Legislature(2005 - 2006)SENATE FINANCE 532
04/20/2005 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB112 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| = | SB 112 | ||
MINUTES
SENATE FINANCE COMMITTEE
April 20, 2005
9:06 a.m.
CALL TO ORDER
Co-Chair Green convened the meeting at approximately 9:06 am.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Fred Dyson
Senator Donny Olson
Senator Lyman Hoffman
Senator Bert Stedman
Also Attending: There were no additional participants.
Attending via Teleconference: There were no teleconference
participants.
SUMMARY INFORMATION
SB 112-TAX ON REAA RESIDENTS
The Committee adopted a substitute and one of two amendments
offered. The bill was reported from Committee.
9:07:00 AM
CS FOR SENATE BILL NO. 112(CRA)
"An Act imposing a tax on residents of regional educational
attendance areas and relating to permanent fund dividend
applications; and providing for an effective date."
This was the third hearing for this bill in the Senate Finance
Committee.
Without objection CS SB 112, 24-LS0505\X, which was offered at the
previous hearing, was ADOPTED as a working document.
9:07:15 AM
Amendment #1: This amendment adds language to subsection (2)(B) of
Sec. 43.45.011. Tax Imposed., of Chapter 45. Regional Attendance
Area Tax., established in Section 4 of the committee substitute.
The amended subsection on page 2, following line 16 reads as
follows.
(B) is employed during the tax year in a
regional educational attendance area for 10 consecutive
working days or a normal pay period, whichever is less,
or for more than 20 cumulative working days.
Senator Bunde moved for adoption.
Co-Chair Green objected for an explanation.
Senator Bunde explained that this amendment provides a definition
of "employed".
9:08:03 AM
Senator Hoffman asked the amount of the tax an individual would be
responsible for paying under this definition.
9:08:19 AM
Senator Bunde replied that the payment schedule provides "half the
tax or ten percent, whichever is less."
9:08:40 AM
Senator Olson expressed concern about the issue of residents versus
nonresidents. He asked if this legislation or the amendment would
impose the tax on nonresident workers.
9:09:11 AM
Senator Bunde replied that anyone who works in a Regional Education
Attendance Area (REAA) and has not paid a tax to support schools in
another Alaska jurisdiction would be subject to the tax. Therefore,
nonresident workers would be subject to the tax.
9:09:38 AM
Senator Olson read the language as providing that only residents
would be subject to the tax. However, the sponsor indicated intent
that nonresidents would pay the tax.
9:09:46 AM
Co-Chair Green clarified that a resident paying a school-supporting
tax in another area of the State would be exempt from this proposed
tax.
9:10:25 AM
Co-Chair Green removed her objection and the amendment was ADOPTED.
9:10:30 AM
Amendment #2: This amendment changes the title of the bill to read
"An Act imposing an education tax on employment; and providing for
an effective date."
This amendment also deletes all language of the bill, Sections 1
through 5, and inserts new language to read as follows.
Section. 1. AS 43 is amended by adding a new chapter to read:
Chapter 45. Education Tax.
Sec. 43.45.011. Tax imposed. There is imposed a tax of
$100 a year on each individual 19 years of age or older who
does not own real property in the state subject to tax by a
municipality and who, during the entire tax year, receives
compensation greater than $5,000 in the state.
(b) For purposes of this section, "compensation" includes
wages, salaries, commissions, tips, and any other form of
remuneration paid for personal services.
(c) The tax imposed under this section does not apply to
compensation exempt from the tax under federal law.
Sec. 43.45.021. Collection of tax. (a) An employer shall
deduct and withhold $50 of the tax from the employee's salary
or other compensation on each of the first two regular
payrolls after the employee's total compensation paid by the
employer during the tax year has exceeded $5,000. An employer
shall file a return on a form prescribed by the department and
send the tax withheld to the department on or before the
fifteenth day of the month following the month in which the
tax was withheld from the employee.
(b) A deduction of the tax may not be made in the salary
or other compensation of an individual who provides proof to
the employer that
(1) the tax imposed under AS 43.45.011 for that tax
year has already been withheld by another employer;
(2) the individual was not 19 years of age or older
for the entire tax year; or
(3) the individual owns real property in the state
subject to tax by a municipality.
(c) An individual who has not had the full tax withheld
by an employer must file a return on a form prescribed by the
department and remit the tax due under this section, if any,
by June 30 of the tax year.
Sec. 43.45.031. Liability of employer. An employer who
pays compensation is liable for the tax required to be
withheld from an employee under this section unless the
employer can demonstrate that the employer relied on proof
provided by the employee that
(1) the tax imposed under AS 43.45.011 had already
been withheld by another employer;
(2) the individual was not 19 years of age or older
for the entire year; or
(3) the individual owns real property in the state
subject to tax by a municipality.
Sec. 43.45.041. Disposition of tax proceeds. (a) The tax
collected by the department under AS 43.45.021 shall be
deposited into the general fund and accounted for separately.
(b) The legislature may appropriate the estimated amounts
to be collected and separately accounted for under (a) of this
section for education.
(c) The deposit required and appropriation authorized by
this section are not intended to create a dedication in
violation of art. IX, sec. 7, Constitution of the State of
Alaska.
Sec. 43.45.051. Definition. In this chapter, "tax year"
means the period beginning July 1 and ending on June 30 of the
following calendar year.
Sec. 2. This Act takes effect July 1, 2005.
Senator Olson moved for adoption.
Senator Bunde objected.
Senator Olson outlined the amendment, noting the individuals
subject to the tax would have an income of over $5,000 during the
tax year. This is to allow college students and other young people
"trying to get started on their economic feet" an opportunity to do
so. He pointed out this amendment provides for an education tax
rather than an employment tax. He understood that funds could not
be designated.
Senator Olson cited a spreadsheet titled "Alaska Resident and
Nonresident Workers and Wages, 2002 and 2003" prepared by the
Department of Labor and Workforce Development [copy on file],
listing over 68,000 nonresident workers. The total earnings of
these nonresident workers is over $1.1 billion. He intended to
include those workers in the assessment of this tax. This would be
fairer and would exempt those who pay property taxes, as those
taxes are appropriated for education.
Senator Olson this amendment is "in the spirit" of the bill
sponsor's goal.
9:12:59 AM
Senator Bunde spoke in opposition of the amendment. The bill as
written would require that nonresidents pay the education tax as
well as others residing in an REAA. The amount of the tax could be
debated endlessly, but is suggested by the Department of Revenue at
approximately $400 to $500 per individual. One objective of this
bill is balance and fairness. Property owners likely pay two to
four times the amount of this proposed tax, although that tax is
used for other government services in addition to education.
Therefore the proposed amount is not onerous. He pointed out that a
family of four receives approximately $5,000 each year from the
State. He encouraged members to maintain the original language of
the committee substitute.
9:14:44 AM
Senator Olson admitted the sponsor has good points, and Senator
Olson agreed with the goals. However, he pointed out the wages and
average employment of residents of the REAA districts is low. He
exampled the residents of the Bering Straits REAA earned a total
wage of $31 million with an average monthly employment of 1,686
individuals. He calculated that the average family of five would
have an income of $18,566, which is below the federal poverty
level. Therefore half of the employed individuals would not be
subject to this tax.
9:16:16 AM
Senator Bunde noted the main opposition to this legislation is
focused on the amount of the proposed tax. He offered to remove the
federal poverty guideline exemptions and "allow everyone to pay."
He surmised, however, this is not the intent of the amendment
sponsor.
A roll call was taken on the motion.
IN FAVOR: Senator Stedman, Senator Bunde, Senator Dyson, Co-Chair
Wilken, Co-Chair Green
OPPOSED: Senator Hoffman, Senator Olson
The motion FAILED (2-5)
The amendment FAILED to be adopted.
9:17:14 AM
Senator Bunde offered a motion to report CS SB 112, 24-LS0505\X, as
amended from Committee with individual recommendations and
forthcoming fiscal note.
9:17:35 AM
Senator Hoffman noted that the legislative intent language of the
committee substitute had yet to be addressed. He asked if the
intent is that all the tax revenues be used as an additional
resource for the REAAs.
9:18:12 AM
Senator Bunde replied that the intent is to use the revenues as
additional funding, and not to supplant existing funding.
Senator Hoffman asked for clarification.
Senator Bunde stated this revenue would add to the total education
funding.
9:18:26 AM
Senator Hoffman asked how this would pertain to any new funding
allocated to all school districts, as was currently under
consideration by the legislature. He asked if the tax revenues
would be appropriated "above and beyond" those revenue sources.
9:18:51 AM
Senator Bunde expressed his intent that the funds generated from
this tax would be additional moneys and would not supplant existing
or future funding.
9:19:08 AM
Senator Dyson shared that certain information influenced him to
support this bill. He learned that the average income of a family
residing in rural areas of the State compared to the amount of
income of urban families is similar. He asked for those figures.
9:19:55 AM
Senator Bunde did not have the information before him.
9:20:05 AM
Co-Chair Wilken stated the average annual wage in Fairbanks as
either $24,000 or $26,000. Some communities in unorganized areas
have lower average annual wages, but others have similar average
wages and some have higher average wages. He listed the average
annual wages of Tok as $26,000, Copper River as $35,000, Lower
Kuskokwim as $29,000 and Greely as $36,400. The residents of Greely
"refuse to pay for their schools".
9:21:38 AM
Senator Dyson asked the average income in the Anchorage Bowl area.
9:21:44 AM
Co-Chair Wilken was unsure, but recalled it was similar to that of
the Fairbanks area.
9:21:57 AM
Senator Dyson reiterated this information impacted him.
9:22:04 AM
Senator Hoffman asserted that the average wage of those who work
must be reviewed. He told of rural communities that have limited
job opportunities: with only a few positions for teacher, one
janitor, one Village Public Safety Officer (VPSO) and a store
clerk. He offered to take Members to villages to show how only one-
half of the residents have a job.
9:23:40 AM
Co-Chair Green asked if this was the direction Senator Hoffman
wanted this discussion to proceed.
9:23:49 AM
Senator Hoffman listed villages he would take members to visit,
including Eek and Newtok.
9:24:01 AM
Co-Chair Green noted that each job Senator Hoffman mentioned as
available in rural communities is government funded or provides a
government service. She asserted, "There is a point at which that
no longer, as far as I'm concerned, is a viable excuse."
9:24:29 AM
Senator Bunde emphasized the intent is not to show compassion or be
cruel. He had "great passion" for people without the resources to
pay this tax and did not expect them to pay the tax. This is the
reason this legislation exempts individuals who's earnings are
below the federal poverty level. However, those individuals with
adequate income should contribute.
Senator Bunde told of a conversation with a teacher who claimed to
have chosen to live in Alaska because she and her husband would not
have to pay taxes. She threatened to leave the State if required to
pay this tax. Senator Bunde understood the argument that rural
teachers would be difficult to attract and retain; but he pointed
out that most teachers from urban communities have not relocated to
rural areas simply to avoid taxes.
9:26:35 AM
Co-Chair Wilken agreed with Senator Hoffman's comments but remarked
that for four years an attempt has been ongoing to have those
people who are able, help financially support their local schools.
There are areas of the State that are unable to contribute in this
manner and the sponsor of this bill has acknowledged such. However,
those people "who have run from their responsibility have shifted
the burden now to everybody." This has resulted in the need for
essentially a "flat income tax". Past efforts have been made to
provide that those who could "help themselves" do so, to allow the
State to instead provide adequate funding to those areas of the
State that do not have the capacity to contribute. The intent is
that in one or two generations, those communities would then have
the ability to "generate wealth". It is unfortunate that this
"broad brush" method is necessary, but it is the only option
because "there are people who won't recognize fact" and lower
income communities suffer. Residents of the Delta-Greely area,
Glennallen, Gustavus and Denali could afford to contribute to the
cost of local education, yet "they refuse to do so". This
legislation would demonstrate to these people "that they have some
responsibility and they should carry it."
9:28:50 AM
Senator Bunde clarified this legislation provides for a tax on
residents and those who are employed; and is not an income tax.
9:29:11 AM
Senator Hoffman remarked that however described, this would be a
tax for education. He addressed Co-Chair Wilken comments, saying
the broad brush of attempting to fund education by forming another
layer of government "just didn't cut it". Many other factors
besides education are involved in borough organization. Alaska
Natives support the least amount of government, preferring to "take
care of themselves" and live a subsistence lifestyle on non-
economic means. Some communities are struggling with their local
governments and the State is providing less financial assistance.
Native villages are becoming more reliant on federal "powers", as
the federal government recognizes the self-reliant tribal status.
Forming another layer of government is "the wrong way to go". This
legislation may be the only alternative before the Committee, but
would not be viable. He did not have the solution, but stressed
this proposal is not it.
9:32:19 AM
Senator Bunde stated that a number of Tok area residents support
this bill because it provides an alternative to the formation of a
borough. These residents agree they should support their schools,
but do not want another layer of government. This legislation would
accomplish that.
9:33:03 AM
Senator Dyson recalled that when he first entered the legislature
eight years prior, he determined his most valuable contribution
would be to devise a way for rural and small communities to form
self government to deal with their economic means and cultural
identity. For three years he attempted to pass legislation to
provide for a method for communities to establish a form of
government that reflected their values. Three governments cover
some areas of the State: State, Indian Reorganization Act (IRA) and
tribal governments. These entities could organize a local
government appropriate for the community.
9:34:52 AM
Co-Chair Wilken informed Senator Hoffman of discussions occurring
regarding "bringing Title 29 and trying to marry it up with federal
funding as we know it today." It is predicted that "the ship of
money that sails from Washington [D.C.] to Alaska is going to get
smaller and smaller" in subsequent generations. The people in low
income communities would be impacted negatively first. It would be
possible to form a regional government without creating another
layer of government. Meanwhile, it has been a standard response
explaining why "people don't want to acknowledge their personal
responsibilities."
9:36:37 AM
Senator Olson distributed a handout listing data from a Department
of Labor and Workforce Development Employment and Earnings Report
of 2003 [copy on file]. The average annual income of $35,614, for
the Fairbanks area is significantly higher than Co-Chair Wilken had
cited.
9:37:19 AM
Senator Olson understood this legislation is an attempt to achieve
more "common ground" between those who could afford to contribute
to education expenses. However, he predicted this would increase
the divide between economic groups. Individuals who own property
would be exempted from this tax, regardless of their ability to
pay, while workers who do not own property would be required to
contribute.
9:38:01 AM
Co-Chair Green respectfully disagreed.
9:38:05 AM
Senator Hoffman informed that he had collaborated with former
Senator Richard Schultz on this issue. Senator Hoffman indicated he
would contact him and draft an amendment to this legislation to
provide that the legislature would not implement mandatory borough
formation without voter approval. Senator Hoffman predicted Members
would support this amendment if "that is their intent."
9:39:11 AM
Co-Chair Wilken responded, "Not in my lifetime."
9:39:20 AM
Senator Stedman told of the communities within Senate district A,
which he represents. The major communities are within boroughs and
the mid-sized communities of Wrangell and Petersburg are in
unorganized boroughs, although, those residents contribute to local
education funding. The district also includes the communities of
Thorne Bay, Port Alexander, Pelican, Coffman Cove and other small
communities that are in unorganized boroughs. Port Alexander and
Pelican are "in economic zones that don't appear to be all that
vital". However, the economy of communities on Prince of Wales
Island is growing, if at a slower pace. These communities are
unorganized although they appear to have the ability to help pay
and fund education. Forcing these communities into a borough is
premature "probably by at least a decade if not longer." Therefore,
this legislation would serve as a "bridge" between local
contributions for education funding and eventual borough formation
for those communities in the district. He predicted this
legislation would "tend to slow down" borough creation. He expected
those residents to "be more hesitant" to form a borough once a head
tax were imposed. In some locations the head tax would be
significantly less expensive than the imposition of a property tax.
9:41:39 AM
Senator Bunde commented that this legislation has been a catalyst
for discussion on public policy. However, the intent is "raising
money for schools". He reiterated that people who do not have money
would not be expected to pay; those who do have money should be
expected to pay. The estimated annual amount of the tax at $400
would purchase 400 cups of coffee. He concluded this was not "too
much to ask" individuals to contribute to education funding.
Senator Hoffman indicated objection to the motion to report the
bill from Committee.
A roll call was taken on the motion to report the bill from
Committee.
IN FAVOR: Senator Dyson, Senator Stedman, Senator Bunde, Co-Chair
Wilken, Co-Chair Green
OPPOSED: Senator Hoffman, Senator Olson
The motion PASSED (5-2)
CS SB 112 (FIN) MOVED from Committee with a forthcoming fiscal note
from the Department of Revenue in the amount of $527,700.
9:43:14 AM
Senator Stedman announced that SB 141 was reported from the House
State Affairs Committee on a vote of 5-2. Substantive amendments
were made to the bill; however, its passage from that committee is
"clearly a step in the right direction." The bill is scheduled for
hearings in the House Finance Committee and would receive thorough
review at that time.
ADJOURNMENT
Co-Chair Green adjourned the meeting at 9:44:18 AM
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