efforts. She stated
that despite favorable oil prices, the State has serious
"structural damage" in its funding procedures. She told of the
issues brought before the Conference of Alaskans. She stressed the
benefits of utilizing a portion of the earnings of the Permanent
Fund and of instituting a five-year market value payout system. She
preferred a constitutional amendment, rather than statutory
provisions to accomplish this. She did not support enshrining the
dividend in the Alaska Constitution, but noted if under
consideration, the percentage amount should not be stipulated in
the Constitution. She expressed that the Constitution was carefully
authored to maintain the ability of the Legislature to appropriate
funds. She stated that a statewide sales tax would cause
difficulties for those communities that impose a local sales tax,
suggesting residents could be forced to shop regionally or outside
the State.
JOE SONNEMAN testified in Juneau about his education and experience
in public finance. He spoke of development of oil in poor
countries, opining these countries do not benefit from such
development. He stated these countries tend to overspend when the
revenues are available but are faced with deficits once the
revenues decline. He referenced an article in the Economist, "Can
oil ever help the poor?" [Copy on file.]
Mr. Sonneman stressed need to "focus on the impossible rather than
the possible." He gave as an example the Department of Corrections,
which he said has grown primarily because of the criminalization of
many activities. He suggested the criminal statutes be changed. He
also suggested that limited liability provisions should be extended
only to infant companies.
SFC 04 # 50, Side B 07:12 PM
Mr. Sonneman questioned the validity of the Conference of Alaskans,
saying the delegates were not elected, as delegates to the
Constitutional Convention were, and because the average income of
Conference of Alaskans delegates was higher than average for
Alaska.
Senator Bunde asked the witness' understanding of "raiding the
Permanent Fund", noting that the corpus could not be accessed
except by investment actions of the Fund's Board of Trustees.
Mr. Sonneman responded that utilizing the Fund's earnings for State
government after 83 percent of voters participating in the
September 1999 special election on the issue voted against such a
proposal would be viewed as a raid.
MONTE SHADE, 66-year old Military Veteran and long-term Alaskan
Resident, testified via teleconference from Fairbanks that he has
never missed participating in an election. He asserted that the
minimal responsibility of the Legislature is to adhere to the
wishes of residents. He surmised that budget difficulties could be
solved with budget reductions. He stated local governments practice
in this manner, exampling the reduction of the pupil transportation
program in the Fairbanks North Star Borough. He remarked that the
funding appropriated to education, including the University of
Alaska, results in a "brain drain" in that educated residents
relocate out of state.
JERRY BROWN testified via teleconference from Fairbanks that the
original intent of the Alaska Permanent Fund was for capital
improvement projects and that the current proposals are intended
for operating expenses. He remarked that the public has stated that
Permanent Fund earnings should not be used, that the budget should
be reduced and at that point if funding is necessary then the
earnings of the Permanent Fund could be accessed. He suggested the
earnings of the Fund could be utilized as a loan program to fund
railroads, schools and other capital improvements with repayment,
rather than funding operating expenses. He spoke of tourists and
nonresident workers who utilize the State's infrastructure and
should contribute to the expense of such operations. He urged the
Committee vote against each of the proposed resolutions.
Senator Bunde clarified the witness stated the original intent of
the Permanent Fund was for capital projects.
Mr. Brown responded that Alaskans would prefer those expenditures
be for lasting infrastructure.
Senator Bunde referenced the supporting arguments for the
establishment of the Permanent Fund contained in the voter's
pamphlet. He cited the intent that the Fund would be established to
be available for a "rainy day" in the future. He also disagreed
that nonresident workers could contribute a significant portion to
deficit and cited figures demonstrating this.
ROGER GAY, resident of Big Lake, testified via teleconference from
Mat-Su in opposition to the Conference of Alaskans. He remarked
that the Governor did not have authority to appoint certain people
to make decisions that would affect all Alaskans. He noted the
decisions reached were made in only three days and without public
testimony. He stated the legislators are elected to address the
important issues. He expounded on the premise of a republic
government to have elected representation. He quoted Thomas
Jefferson and Samuel Adams.
ED ZASTROW, President, AARP - Local 35, and 35-year Alaska
Resident, testified via teleconference from Ketchikan that this
issue has been often discussed with the legislators representing
Ketchikan. He remarked that the organization supports an income
tax. He addressed a proposed equal division of earnings to dividend
and government services, stressing the dependence of seniors on the
pfd. He exampled one elderly resident able to purchase eyeglasses,
new clothes and shoes and also pay utility bills with the dividend
payment. He relayed the education of organization members and
seniors on the issue of POMV and the increasing costs of Medicare.
He stated the organization does not oppose the use of a portion of
earnings for Medicare expenses, but did not support the addition of
new programs.
DAVE TRANTHAM, 57-year Alaskan resident, testified via
teleconference from Bethel that he first came to the State in 1941
while serving in the US Air Force. He addressed Senator B. Stevens'
legislation to implement a sales tax. He spoke to the higher cost
of items in rural communities, noting purchases would be twice the
amount as paid in Anchorage. He recommended the Legislature adopt a
fiscal plan this year. He emphasized the importance of the pfd to
rural residents. He supported the proposed community dividend to
replace the revenue sharing grant program, which has not been
funded in recent years. He stated that an income tax would have a
lesser impact on rural residents. He supported a tobacco tax
increase of $1 per pack and surmised other residents would also
support this tax. He also suggested implementation of user fees,
noting that residents pay very little for services.
CHERYL KEEPERS testified via teleconference from Fairbanks that she
agreed with the findings of the Conference of Alaskans that
revenues are insufficient to meet the need for government services.
She acknowledged the "devil is in the details" but urged the
Legislature adopt a fiscal plan.
CARL BENSON testified via teleconference from Fairbanks that Alaska
needs a long-term fiscal plan immediately. He supported a State
income tax in conjunction with utilizing a portion of earnings of
the Permanent Fund for government services. He stated this would
garner revenue from nonresident workers. He noted that income tax
is regressive, particularly to rural residents.
SCOTT SAXON, Wasilla resident, testified via teleconference from
Mat-Su about his concern that the Conference of Alaskans did not
provide adequate representation. He disagreed with assertions that
the State "could not save money", commenting that as a State
employee, he recognized where reductions could be made. He
suggested "closing loopholes" and requiring value added processing
for logging. He supported POMV, predicting that funding government
agencies with Permanent Fund revenues would provide incentive for
agencies to reduce spending to minimize the amount diverted from
dividends. He preferred a sales tax to an income tax. He referenced
other testimony relating to the higher cost of living in rural
communities, but stressed it also costs more for the State to
provide services to those areas.
KAYE SAXON, Wasilla resident, testified via teleconference from
Mat-Su that she was raised in Alaska. She stated that although she
would like to stay home with her children, she is unable and that
her family resides in an area with employment and education
opportunities. She preferred others to take responsibility for
their circumstances. She stated that budget reductions must
continue to be identified. She supported funding government
services from Permanent Fund earnings, as this would equally impact
all residents.
PHILLIP FURBUSH testified via teleconference from Mat-Su in
opposition of enshrining dividends in the Constitution. He stated
this would prioritize payouts over inflation proofing and
protection of the Fund itself. He remarked, "The state of Alaska is
spending a lot of money": two to three times the amount expended by
other states and is done without regard to the future. He charged
that current practices are not adding value to renewable resources.
He stated the establishment of the Fund is the only action made to
benefit future residents. He charged that the current generation
must "pay" more of its "share" and "build" for the future.
MARGARET RUSSELL, Chair, Board of Directors, Fairbanks Chamber of
Commerce, and Conferee to the Conference of Alaskans, testified via
teleconference from Fairbanks about use of Permanent Fund earnings
for government services. She stressed the importance of considering
all available income sources.
SFC 04 # 51, Side A 08:00 PM
Ms. Russell spoke of funding needed for education. She noted that
some conferees to the Conference of Alaskans included income tax as
an option for revenue generation. She questioned those who support
income tax and also assert dependence on dividend, suggesting they
calculate how they would be affected by an income tax. She surmised
many residents would ultimately pay an amount equal to their
dividend in taxes. She thought that acceptance of the POMV proposal
by the public could be compromised.
NANCY BAKER testified via teleconference from Fairbanks that the
Conference of Alaskans had "different meanings to different
people." She deferred to the Legislature to make important
decisions. She cautioned against amending the Constitution;
however, she supported the POMV proposal. She indicated she would
not support a Constitutional amendment without the implementation
of an income tax, which she remarked is the fairest method to
generate revenue and would be the least expensive to implement. She
surmised those who most oppose an income tax are those who would
pay the most, including Governor Murkowski. She questioned that the
legislators are the best suited to make these decisions, given that
experts on the matter are available and the desire of legislators
to be reelected. She questioned the democracy of the State when the
co-chair of the Senate Finance Committee announces that an income
tax is "off the table" and would not be considered.
Co-Chair Wilken offered to discuss the matter further with the
witness and stressed he would not support a proposal claiming to be
broad based when it only taxes half the residents.
JAMES E. FISHER testified via teleconference from Kenai that taxes
should be enacted before reductions are made to vital programs
affecting seniors and education. He remarked that other revenues
should be considered and implemented before earnings of the
Permanent Fund are utilized for government services. He quoted,
"The self righteous shall lead us to hell," and suggested the
proposed actions would do this.
Senator Hoffman asked if the witness supported a sales tax, income
tax or both.
Mr. Fisher preferred income tax due to the dependence of local
governments on sales taxes, including Soldotna where he resides.
ANN KILKENNY, Conferee to Conference of Alaskans, testified via
teleconference from Mat-Su that she has come to understand that the
current method of managing the permanent fund is "broken". She
recommended adoption of the POMV as an independent proposal. She
asserted the legislature has the duty to prevent a fiscal crisis.
She supported an income tax and every other proposed tax with the
exception of a sales tax. She remarked the economic limit factor
(ELF) issue relating to taxation on oil production, must be
revisited. She asked the form of revenue generation the Members
prefer.
Senator Bunde stated that the more input from constituents the
better able legislators are to make decisions; however, he noted
that he consistently hears differing opinions of the correct
solution.
CLARENCE FURBUSH testified via teleconference from Mat-Su that the
State is "spending too much money, otherwise we wouldn't be here
tonight." He questioned the large number of school districts,
suggesting that consolidation could reduce expenses. He encouraged
resource development. He was disheartened by the demands of
teachers for salary increases and asked the return on investment of
educating children. He supported a sales tax, but qualified it
should not include food or prescription medication.
PAM BRADLEY testified via teleconference from Fairbanks, that she
felt a responsibility to voice her support for POMV. However, she
was amazed at the number of other resolutions to amend the
constitution. She predicted that voters would approve none due to
the amount of misinformation that exists. She recommended
protection of the dividend, as dividends were the intent of the
Permanent Fund. She also supported use of a portion of the earnings
for government services. She predicted it was time to re-impose the
income tax, admitting she does not earn a high income, despite her
efforts.
ANNA PLAGER testified via teleconference from Fairbanks not
claiming to have any new information but that she felt it important
to express her opinion. She stressed the need for a long-term
fiscal plan. She supported most of the findings of the Conference
of Alaskans. Although she deemed the dividend an "important tool",
she did opposed enshrining it in the Constitution. She emphasized
the importance of ensuring the "health" of the Fund. She had faith
that legislators would make appropriate decisions regarding use of
the Permanent Fund, noted if they did not, they would not be
reelected.
Senator Bunde thanked the witness for the "vote of confidence" in
the process. He asked the public understanding of "long term"
relating to a fiscal plan.
Ms. Plager replied that 25 years ago the intent was to establish a
savings account. She stated that earnings of that account could now
be utilized to meet public needs, including education,
transportation and public safety. She acknowledged the plan could
be amended given changing circumstances.
Senator Bunde shared the witness' position supporting the use of
Permanent Fund earnings for government services.
Senator Bunde addressed Senator B. Stevens's legislation to
implement a sales tax and the exempted purchases. Senator Bunde
ascertained that if income tax were implemented there would be no
exemptions. He asked therefore why Senator B. Stevens had
considered any exemptions for a sales tax.
Senator B. Stevens responded that income tax taxes a generation for
wealth, while sales tax generates from consumption. He stated that
basic needs are equally required by all.
Senator Hoffman pointed out itemized deductions are allowed for
income tax.
Senator B. Stevens agreed deductions are allowed for some expenses,
such as medical, but are not allowed for heating or food.
LYNN BURKHARDT testified via teleconference from Homer that
Governor Murkowski intended to utilize the Permanent Fund even
before taking office. She noted high oil prices and asserted that
threatening elimination of teaching positions is a scare tactic.
She surmised that the Members earn too much income to fully
appreciate the dependence on dividends.
Senator Bunde questioned that the witness pays the salaries of the
legislators.
Ms. Burkhardt responded that citizens pay federal taxes.
Senator Bunde countered that 80 percent of State revenue is from
oil development. He referenced other testimony that the dividend
was intended to distribute revenue; however, the witness suggests
this is more a welfare program.
SFC 04 # 51, Side B 08:47 PM
Senator Hoffman agreed with the witness that Alaska residents do
pay legislators salary. He explained that utilizing a portion of
the Permanent Fund earnings for government services results in less
money available for dividends.
Senator Dyson requested the language in the voter information
pamphlet on the proposal to establish the Permanent Fund.
Co-Chair Green disagreed with Senator Hoffman. She also referenced
the article from The Economist distributed by Mr. Sonneman and
disputed its merits.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 08:51 PM
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