Legislature(1993 - 1994)
05/03/1993 02:50 PM Senate FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE May 3, 1993 2:50 p.m. TAPES SFC-93, #71, Side 2 (475-end) SFC-93, #73, Side 1 (000-end) SFC-93, #73, Side 2 (000-end) SFC-93, #75, Side 1 (000-end) SFC-93, #75, Side 2 (000-end) SFC-93, #76, Side 1 (000-end) SFC-93, #76, Side 2 (575-381) CALL TO ORDER Senator Drue Pearce, Co-chair, convened the meeting at approximately 2:50 p.m. PRESENT All members (Co-chairs Pearce and Frank and Senators Jacko, Kelly, Kerttula, Rieger, and Sharp) were present. ALSO ATTENDING: Senator Miller; Representative Larson; Representative Moses; Representative Gary Davis; Representative Parnell; Former Senator Mike Szymanski; Attorney General Charlie Cole; Charles Mahlen, Commissioner, Dept. of Labor; Paul Fuhs, Commissioner, Dept. of Commerce and Economic Development; C.E. Swackhammer, Deputy Commissioner, Dept. of Public Safety; Rod Mourant, Assistant Commissioner, Dept. of Revenue; Tom Williams, Director, Permanent Fund Dividend Division; Dept. of Revenue; Jeff Koenings, Director, Division of Commercial Fisheries Management and Development, Dept. of Fish and Game; Shelby Stastny, Director, Office of Management and Budget; Dave Williams, Dept. of Health and Social Services; Dana LaTour, Special Assistant, Dept. of Corrections; Christine Niemi, Educational Program Support Division, Special Education Program, Dept. of Education; Kelly Sharp, Loan Manager, Division of Investments, Dept. of Commerce and Economic Development; Carl A. Meyer, Chief of Appeals, Income and Excise Audit Division; Dept. of Revenue; Jerry McLune, United Fishermen of Alaska; Dean Paddock, Bristol Bay Driftnetters Association; Joe Blum, American Factory Trawlers Association; Harvey Samuelson, BBED Corp, Dillingham, Alaska; Susan Burke of Gross and Burke on behalf of the American Factory Trawlers Association; Mark Ernest, City Manager, Unalaska; Stephanie Matson, Council Member, Unalaska; Rick Lauber, Pacific Seafood Processors Association; Mike Greany, Director, Legislative Finance Division; Dave Tonkavich, fiscal analyst, Legislative Finance Division; Paula Conru, aide to Representative Mulder; Jack Phelps, aide to Representative Kott; Molly McCammon, aide to Representative Moses; and aides to committee members and other members of the legislature. ALSO PARTICIPATING VIA TELECONFERENCE: Jim Forbes, Assistant Attorney General, Fair Practices Section, Dept. of Law, Anchorage, Alaska; Phil Chitwood, Tyson Seafoods, Seattle, Washington; Thorn Smith, North Pacific Longline Association, Seattle, Washington. SUMMARY INFORMATION HB 109 - BLOOD TESTS ON SEX CRIME PERPETRATORS Testimony was provided by Jack Phelps, aide to Rep. Kott. CSHB 109(Jud) was REPORTED OUT of committee with a $45.5 fiscal note from the Dept. of Health and Social Services (Nursing), a $27.9 note from the Dept. of Health and Social Services (Laboratories), and zero notes from the Dept. of Law and the Dept. of Corrections. HB 113 - CHARITABLE & TELEPHONIC SOLICITING/SALES Teleconference testimony was provided by Jim Forbes of the Dept. of Law. CSHB 113 (Fin) was REPORTED OUT of committee with a zero fiscal note from the Dept. of Law. HB 133 - DEFINITION OF VALUE FOR FISHERIES TAX Testimony was presented by Rep. Moses. The bill was subsequently REPORTED OUT of committee with a fiscal note from the Dept. of Revenue showing zero cost and revenue of $10.0. HB 136 - DRUNK DRIVING AND BREATH TEST OFFENSES Testimony was presented by Paula Conru, aide to Rep. Mulder and Dana LaTour of the Dept. of Corrections. SCS CSHB 136 (HES) was REPORTED OUT of committee with the following fiscal notes: Law 0 Public Safety (Drivers) 0 $108.0 Rev. Public Safety (Troopers) 0 Administration (Advocacy) 0 Administration (Defender) 0 Corrections $1,043.6 HB 171 - MEDICAID COVERAGE FOR HOSPICE CARE Testimony was presented by Rep. Larson and Dave Williams of the Dept. of Health and Social Services. CSHB 171 (Fin) was REPORTED OUT of committee with a $10.0 fiscal note from the Dept. of Health and Social Services. HB 225 - NOTICE OF APPROPRIATIONS ON PFD'S Testimony was presented by Rep. Parnell. The bill was then REPORTED OUT of committee with a zero fiscal note from the Dept. of Revenue. HB 249 - ELECTRICAL/MECHANICAL TRADESPERSONS Testimony was presented by Rep. Gary Davis and Commissioner Mahlen of the Dept. of Labor. SCS CSSSHB 249 (L&C) was REPORTED OUT of committee with a $118.6 fiscal note from the Dept. of Labor and a note from the Dept. of Commerce and Economic Development showing an operating reduction of ($5.9) and reduced revenues of ($67.0). HB 252 - REFINANCING COMMERCIAL FISHING LOANS Testimony was provided by Rep. Moses, Jerry McLune, Kelly Sharp, Dean Paddock, and Commissioner Fuhs. SCS HB 252 (Finance) was REPORTED OUT of committee with a "do pass" recommendation and $41.1 Senate Finance Committee fiscal note for the Dept. of Commerce and Economic Development. HB 264 - FISHERY RESOURCE LANDING TAX A lengthy teleconference was had. Rep. Moses, Molly McCammon, Carl Myer, Jo Blum, Susan Burke, Harvey Samuelson, Phil Chitwood, Thorn Smith, Mike Szymanski, Mark Ernest, Stephanie Matson, Rick Lauber, Jeff Koenings, and Dean Paddock testified. CSHB 264 (Fin) was HELD in committee for additional review. CS FOR HOUSE BILL NO. 113(FIN) An Act regulating the solicitation of contributions by charitable organizations and paid solicitors and the solicitation of sales by telephonic means; and amending Alaska Rules of Civil Procedure 79 and 82. Co-chair Pearce directed that CSHB 113 (Fin) be brought on for discussion and referenced a TELECONFERENCE link to Anchorage. Senator Rieger asked if the proposed bill would impact the credit card purchase of airline tickets by telephone. JIM FORBES, Assistant Attorney General, Fair Practices Section, Dept. of Law, responded via teleconference from Anchorage. He explained that the bill would not apply to transactions where the customer initiates the telephone call, provided that it is not in response to a specific request that the customer initiate the call. Co-chair Frank directed attention to a proposed Amendment No. 1 relating to language under "Prohibited Representations" at page 3, lines 13 through 19. He then noted that present language appears to prevent a telemarketer from presenting facts that are true. That appears to overreach a bit in light of other "cooling off" provisions within the bill. Mr. Forbes acknowledged that the question represents a policy call. He explained that existing language would be most helpful in the consumer protection context. He pointed to the high-pressure nature of telephonic sales and advised that the wording is based on legislation in other states. Ability of a telemarketer to advise that his or her organization is licensed or registered with the state inspires a degree of confidence in the customer that is unwarranted under the circumstances. While proposed language in Amendment No. 1 does not "kill" the effectiveness of the bill, it waters it down. Extended discussion of the issue followed between Mr. Forbes and Co-chair Frank. Mr. Forbes stressed that the intent of the drafter was to ensure that a telemarketer does not use registration with the state as leverage against the purchaser. Co-chair Frank advised that he was seeking to ensure that contractors and other persons and businesses licensed by the state are not precluded from advising customers of that fact. Mr. Forbes responded that presentments by contractors and other licensed businesses would not be precluded under the proposed legislation. He acknowledged that perhaps that fact could be more clearly stated. Co-chair Frank asked that Mr. Forbes draft language that could be offered in Rules Committee or on the floor of the Senate. Mr. Forbes directed attention to page 3, line 15, and suggested addition of "by reason of registration under AS 45.65.010" after "seller" and before "a license." Representative Larson voiced his understanding that the contractor used in the foregoing example would not be covered by the bill. Mr. Forbes directed attention to pages 4 and 5 and noted eighteen listed exemptions. He stressed that it is not the intent of the legislation to restrict individuals or businesses that are already otherwise licensed or registered by the state, regulated by the state, or governed by a board or commission with existing consumer protection remedies. The bill seeks to cover entities that are not presently registered, such as telemarketers. Co-chair Frank said he would withdraw Amendment No. 1 with the assurance that only telemarketer-type registration would be covered by the "Prohibited Representations" section of the bill. Mr. Forbes concurred in that intent. Co-chair Frank asked that the intent be put in writing. Senator Sharp asked if the proposed legislation would apply to television channels marketing goods for sale. Mr. Forbes said that home shopping channels have not been the source of fraud. The proposed legislation seeks to cover telephonic sales and instances in which an individual is informed by mail that he or she has won a prize and is asked to call a phone number to claim it. Generally, when that call is made, the customer is pressured into sending a certain amount of cash to secure the prize and in doing so becomes the victim of fraud. Co-chair Frank MOVED that CSHB 113 (Fin) pass from committee with individual recommendations and the accompanying fiscal note. No objection having been raised, CSHB 113 (Fin) was REPORTED OUT of committee with a unanimous "do pass" recommendation and zero fiscal note from the Dept. of Law. CS FOR HOUSE BILL NO. 171(FIN) An Act providing coverage for hospice care under the Medicaid program; reordering the priorities given to optional services under the Medicaid program; and providing for an effective date. Co-chair Pearce directed that CSHB 171 (Fin) be brought on for discussion. REPRESENTATIVE LARSON remained before committee. He explained that the legislation would extend coverage of hospice services to Medicaid eligible adults who do not qualify for Medicare. Hospice care is presently a Medicaid covered service for children and is available to people who qualify for Medicare. The proposed bill would fill the current void in extension of that coverage. DAVE WILLIAMS, Division of Medical Assistance, Dept. of Health and Social Services, came before committee voicing support for the bill. He explained that coverage would help meet the needs of terminally ill individuals who are likely to die within six months. Senator Kerttula attested to past experience in attempting to obtain care for a terminally ill relative. He stressed need to simplify the present system. Mr. Williams observed that the hospice option allows for consideration of the condition of those who are terminally ill. He acknowledged that they not only need services at home but they need services delivered "in a way that is compassionate." In response to a question from Senator Kelly, Mr. Williams pointed to the $10.0 fiscal note from the Dept. of Health and Social Services and explained that it relates only to the cost of changing the state system to allow for the billing of extended hospice services under Medicaid. Discussion followed between Senator Kelly and Mr. Williams concerning the priority ranking of medical services. Senator Kerttula voiced praise for those providing hospice services, advising that they are competent, professional people who have great compassion. He reiterated need, however, to streamline the bookkeeping effort associated with the service. Senator Kerttula then MOVED that CSHB 171 (Fin) pass from committee with individual recommendations. No objection having been raised, CSHB 171 (Fin) was REPORTED OUT of committee with a $10.0 fiscal note from the Dept. of Health and Social Services. Senators Jacko and Kerttula signed the committee report with a "do pass" recommendation. Co-chairs Pearce and Frank and Senators Kelly, Rieger, and Sharp signed "no rec." CS FOR HOUSE BILL NO. 109(JUD) An Act relating to blood tests for persons charged with sex offenses; and providing for an effective date. Co-chair Pearce directed that CSHB 109 (Jud) be brought on for discussion. JACK PHELPS, aide to Representative Kott, came before committee. He termed the proposed legislation a "victim's right bill" and expressed his belief that victims of sexual assault should have the right to seek some measure of relief through determination of whether or not the attacker is infected with sexually transmitted diseases. Through petition by the victim, courts may order that the attacker provide blood samples for testing. Mr. Phelps noted a connection between the proposed bill and federal moneys provided through the federal Crime Control Act of 1990. The Dept. of Public Safety could lose 10%-- $187.0 of its crime control grant moneys if the legislation is not passed by October of 1993. Funding from states that do not comply will be redistributed to those that do. Co-chair Pearce voiced her understanding that the attacker has to be changed with the assault before the proposed bill would come into play. Mr Phelps concurred. He explained that the petition initiated by the victim would be a separate court action. The court would have to make a finding that the alleged perpetrator committed a crime and that the crime included sexual penetration. Based on a finding of probable cause, the court would then order the blood test. In response to an additional question from Senator Rieger, Mr. Phelps explained that a "charge" against an individual results from presentment or indictment by a grand jury or by sworn statement by an officer of the law. Most of the crimes covered by the bill are felony charges which are generally brought by indictment. Senator Rieger next inquired concerning the reason for the seven-day waiting period, after arrest, during which the court may not order a test. Mr. Phelps explained that the intention of the waiting period is to ensure that charges have actually been filed, the defendant has obtained counsel, and it appears unlikely the charges will be dropped. Senator Rieger directed attention to page 3, lines 2 and 3, and inquired concerning "adjudication by the court other than a conviction" and asked if plea bargains would be covered by the bill. End, SFC-93, #71, Side 2 Begin, SFC-93, #73, Side 1 Mr. Phelps responded that adjudication other than conviction generally means that the individual has been acquitted. A plea bargain would involve some form of guilty plea and would not remove the defendant from coverage by the proposed bill. Senator Rieger directed attention to page 4, lines 4 and 5, and asked why results of the test would not be admissible evidence in the criminal proceeding. Mr. Phelps responded that the purpose of the test is to provide information to victims. It is not intended to be used as evidence against an individual. The proposed bill would not preclude a prosecutor from requesting a test for evidentiary purposes. In response to a further inquiry from Senator Rieger regarding language at page 4, line 3, Mr. Phelps explained that with court allowance, the victim could disclose test information to the victim's spouse, immediate family, persons occupying the same household as the victim, or a person in a dating, courtship, or engagement relationship with the victim. That language was added to the bill at the request of the Council on Domestic Violence and Sexual Assault. Senator Rieger questioned whether the language was properly worded and suggested that Representative Kott and his staff further review the provision. Senator Jacko asked if the court is required to hold a hearing if the defendant objects to the testing. Mr. Phelps responded negatively. He explained that the bill allows the court to rely upon evidence gathered by the grand jury or at preliminary hearing if that evidence is sufficient to convince the court that the defendant was the perpetrator. In the absence of that evidence, the court could hold an additional hearing, based on petition from the victim, and take testimony to make a probable cause determination. Senator Jacko asked if the defendant would be required to be present or represented at the hearing. Mr. Phelps responded negatively, indicating that indictments are often ex parte. Co-chair Pearce called for additional testimony on the bill. None was forthcoming. She then queried members on disposition. Senator Rieger MOVED that CSHB 109 (Jud) pass from committee with individual recommendations and the accompanying fiscal notes. No objection having been raised, CSHB 109 (Jud) was REPORTED OUT of committee with zero fiscal notes from the Dept. of Law and Dept. of Corrections, a $45.5 note from the Dept. of Health and Social Services (Nursing), and a $27.9 note from the Dept. of Health and Social Services (Laboratories). Co-chairs Pearce and Frank and Senators Rieger and Sharp signed the committee report with a "do pass" recommendation. Senators Jacko and Kerttula signed "no rec." Senator Kelly was temporarily absent from the meeting and did not sign. HOUSE BILL NO. 133 An Act amending the definition of `value' for purposes of administration of fisheries taxes; and providing for an effective date. Co-chair Pearce directed that HB 133 be brought on for discussion. REPRESENTATIVE CARL MOSES came before committee. He explained that HB 133 is similar to existing law, but it restructures the definition of "value" used in administering fisheries taxes to enhance clarity. It is identical to CSHB 448 (Res) introduced by Representative Gail Phillips last year, with the exception of clarifying language recommended by the Division of Legal Services. There is no known opposition to the bill. In the past, processors and fishermen have disputed the definition of "value" when paying salmon enhancement and raw fisheries taxes. The argument is that bonuses and delivery costs are not part of the actual amount paid for fish. This interpretation leaves an opening for processors to pay lower prices. They make up for the low price by giving bonuses for services such as delivery or handling. HB 133 clarifies what services and forms of payment are subject to these taxes. The bill would take effect on January 1, 1994. Representative Moses urged passage. Co-chair Pearce called for additional testimony. None was forthcoming. She then queried members regarding disposition of the bill. Senator Kerttula MOVED that HB 133 pass from committee with individual recommendations. No objection having been raised, HB 133 was REPORTED OUT of committee with a zero fiscal note from the Dept. of Revenue. Co- chairs Pearce and Frank and Senators Jacko, Rieger, and Sharp signed the committee report with a "do pass" recommendation. Senators Kelly and Kerttula had moved away from the committee table and did not sign the bill as it was circulated. CS FOR HOUSE BILL NO. 136(FIN) An Act relating to revocation of and limitations on a driver's license; to the offenses of driving while intoxicated and refusal to submit to a breath test; imposing a limited license fee; amending Alaska Rule of Civil Procedure 32(b); and providing for an effective date. Co-chair Pearce directed that CSHB 136 (Fin) be brought on for discussion. PAULA CONRU, aide to Representative Mulder, came before committee. She explained that the bill derives from Alaska Sentencing Commission recommendations for use of alternative sentencing. The purpose of the bill is two- fold: 1. To crack down on DWI offenders by offering more serious immediate punishment. 2. To relieve some of the financial burden of incarceration by requiring that offenders pay up to $1,000 of the cost of their incarceration. The bill would require first and second-time DWI offenders and those who refuse to submit to a breath test to serve time in community residential centers and perform community work service while at the center. The bill also requires that all DWI offenders pay for the cost of their incarceration. Unpaid costs may be collected from the offender's permanent fund dividend check. The cost of incarceration, as defined in the bill, will be a uniform average cost as determined and prescribed by regulations from the Dept. of Corrections. All prisoners will pay the same rate no matter where they are incarcerated. Ms. Conru pointed to provisions dealing with limitations on individual driver's licenses and noted that, under current law, a person with up to six DWI offenses may obtain a limited license. The proposed bill restricts that ability to first offenders only. Those who refuse to submit to breath tests would not qualify. An application fee of $100 would be levied for a limited license. Ms. Conru noted support from the Dept. of Law, Dept. of Public Safety, and Dept. of Corrections. DANA LA TOUR, Special Assistant, Dept. of Corrections, came before committee in response to a question from Co-chair Frank regarding the department's $1,043.6 fiscal note. She advised that projected funding represents program receipts derived from incarceration payments made by offenders to cover the cost of their care. Ms. LaTour directed attention to page two of the fiscal note and referenced formulas used to develop the $1,043.6 figure. She said that the proposed bill is not expected to result in a change in the number of convictions. It will merely make offenders pay for the cost of their incarceration. The department will, in turn, utilize payments to purchase community residential center beds for DWI offenders. Senator Rieger asked if the amount established as the uniform cost of bed space would include the cost of indigents unable to pay. Ms. LaTour advised that the Commissioner could take that cost into consideration. Co-chair Pearce called for additional testimony. None was forthcoming. She then queried members regarding disposal of the bill. Senator Sharp MOVED that SCS CSHB 136 (HES) pass from committee with accompanying fiscal notes. No objection having been raised, SCS CSHB 136 (HES) was REPORTED OUT of committee with the following fiscal notes: Law 0 Public Safety (Drivers) 0 $108.0 revenue Public Safety (Troopers) 0 Administration (Public Advocacy) 0 Administration (Defender) 0 Corrections $1,043.6 Co-chairs Pearce and Frank and Senators Rieger and Sharp signed the committee report with a "do pass" recommendation. Senator Jacko signed "no rec." Senators Kelly and Kerttula had left the meeting and did not sign. HOUSE BILL NO. 225 An Act relating to notice of certain appropriations from the dividend fund. Co-chair Pearce directed that HB 225 be brought on for discussion. REPRESENTATIVE PARNELL came before committee. He explained that the bill was sponsored by the House Finance Committee as a result of work done by the Dept. of Public Safety budget subcommittee. Under present law, felons in Alaska do not receive permanent fund dividends. Those dividends are instead appropriated to two programs: 1. The sex offender treatment program in the Dept. of Corrections. 2. The crime victims' compensation fund. Approximately $1.6 million from the felon pool is appropriated to the above programs, leaving a remaining balance of $808.0. House and Senate budget conferees agreed to permit $750.0 of that balance to flow to the council on domestic violence and sexual assault. It is thus necessary to exempt from notice funds to be appropriated to the council. The proposed bill provides that exemption. Co-chair Pearce called for additional questions or testimony on the bill. Neither were forthcoming. She then queried members regarding disposition. Co-chair Frank MOVED that HB 225 pass from committee with individual recommendations and the zero fiscal note. No objection having been raised, HB 225 was REPORTED OUT of committee with a zero fiscal note from the Dept. of Revenue. All members present signed the committee report with a "do pass" recommendation. Senators Kelly and Kerttula were absent and did not sign. CS FOR HOUSE BILL NO. 235(FIN) An Act relating to educational programs and services for children with disabilities and other exceptional children and to persons with a handicap; and providing for an effective date. Co-chair Pearce directed that CSHB 235 (Fin) be brought on for discussion. CHRISTINE NIEMI, Educational Program Support Division, Special Education Program, Dept. of Education, came before committee. She explained that HB 235 was introduced by Representative Bunde at the request of the department. Passage will allow for compliance with federal regulations in accordance with the Individuals with Disabilities Education Act. Approximately $8,300.0 in federal funds are at stake. Ms. Niemi advised of correspondence from the federal government indicating that the 1994 grant award cannot be released until compliance is achieved. The following required revisions to state law are embodied within the proposed bill: 1. Amendments to and clarification of the hearing process. 2. Amendments to withdrawal of consent provisions and amendment of the definition of consent. 3. Addition of rehabilitation counseling services. 4. Addition of autism and traumatic brain injury as well a definition of "education records." Co-chair Pearce called for additional questions or comments. Senator Rieger advised that the proposed bill was reviewed at length in the Senate Health, Education, and Social Services Committee. He then MOVED that SCS CSHB 235 (HES) pass from committee with individual recommendations and accompanying fiscal notes. No objection having been raised, SCS CSHB 235 (HES) was REPORTED OUT of committee with zero notes from the Dept. of Education and the Dept. of Administration. All members present signed the committee report with a "do pass" recommendation. Senators Kelly and Kerttula were absent and did not sign. Co-chair Pearce directed that the meeting be briefly recessed. RECESS - 3:55 P.M. RECONVENE - 4:15 P.M. CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 249(STA) am An Act reestablishing the Board of Electrical Examiners and extending the termination date of the Board of Mechanical Examiners; relating to electrical and mechanical administrators; and providing for an effective date. Co-chair Pearce directed that CSSSHB 249 (STA)am be brought on for discussion. REPRESENTATIVE GARY DAVIS came before committee and directed attention to SCS CSSSHB 249 (L&C). He explained that the proposed bill would address an emergency which will occur August 31, 1993, when all electrical administrators' licenses--approximately 600 statewide--will expire. The legislation reestablishes the board of electrical examiners which was sunset June 30, 1992. Reestablishment will allow for renewal of licenses slated to expire in August. In the absence of renewal, there will be no electric administrators to ensure proper installation of electrical systems throughout the state. Inclusion of the mechanical examiner board is simply a house cleaning measure intended to alleviate a similar fate for licensed mechanical administrators. The mechanical examiner board is scheduled to expire June 30, 1993. Electrical administrators are master electricians charged with overseeing proper installation of electrical work done by journeymen and apprentice electricians. They are certified and licensed by the state to provide protection and safety to the public and property. Without electrical administrator oversight, there is increased risk of improperly installed electrical systems. Co-chair Pearce acknowledged need to provide a licensing function for electrical and mechanical administrators. She questioned, however, reestablishment of the two boards. Representative Davis advised that reestablishment of the electrical board was viewed as the vehicle to ensure movement of the bill. Senator Kelly voiced his understanding that the proposed legislation effects a "one- year fix." The legislature will have to deal with the issue on a more long-term basis next year. Representative Davis concurred, pointing to the emergency nature of the current situation as cited in the position paper from the Dept. of Labor. The department will be reviewing mechanisms to "smooth out the process" during the interim. Co-chair Pearce again asked why a board was necessary rather than merely a licensing function. She further questioned transfer of electrical administrator licensing from the Dept. of Commerce and Economic Development (which oversees all licensing) to the Dept. of Labor. Representative Gary Davis explained that the licensing function was being transferred to the Dept. of Labor since that department has enforcement authority. The Governor's Office requested the transfer. CHARLES MAHLEN, Commissioner, Dept. of Labor, came before committee in response to concerns regarding the transfer. He expressed his belief that "licensing for the occupation should be within the occupation," (i.e., the Dept. of Fish and Game should issue hunting and fishing licenses, the Dept. of Public Safety should issue drivers' licenses). Pertinent departments have the expertise for enforcement and control. That is different from professional licenses under the Dept. of Commerce and Economic Development. Electrical and mechanical licensing does not belong under Commerce. The Dept. of Labor already issues journeymen licenses and regulates the occupation. Commissioner Mahlen noted that the original board was sunset because of lack of regulation enforcement within the Dept. of Commerce and Economic Development. The proposed bill represents a "one-year fix"--an attempt to get licensing in the proper department while working out "the fine points." Co-chair Pearce observed that the boards and commissions task force recommended the above-noted sunset. Commissioner Mahlen advised of many complaints of lack of enforcement. There was, however, no way to transfer the licensing function. That was one of the reasons for sunset. Co-chair Pearce acknowledged need to reestablish licensing but again questioned need for the board. Senator Kerttula directed attention to page 2, section 7, lines 16 through 18, and raised a question concerning the exemption. Representative Davis attested to exclusions where oversight by an electrical administrator is not required (municipalities and electrical utilities were given as examples). Commissioner Mahlen added that professional electrical engineers or mechanical engineers would not have to take licensing tests because of their expertise. Commissioner Mahlen stressed the importance of electrical and mechanical administrators to the health and safety of the public. The Dept. of Labor has only four electrical inspectors and two plumbing inspectors statewide. Alaska now has 616 electrical and 605 mechanical administrators. These individuals are equivalent to electrical and mechanical engineers in installation expertise. They ensure the safety of all facilities under their jurisdiction and are necessary to protect the public, contractors, and the labor force from unqualified and non-resident low bidders. The proposed transfer from the Dept. of Commerce and Economic Development will provide for consolidation of licensing, regulation, and enforcement within the appropriate department. Senator Kelly MOVED that SCS CSSSHB 249 (L&C) pass from committee with individual recommendations. No objection having been raised, SCS CSSSHB 249 (L&C) was REPORTED OUT of committee with a $118.6 fiscal note from the Dept. of Labor, and a note from the Dept. of Commerce and Economic Development showing a reduction of ($5.9). All members signed the committee report with a "do pass" recommendation. HOUSE BILL NO. 252 An Act amending the Commercial Fishing Loan Act to authorize refinancing of existing loans made under that Act. Co-chair Pearce directed that HB 252 be brought on for discussion. REPRESENTATIVE MOSES again came before committee. He explained that the proposed bill would provide the Dept. of Commerce and Economic Development authority to refinance existing commercial fishery loans. Most of the 1,200 commercial fishermen with state loans are paying 10.5% interest. Regulations provide for new, fixed rate loans at 2% above prime. The current prime rate is 6%, and new fishing loans are at 8%. There is, however, no mechanism for refinancing existing loans to take advantage of current low interest rates. Over the past few years, commercial fishermen have faced low prices and unpredictable fish returns. The Dept. of Commerce and Economic Development approved loan extensions for nearly half of the existing loans following the disastrous 1991 salmon season. This year more than 3,000 fishermen are reportedly in arrears to the Internal Revenue Services for back taxes. Allowing fishermen to refinance existing loans and reduce monthly payments will provide assistance. There is sufficient cash flow in the revolving loan fund to accommodate the cost of refinancing. JERRY McLUNE, United Fishermen of Alaska, came before committee voicing support for the bill. He attested to the benefits of refinancing an existing 10.5% loan at 8%, and noted that in not allowing existing loan holders to do so, the state is in effect financing competitors at a lower rate. As background information, Mr. McLune spoke to the success of the loan program, advising that it has generated $40 million to the general fund. The requested relief is badly needed during present difficult economic times in the fishing industry. Discussion followed between Mr. McLune and Co-chair Frank regarding fixed and floating interest rates and the proposed term of refinanced loans. End, SFC-93, #73, Side 1 Begin, SFC-93, #73, Side 2 Mr. McLune attested to different terms for different loans: permit loans, vessel loans, etc. In response to additional questions from Co-chair Frank, Mr. McLune voiced his understanding that in order to refinance, the borrower would have to be current in his or her loan payments. KELLY SHARP, Loan Manager, Division of Investments, Dept. of Commerce and Economic Development, came before committee. In response to a question from Co-chair Frank regarding the impact of the proposed bill upon the integrity of the commercial fishing revolving loan fund, Mr. Sharp explained that the impact would lower future interest revenues by an estimated $1.6 million. The department anticipates that all existing loan holders--approximately 1,250--would want to take advantage of the interest break. Co-chair Pearce pointed to the fiscal note from the Dept. of Commerce and Economic Development and referenced the request for four new positions (in addition to the existing four loan officers). Mr. Sharp explained that the new positions would be needed to keep the loan processing time at "about the same level." A large influx of requests for refinancing would slow the entire process. In extending refinancing, the department must verify a number of qualifications such as residency. Mr. Sharp noted that the House cut the request in half to two positions for a cost of $85.0. Both Senator Kelly and Co-chair Frank stressed need for minimizing the amount of paper work associated with refinancing. Senator Kelly cited the streamlined process used by AHFC in refinancing existing loans. Discussion followed between Co-chair Pearce and Mr. Sharp regarding current operation of the loan program and payment schedules. Mr. Sharp advised that most of the loans call for an annual payment in either October or November, after the fishing season. Senator Sharp inquired regarding a refinancing charge to cover the cost of the paper work. Mr. Sharp said that a 1/2% fee would be charged. It is expected to generate $228.0. The average loan is approximately $52.0. Senator Kelly asked if the refinancing fee could be deducted from the differential between the old and new interest rate when making the first refinanced payment rather than anted up front. Senator Sharp noted that AHFC adds refinancing charges to the principal of the loan and finances the charges over the term of the loan. Both Co-chairs Pearce and Frank as well as Senator Kelly voiced concern that the department appears to be approaching refinancing with the same detail as first time loans. They seriously questioned need for requested staff. DEAN PADDOCK, Bristol Bay Driftnetters Association, next came before committee in support of the bill. He predicted that the fishing industry will need whatever assistance it can garner. Interest rates have dropped in all other aspects of society, and fishermen should also enjoy that benefit. He urged passage of the legislation. Senator Kelly asked if the prime sponsor would object to addition of the following language to the bill: Refinancing loan origination charges of 1/2% are to be collected when the first refinance payment is due. Representative Moses voiced no objection. He further commented that he did not believe all current loan holders would refinance due to an aversion to paper work. He further noted that the program has lost customers to commercial banks which have had lower interest rates for some time. Senator Kelly directed attention to page 3, line 6, of the bill and MOVED to add the above-cited language. He then voiced need for a letter of intent urging the department to accomplish refinancing utilizing as little time and paper work as possible. No objection to either the amendment or letter of intent having been raised, the amendment was ADOPTED. Senator Kelly advised that he would draft the letter of intent. Discussion followed regarding the fiscal note. Co-chair Pearce reiterated that House Finance allowed two positions for a cost of $85.0. She stressed that the positions are to be temporary rather than permanent. Co-chair Frank MOVED that the position count and funding be reduced to cover one position. No objection having been raised, it was so ordered. Further discussion of fixed and floating interest rates followed among members. PAUL FUHS, Commissioner, Dept. of Commerce and Economic Development, briefly came before committee. He attested to difficult times within the salmon industry. For many fishermen, refinancing will determine whether they survive or do not make it. He stressed that the instant bill alone will not cure existing problems and spoke to need for legislation relating to the ASMI assessment as well. The Commissioner said the state will lose 10 to 15% of the value of its salmon industry this year. Unless Alaska is able to break into the domestic market, no amount of loan refinancing will save the industry. Co-chair Pearce called for additional comments and/or questions. None were forthcoming. She then queried members concerning disposal of the bill. Senator Kelly MOVED that SCSHB 252 (Finance) pass from committee with a Senate Finance letter of intent and Senate Finance fiscal note. No objection having been raised, SCSHB 252 (Finance) was REPORTED OUT of committee with a Senate Finance letter of intent and a $41.1 Senate Finance fiscal note for the Dept. of Commerce and Economic Development. All members signed the committee report with a "do pass" recommendation. [This latter portion of the meeting was teleconferenced to Seattle, Washington.] CS FOR HOUSE BILL NO. 264(FIN) An Act levying and providing for the collection of and disposition of the proceeds of a fishery resource landing tax; and providing for an effective date. Co-chair Pearce directed that CSHB 264 (Fin) be brought on for discussion and noted a teleconference link to Seattle, Washington. REPRESENTATIVE CARL MOSES again came before committee. He explained that the proposed bill would establish a new tax on fishery resources caught and processed in the exclusive economic zone--waters directly off of Alaska--but which are then landed within Alaska's jurisdiction. These processed resources are currently not subject to state tax. The off- shore trawler fleet operating within the exclusive economic zone has been extremely profitable. It is now fully American with most vessels based in Washington State. The fleet targets groundfish with incidental catches of crab, halibut, herring, and salmon. Alaska provides significant benefits and services to the off-shore fleet and incurs additional fishery management and enforcement costs. The tax is one way to compensate the state for services. CSHB 264 (Fin) would impose a modest tax of 3.3% of the value of the processed resource landed in Alaska for shipment to markets elsewhere. The Alaska Seafood Marketing Institute would receive 0.3% of the tax. This new landing tax would place the off-shore fleet on the same tax level as on-shore facilities. The House Finance version of the bill authorizes a narrow tax credit limited to the tax on the value of fishery resources harvested under a community development quota program. The potential value of this credit is approximately $290.0. That is a small portion of the projected $8.6 million to be generated by the tax. The House Finance Committee Substitute also changes the definition of "value" used in computing the tax. The change was requested by the fishing industry to provide clarification and certainty in how the tax will be determined and applied. The original legislation provided a credit for equivalent taxes paid in other "states." House Finance extended that credit to taxes equivalent "in nature" paid in other "jurisdictions," including foreign countries. Representative Moses directed attention to a fishery tax study conducted by the Dept. of Revenue which recommended that a landing tax be established. He stressed that the current tax situation for shore-based versus off-shore processors is unfair. On-shore operations are taxed and contribute to the local economy through property taxes, etc. That tax is equivalent to what is now being proposed for off-shore processors. Discussion followed between Representative Moses and Senator Frank regarding application of the credit. Representative Moses said that community development quotas represent approximately 7% of the overall catch. The quota program will sunset in two to three years. Senator Sharp raised a question regarding what constitutes a qualified non-profit. MOLLY McCAMMON, aide to Representative Moses, explained that the credit was requested by CDQ groups. These groups now receive benefits from the Bering Sea Fishery Development Foundation. Funding would likely flow to that foundation but rather than specify a particular entity in statutes, CDQ representatives asked that the bill simply cite a "non-profit corporation." Moneys could then flow to other local non-profits and those associated with regional Native corporations. Moneys could only be used for training, development of fishery infrastructure, etc. End, SFC-93, #73, Side 2 Begin, SFC-93, #75, Side 1 CARL MEYER, Chief of Appeals, Income and Excise Audit Division, Dept. of Revenue, came before committee in response to questions regarding calculation of the tax and a definition of non-profit corporation. He then provided a verbal sectional analysis of the House Finance version of the bill. He assured that the legislation was constructed to avoid situations where fishery resources would be taxable under both business tax and landing tax provisions. The tax only applies to fishery resources that are "first landed in this state." Filing and tax payment provisions are essentially the same as for the business tax. Directing attention to credit provisions at page 2, line 7, Mr. Meyer explained that credit for "taxes equivalent in nature" paid in some other jurisdiction apply only to a similar processing tax. The credit would not include sales tax or import duty levied by other states or other countries. In practice, there should be little application of the credit. It relates to specific purposes, scholarships, training, capital for construction of infrastructure, etc. All contributions and related activities must be within Alaska. Application for the credit would be made to the Dept. of Revenue. The department, in consultation with the Dept. of Community and Regional Affairs, will make a determination within 60 days. The credit may be revoked at any time. It may also be denied if the taxpayer is found to be in arrears in other taxes under Title 43. Mr. Meyer noted that 0.3% of the tax would flow to ASMI while the remaining 3% would be deposited into a separate account in the general fund. The balance of the latter account may be appropriated to revenue sharing and distributed per provisions set forth at pages 3 through 5. Tax credits would be deducted from amounts flowing to municipalities. Pointing to definitions set forth on pages 5 and 6, Mr. Meyer noted that "fishery resource" is defined in business tax provisions. The definition of "landing" as the act of "unloading or transferring a fishery resource" is new. Discussion followed between Senator Rieger and Mr. Meyer concerning revenue sharing percentages set forth on page 4 of the bill. Senator Rieger directed attention to the position paper from the department and noted the general fund revenue estimate of $4.3 million. A like amount would be shared with municipalities. Mr. Meyer concurred. The department projects total collection of approximately $9 million. Discussion followed between Senator Kelly and Mr. Meyer regarding how the 3.3 tax percentage rate was selected. Mr. Meyers noted that on-shore operations presently pay 3% while floating processors pay 5%. Members of the American Factory Trawlers Association indicated that if a landing tax was to be applied, it should be fair. The Association further indicated that if the rate was the same as that charged shore-based processors, and if the value was the same value paid by shore-based processors, the association would not oppose the legislation as being unfair. The 3% rate evolved as a means of accommodating the industry. In considering constitutional aspects, the department came to the conclusion that the 3 rate would be fair. The 0.3% was then added for Alaska Seafood Marketing. Senator Sharp voiced his understanding that the state would retain 50% of tax revenues. Mr. Meyer concurred. JOE BLUM, American Factory Trawlers Association, next came before committee, accompanied by SUSAN BURKE of Gross and Burke. Mr. Blum explained that the association is comprised of 18 member companies operating 42 catcher, processor, and mother ships that fish in the 3 to 200-mile zone along the west coast, the Gulf of Alaska, and the Bering Sea. Mr. Blum voiced opposition to CSHB 264 (Fin) based on the constitutional issue of whether or not a state can tax a product that does not enter state jurisdiction until it is in finished form and is merely passing through to market. He acknowledged meetings with the Dept. of Revenue at which the association stressed need to address the constitutionality of the tax. Another area of concern relates to whether or not the tax is fair. The association asked that members not be taxed more than the shore-side sector, and that the tax be based upon the demand for services members make on the taxing authority. Factory Trawlers do not demand the same types of services, in the same amount, for the same period of time as do shore-side or floating processors. Trawlers make a different type of demand over a shorter period of time. The tax should be based upon that rather than the numerical rate of 3.3%. Senator Kerttula asked if factory trawlers employed Alaskans or if a majority of the work force was from out of state. Mr. Blum responded, "We do not have a preponderance of Alaskans . . . on the vessels, but we have a fair number." Alaska residency ranges from 800 to 1,000. Senator Kerttula noted that those workers generate tax needs in terms of schools for their children and other services. Mr. Blum next pointed to the Bering Sea Commercial Fisheries Development Foundation. The foundation has a nine-member board of directors, six of whom are Alaskans. It is a voluntary, non-profit foundation. The American Factory Trawler Association assesses itself $0.75 per ton on all fish caught in the Bering Sea, Aleutian Island, and Gulf of Alaska. That money is used for fishery development projects in Western Alaska. The cornerstone of the effort is the training program through the Seward vocational facility. Western Alaskans are selected for training for work in fish processing. The program has been in existence since the fall of 1991 and has trained more than 150 individuals. Those individuals have generated in excess of $3 to $4 million in cash wages in Western Alaska. Mr. Blum asked that a tax credit be given to any entity contributing to the foundation. He observed that the proposed CDQ credit is 7% of "one part of the resource." At $2,000 per trainee, the $290.0 CDQ credit will not train as many individuals as could be trained if the credit base was larger. In response to a question from Senator Kelly, Mr. Blum advised that the association has contributed approximately $1 million to the foundation since 1991. He further advised that when the state and federal governments agreed on the CDQ program, the foundation provided training grants of $500 per community for the 50 communities under the CDQ umbrella. If a tax is imposed upon the trawlers, it will make it difficult to both pay the tax and continue to contribute to the foundation. Mr. Blum explained that the association hoped the attorney general or House or Senate Judiciary Committees would review the bill. Failing those occurrences, the association asked that Gross and Burke review both pro and con aspects of the legislation. Co-chair Pearce noted the presence of both Judiciary and Resources committee chairmen as well as a representative of the Dept. of Law. The Co-chair further advised of indication from the attorney general that he would provide additional information on the legislation tomorrow morning. SUSAN BURKE, Gross and Burke, emphasized that her firm had taken a "quick look at the bill." It did not conducted in- depth review. End, SFC-93, #75, Side 1 Begin, SFC-93, #75, Side 2 She then highlighted concern relating to the fact that the proposed tax implicates two sections of the U.S. Constitution: one relating to interstate commerce and the other to the foreign commerce clause. States are not allowed to impose taxes on activities that form a part of interstate commerce. If a state does so, it must meet four United States Supreme Court tests: 1. There must be sufficient nexus--minimum contacts with the state. 2. The tax cannot discriminate against interstate commercial activities in terms of giving advantage to similar activities conducted by local taxpayers. 3. The tax must be fairly related to services the taxing jurisdiction is providing to the taxpayer. 4. The tax must be fairly apportioned. Ms. Burke said that she focused primarily upon the second test, dealing with discrimination, because it raises the most serious questions. Co-chair Pearce announced need to briefly recess the meeting to confer with House Finance co-chairs. RECESS - 6:05 P.M. RECONVENE - 6:25 P.M. Upon reconvening the meeting, Co-chair Pearce requested that Ms. Burke continue with her presentation. Ms. Burke noted that the proposed bill applies only to fish resources "brought into Alaska." That means that it applies to interstate and perhaps foreign commerce as opposed to domestic activities. It thus discriminates against interstate commerce. Courts will traditionally allow this type of tax on interstate commerce only if they determine that it is a proper "compensatory" tax--an effort to equalize the tax burden between people performing the same activities in the state. Ms. Burke cited, as an example, a sales and a use tax that essentially tax the same activity. She then questioned whether a court would view the proposed landing tax as compensatory to the existing business tax. The business tax is levied upon the business of processing fish. The landing tax is similar to a property tax. If the question of whether the landing tax is a proper compensating tax is bypassed, a further question of whether burdens on interstate commerce and local commerce are equal is raised. A state cannot place more burdens on interstate commerce than it places on local commerce. The question is further complicated by the tax differential between off- shore and domestic processors. Ms. Burke also raised questions concerning the 0.3% of the tax to flow to ASMI. She further noted a difference in tax burden between shore- based and out-of-state processors in terms of credits. Credits allowed under AS 43.75 are not allowed under the proposed landing tax. That is another serious issue. Ms. Burke advised of her understanding that a portion of the fishery resource subject to the proposed tax belongs to a foreign purchaser by the time it "hits Alaska." That squarely raises foreign commerce issues. She cited the Japan Lines case from California as an example of an attempt to impose a tax upon empty shipyard containers belonging to foreign shipping companies and used exclusively in foreign commerce. The Supreme Court held that the tax could not be levied. That decision was based on potential for double taxation and whether the state tax inhibited federal government ability to "speak with one voice rather than fifty voices" when dealing with foreign countries. Ms. Burke acknowledged that most of the problems appear to be fixable, given sufficient analysis and thought. She stressed the importance of stability in state tax policy. She further remarked on the expectations that would be raised should the proposed bill pass the legislature and subsequently be found to be unconstitutional. Pointing to language within the bill, Ms. Burke noted drafting problems, advising that the legislation does not require that the fish be processed. While the intent behind the tax is to capture revenues from resources processed outside the state, the bill does not limit application to processed resources. She further noted exclusions within AS 43.75 and noted that it appears that the proposed bill imposes a tax on what the legislature earlier sought to exclude from taxation. Ms. Burke stressed need, from a taxing policy standpoint, for review over the interim in order to develop legislation more likely to survive a constitutional challenge. HARVEY SAMUELSON from Dillingham, Alaska, next came before committee to speak on behalf of the Bristol Bay CDQ program and as a founding father of the Bering Sea Fishery Development Foundation. He observed that the foundation has done more good "than any social program that ever hit Western Alaska." It has provided jobs, self respect, and something for young people to look forward to. Both BIA and the state have failed in these efforts. Mr. Samuelson stressed need for the foundation to derive greater credit from landing fees. Much remains to be done, and it cannot be accomplished overnight. Foundation training has provided 300 to 350 jobs. After the first of the year, when 30 to 60 jobs were sought for Western Alaska residents, processors out of Dutch Harbor brought in over 1,000 cannery workers from "the states" and did not hire from Interior Alaska. In response to a question from Senator Kerttula, Mr. Samuelson said that the training programs cover "the entire Bering Sea coast up to Nome" as well as St. Lawrence Island. Senator Jacko noted that factory trawlers could continue current contributions with or without the legislation. Mr. Samuelson stressed that "Lots of them are on their deathbeds." Many factory trawlers will not be in existence much longer. There will then be no money with which to operate the foundation. Senator Jacko pointed to credits for CDQ program training modeled on the foundation program. Mr. Samuelson countered that the amount involved is less than $300.0 for "six outfits." Further, the state is loading down CDQ programs with scholarship and other requirements in the first year of operation. He argued that the "state is trying to make us spend all our money before we get it." PHIL CHITWOOD, Tyson Seafoods, next testified via teleconference from Seattle. He explained that Tyson entered the seafood industry through purchase of Arctic Alaska Fisheries Corporation. The company intends to expand its operation through expansion of existing and development of new facilities in Alaska. The extent to which these plans proceed will depend upon the economic environment provided by the state. The proposed bill would impose a 3.3% tax based on the raw fish value of fish caught and processed outside of state waters and transhipped inside state waters. It is estimated that the tax will cost Tyson "upwards of $1.5 million next year." Tyson operates a fleet of 31 vessels which catch and process ground and shellfish at sea. Because of declining prices in world fish markets, nearly half of the vessels are presently docked. Margins are insufficient to operate those vessels. Enactment of CSHB 264 (Fin) will significantly add to the cost of doing business in Alaska and will result in the docking of additional vessels. Tyson cannot expand its investment in Alaska while being forced to tie up additional ships. There could not be a worse time to burden the offshore fishing industry with additional expenses. Few, if any, Alaska groundfish participants had profitable operations last year. The outlook for the next few years is no brighter. Mr. Chitwood urged that CSHB 264 (Fin) be held in committee. He termed it seriously flawed, if not illegal. If enacted, Tyson would be forced to put additional dollars into litigation rather than its Alaska operations. Mr. Chitwood pointed to the self-assessed $0.75 per ton contribution by trawlers to the above-mentioned fishery development foundation. He stressed that the foundation has proven to be extremely successful in providing employment to Western Alaska residents. The proposed bill contains no tax credit for contributions Tyson makes to the foundation. Those contributions will stop if a credit is not included. A credit should also be allowed for fees paid on product shipped to foreign countries. That omission warrants legal review. CSHB 264 (Fin) would impose the same tax upon at-sea catcher/processors as on shore-side catcher/processors. That is unfair. At-sea processors provide their own support services while shore-side operations depend upon the state and local communities to do so. Each sector of the industry should be taxed in proportion to its receipt of services. The proposed tax on off-shore operations will result in curtailment of operations, loss of jobs, and decreased spending in coastal communities. Passage of the legislation will not have a positive impact. Mr. Chitwood urged that the bill be held in committee for further analysis to ensure that it is fair and acceptable to the industry. In response to a question from Co-chair Frank, Mr. Chitwood advised that Tyson processes approximately 200,000 tons of groundfish and 100,000 pounds of crab per year. He subsequently voiced Tyson's intent to move from a partially integrated business to a fully integrated seafood business whereby the product processed in Alaska "goes on somebody's plate" rather than to a secondary processor. THORN SMITH, North Pacific Longline Association, next spoke via teleconference from Seattle. [The following is a transcription of Mr. Smith's teleconference testimony.] Thank you, Madam Chair. For the record, my name is Thorn Smith. I represent the North Pacific Longline Association. Our association represents freezer longliners which catch and process ground fish in an exclusive economic zone in the Gulf of Alaska and the Bering Sea. Our vessels primarily fish for cod in the Bering Sea/Aleutian Islands area. I want to emphasize that these cod are caught, processed, packaged, and traded in the exclusive economic zone, outside of Alaska. In many cases it's done quite a number of miles outside of Alaska. The finished product is off- loaded at the transports within the territorial sea and put directly into foreign commerce for markets in Europe and the Far East. Often these transfers are made at anchor and do not involve the use of a dock. In the course of our operations, we purchase food, fuel, and services from Alaska businesses, making a substantial contribution to Alaska's economy. We use state facilities on a pay-as-you-go basis. A number of these freezer longliners are owned and operated by Alaskans and Alaska fishery pioneers. I'm sure names like John Winther, Jim Beason (sp?), and Beaver Nelson are familiar to you. I'm advised that Senator Ted Stevens was particularly enthusiastic when he was informed that a group of Kodiak fishermen were joining together to build the ALASKA LEADER, which is a substantial freezer longliner operating out of Kodiak. The Senator recognized that the relatively simple technology that we use, the [indiscernible] technology on these vessels, is accessible to ordinary Alaskans of ordinary means, and that it provides a very good opportunity for them to get into the [indiscernible] off-shore processing sector. Freezer longliners are relative newcomers to the ground fish fishery. They are able to harvest ground fish, particularly cod, in a conservation-oriented manner with minimal bycatch mortality and discard. Only when federal authorities, not too long ago, eliminated the Japanese downline and longline fisheries off Alaska were American fishermen able to gain access to premium markets. Our vessels are recently built. They're heavily capitalized, and they're particularly vulnerable to market fluctuations. A flood of cheap Russian white fish product in international markets has lowered prices drastically over the last year and has created a real economic crisis in our industry. The landing tax proposed here could drive many of us out of business. Unfortunately, this is not an exaggeration. The timing couldn't be worse. We support proposed amendments by the Fishing Company of Alaska to make it clear that the landing tax would not apply to product processed outside of state jurisdiction and transferred directly to foreign commerce, and also an amendment which would prevent double taxation. We, of course, have to pay export duties when we sell products to foreign markets. In our view, the constitutionality of the proposed landing tax has not been demonstrated. It has been shown that there is not a good nexus linking at-sea processing activity with the state to justify taxation. The finished product is merely transferred from one vessel to another in state waters. No processing takes place [indiscernible] foreign ports. This may or may not involve the use of a dock. There may not be a change of ownership in the product at the time of transfer. Any use of a major state facility, as I said, is on a pay-as-you-go basis. And there has been no showing that the proposed tax bears a fair relationship to the services provided by the state. We feel that it would be a mistake to move this legislation forward without a thorough legal analysis of these issues and without a very careful consideration, by the legislature, of its impact on Alaskans and non-Alaskan owners of freezer longliners. Thank you for your attention. I'd be happy to try to respond to any questions. SEN. PEARCE - Thank you very much, Mr. Smith. Are there any questions? SEN. KERTTULA - I have one. SEN. PEARCE - Senator Kerttula. SEN. KERTTULA - If you unload the fishery products in the state of Washington, do you pay any tax to the state of Washington? MR. SMITH - Phil is shaking his head, no. Actually, our vessels don't work off the state of Washington, and so I can't respond, Senator. SEN. KERTTULA - Okay. Others may well, though, right? MR. SMITH - I'm sorry, I can't tell you. I don't know. End, SFC-93, #75, Side 2 Begin SFC-93, #76, Side 1 FORMER SENATOR MIKE SZYMANSKI, next came before committee on behalf of Fishing Company of Alaska. He noted that the community of Dutch Harbor would be the primary recipient of the proposed tax. Mr. Szymanski provided a brief history of the Fishing Company of Alaska. He explained that the off-shore industry has predominantly been Americanized while shore-based operations are largely owned by Japan. The company has three long liners and seven trawlers. The proposed tax would not only impact trawlers but long liners, crabbers-- anyone involved in the process of bringing catch from the economic zone into the three-mile zone for offloading. All of the product is caught far off the coast and is produced exclusively for Korean and Japanese markets. The company employs 300 to 400 people on its vessels and in corporate headquarters in Seward, Anchorage, Dutch Harbor, and Seattle. Vessels offload to tramper ships bound for Korea and Japan. Many times offloading occurs in isolated bays, and the trampers do not enter Alaskan ports. The product is pre-sold before it enters the Alaskan zone. For these reasons, the bill poses serious problems in terms of the foreign commerce clause of the U.S. Constitution. The company is anticipating significant losses for the current year due to a market drop of almost 50% caused by foreign competition. If the proposed tax is imposed, it would put the company at great disadvantage in dealing with competitors, particularly Japanese and Korean fishermen who have the ability to fish former Soviet Union waters, take the product to market, and sell it below the cost of production in Alaska. Mr. Szymanski noted company contributions to the economy of Dutch Harbor by payments for garbage, water, sewer, electricity, security, medical, transportation, food and other direct services of offloading. The company also pays payroll and business taxes, docking, port, and piloting fees, etc. Operating costs are significant. Unlike shore- based processors, the company does not have the infrastructure support from local communities. Vessels homeported out of Seward spend more time in that community than at Dutch Harbor. Directing attention to a February 22, 1993, memorandum (copy on file in the HB 264 bill file) from Legislative Legal Services, Mr. Szymanski pointed to potential problems under the United States Constitution's commerce clause. He then read substantial portions of the memo. Mr. Szymanski next cited constitutional problems highlighted in a May 2, 1993, memorandum (copy on file) from Patton, Boggs & Blow. He stressed that once the issue becomes a matter of foreign commerce, the state is prohibited from taxing or regulating the effort. A corrective amendment was offered and partially adopted when the bill was in the House. However, the section relating to "Credit for Other Taxes Paid," page 2, remains flawed. Mr. Szymanski directed attention to a proposed amendment to correct problems by excluding "the whole foreign commerce practice." Mr. Szymanski next spoke to problems resulting from lack of nexus when attempting to apply the tax to a vessel that entered state waters only once and transferred its catch to a foreign tramper. In that situation, the tax does not bear a relationship to services provided by the state or a coastal community. Mr. Szymanski referenced a "port incentive development amendment" and explained that it would allow other ports an opportunity to provide "some portion of a tax-free zone." Discussion of expansion of CDQ programs followed between Mr. Szymanski and Senator Frank. In continued discussion, Mr. Szymanski questioned whether communities where offloading occurs should reap windfall rewards rather than the state general fund or communities (Seward, Petersburg, etc.) where the vessels winter over. Mr. Szymanski next spoke to the issue of a fair tax rate, terming the 3.3% tax unjustifiable in relation to direct services. If this taxation policy is found to be just, could it be extended to OCS oil and gas, international airport products, or similar products upon first landing in the state. A major challenge to this issue has already occurred in Louisiana where courts failed to uphold a proposed tax. Discussion followed between Senator Kerttula and Mr. Szymanski regarding industry support to schools and other state and community services. Speaking to the off-shore industry obligation, Mr. Szymanski suggested a 1% tax would cover impact. Senator Kerttula asked if a 1% tax would make the legislation constitutional. Mr. Szymanski said that while he could not speak in terms of nexus problems, he felt that the 1% tax would be more equitable in terms of off- shore impact. Discussion followed between Co-chair Frank and Mr. Szymanski regarding competition from Russian resources harvested by Korean and Japanese fishermen. Further discussion followed regarding federal export taxes and port and harbor fees. Senator Jacko asked if shore-based processors presently paying a 3% tax compete in the same market as off-shore operations. Mr. Szymanski acknowledged that they do. He noted, however, that on-shore processors receive services such as electricity, water, sewer, garbage pickup, etc. Off-shore operations bear the expense of on-board infrastructure to provide these services at sea. It is sometimes less costly and more efficient to operate on shore. MARK ERNEST, City Manager, Unalaska, and STEPHANIE MATSON, City Council Member, Unalaska, next came before committee. Mr. Ernest echoed statements by Representative Moses when speaking to impact sustained by communities from off-shore processing operations. In referring to immediately preceding comments by Mr. Szymanski, Mr. Ernest explained that in addition to the present 3% tax, on-shore processors also pay real property taxes and a 2% local fish use tax. The off-shore fleet is not subject to those taxes. An estimated 70,000 to 80,000 people travel through the Unalaska Airport annually. Crew changes generally occur in port, and there is substantial impact on the health clinic, roads, and education and recreation facilities. Mr. Ernest urged passage of the proposed bill. Co-chair Frank asked how the state might be able to protect against law suits challenging the constitutionality of the legislation. Mr. Ernest suggested that tax receipts and subsequent payments to municipalities could be held in escrow pending a ruling on the challenge. [Co-chair Pearce noted termination of the teleconference link at this time.] Discussion followed between Ms. Matson and Senator Jacko concerning a Fishing Company of Alaska contribution to the Unalaska health clinic. Referencing earlier comments by Mr. Szymanski regarding the small amount of time spent in port by off-shore processors, Ms. Matson noted that it is difficult to deputize sufficient police officers for duty when crews show up on an unknown schedule. The community must maintain full capacity to respond when needed. The city thus bases staffing on historical need. She reiterated that approximately 72,000 people pass through the air terminal each year. The community has a service population, besides shore-based processors, of 15,000 to 18,000. That can be verified by the number of patients who utilize services of the health clinic. Ms. Matson further noted that members of the American Factory Trawlers Association fish Russian waters and return the product to Unalaska. Discussion followed between Ms. Matson and Senator Kerttula regarding competition among coastline communities that offer port facilities to fishing operations. RICK LAUBER, representing the Pacific Seafood Processors Association, next came before committee. He attested to concern in the early 1970s that foreign fishermen were taking Alaskan resources, and the state was not being compensated for that taking. The 200-mile limit was thus imposed to prohibit that intervention. Alaska now has a "distant water fleet" fishing off its coast. That fleet pays no taxes to the state. Mr. Lauber acknowledged that a small number of fishermen and small processors that deliver to larger, floating operations are fighting to remain profitable. Large, off-shore operation have failed to mention that they spend millions attempting to "grab all of the resource so that Alaskans would not have a single pound of it." End, SFC-93, #76, Side 1 Begin, SFC-93, #76, Side 2 Mr. Lauber noted that all communities "around the rim of the Bering Sea," including those fifty miles inland, are involved in the CDQ program, with the exception of Dutch Harbor/Unalaska. The purpose of CDQs is to encourage communities to become involved in the fishing industry. One cannot talk about an amendment that would grant factory trawlers an exemption or tax credit without taking CDQ programs and the magnitude of the quotas into consideration. Factory trawlers have contributed approximately $600.0 to the foundation. Community Development Quotas for villages along the Bering Sea are worth between $20 to $25 million a year. The purpose of CDQs is to do "what this foundation is attempting to do." While the trawler fleet deserves recognition for its contributions, it does not deserve a tax credit. Mr. Lauber advised that the proposed legislation should have been passed a long time ago. He stressed that shore-based processors actually pay 5.3% because they pay municipal taxes in addition to those levied by the state. That percentage does not include real property and other taxes. Mr. Lauber spoke to the permanence of shore-based operation and noted that off-shore trawlers are flexible and able to move to alternative fishing grounds (Oregon, Russian waters, Australia, and New Zealand). Shore-based processors have invested hundreds of millions of dollars in facilities that cannot be moved. Off-shore competitors should be fairly taxes. Mr. Lauber urged the legislature to impose a tax on factory trawlers commensurate with their activities in the State of Alaska. Discussion followed between Mr. Lauber and Senator Kerttula regarding ownership of on-shore processing operations. JEFF KOENINGS, Director, Division of Commercial Fisheries Management and Development, Dept. of Fish and Game, next came before committee, voicing support for the proposed landing tax. He attested to the fact that off-shore factory trawlers harvest a bycatch of crab, halibut, herring, and salmon while targeting another species. This bycatch consists of species of great importance to Alaska's fishermen, processors, and coastal communities. The incidental harvest by factory trawlers has an economic impact on Alaskans by removing resources they would otherwise be harvesting and processing. Mr. Koenings next spoke extensively to department management in exclusive economic zone fisheries. DEAN PADDOCK, Bristol Bay Driftnetters Association, again came before committee. He voiced concern regarding salmon bycatch and spoke to need for an incentive to induce factory trawlers to reduce that bycatch. He concluded his comments by referencing the proposed landing tax and saying, "If this is it, go to it." Co-chair Pearce advised of notification that the Attorney General would provide a statement of defensibility at 11:00 a.m. tomorrow morning. She suggested that amendments for the bill be offered at that time. ADJOURNMENT The meeting was adjourned at approximately 8:15 p.m.