Legislature(1997 - 1998)

04/04/1997 10:17 AM FIN

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

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