Legislature(1993 - 1994)

04/26/1994 09:10 AM FIN

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

Document Name Date/Time Subjects