Legislature(2003 - 2004)
03/24/2004 09:04 AM Senate FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 24, 2004
9:04 AM
TAPES
SFC-04 # 55, Side A
SFC 04 # 55, Side B
SFC 04 # 56, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:04 AM.
PRESENT
Senator Gary Wilken, Co-Chair
Senator Lyda Green, Co-Chair
Senator Con Bunde, Vice Chair
Senator Fred Dyson
Senator Ben Stevens
Senator Lyman Hoffman
Also Attending: SENATOR BERT STEDMAN; IAN FISK, Staff to Senator
Bert Stedman; KATHY HANSEN, Executive Director, Southeast Alaska
Fishermen's Alliance; DICK COOSE, Staff to Senator Bert Stedman;
LUCKY SCHULTZ, Staff to Senator Fred Dyson; CHERYL FRASCA,
Director, Office of Management and Budget, Office of the Governor;
PHELAN STRAUBE, Staff to Senator Ben Stevens; KEVIN RITCHIE,
Executive Director, Alaska Municipal League
Attending via Teleconference: From an Offnet site: ROBIN WILSON,
Tax Division, Department of Revenue
SUMMARY INFORMATION
SB 286-DIRECT MARKETING FISHERIES BUSINESS
The Committee heard from the sponsor and the industry. A committee
substitute was adopted and the bill reported from Committee.
SB 328-NATIONAL FOREST INCOME PROGRAM/DCED REGS
The Committee heard from the sponsor, adopted one amendment and
held the bill in Committee.
SJR 3-CONST AM: APPROPRIATION/SPENDING LIMIT
The Committee heard from the sponsor, the Office of Management and
Budget, adopted one amendment, one amendment was offered but
withdrawn from consideration, and the bill was held in Committee.
SB 366-STATE SALES TAX
The Committee heard from the sponsor, the Office of Management and
Budget, the Department of Revenue, and the Alaska Municipal League.
A committee substitute was adopted and the bill was held in
Committee.
CS FOR SENATE BILL NO. 286(L&C)
"An Act relating to direct marketing fisheries businesses, to
the fisheries business tax, and to liability for payment of
taxes and assessments on the sale or transfer of fishery
resources; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained that this legislation would reduce "the
fisheries business tax rate for direct marketers from five to three
percent." A direct marketer is defined "as a fisherman who owns a
vessel of at least 65-feet or less and catches, processes, and
sells both processed and unprocessed fish product" in or outside of
the State.
Senator Bunde moved to adopt the Finance committee substitute,
Version 23-LS0738\Z as the working document.
Co-Chair Wilken objected for explanation.
SENATOR BERT STEDMAN, the bill's sponsor, explained that this
legislation would affect the direct marketing business sector of
the fishing industry. The fisheries business, which was implemented
in 1913, is the oldest tax in Alaska. Currently, a three-percent
tax is assessed on the "the grounds price," which is the price paid
upon delivery of raw fish to the dock. The tax rate on fish sold to
a floating processor, "which is a large mobile processing facility"
is currently five-percent. This bill focuses on the group of
fishermen who no longer fit these "old" fisheries business tax
definitions, for, as the industry has developed, circumstances have
changed and more independent, small boat fishermen are conducting
their own processing and marketing. Unlike the large scale floating
processors, these business "are primarily Alaskans resident
fishermen who operate out of our ports, buy our fuel, and supplies"
and own property in the State.
Senator Stedman stated that this bill would correct current tax
inequities by charging these small direct marketing vessels a
three-percent rather than five-percent fisheries business tax. It
would also alter the value upon which the direct marketers' tax is
based. Rather than the value being determined by the grounds price,
which is the floating processors' first point of sale, the direct
marketers' "first point of sale is the second wholesale or retail
price because these businesses are selling their fish to
supermarkets, restaurants," or directly to the customer. Therefore,
this bill would clarify "that direct marketers would be taxed on
the 'prevailing' ground price."
Senator Stedman stated that, while some fisheries are required to
pay taxes on a monthly basis, this legislation would specify that
all taxes due by direct market vessels would be due each April
first in order to allow them to take care "of their accounting
comprehensively at the end of the season."
Senator Stedman summarized that this legislation would "remove the
current disincentive in our tax system" by recognizing that the
direct marketing industry is providing quality fish products, is
responding to marketing demands, and is taking more responsibility
to ensure the success of their operation. He stated that passage of
this legislation would provide a level playing field to direct
marketers by providing tax fairness. He reiterated that the vessels
addressed in this legislation are less than 65 feet in length.
IAN FISK, Staff to Senator Bert Stedman, informed the Committee
that the Version "Z" differs from the previous bill version in that
it adds the word "unprocessed" into the definition of value in Sec.
5, page four, line five as follows.
(A) the market value of the fishery resource as determined by
the prevailing price paid to fishermen for the unprocessed
fishery resource of the same kind and quality by fisheries
business in the same region or market areas where the fishery
resource was taken if
New Text Underlined [DELETED TEXT BRACKETED]
Co-Chair Wilken removed his objection.
There being no further objection, the Version "Z" committee
substitute was ADOPTED as the working draft.
Co-Chair Wilken noted that the sponsor has provided a "Short
Definitions of Terms" handout [copy on file] that defines fishing
terminologies.
Senator Olson inquired to the reason that April first is specified
as the date the tax would be due. That date might place a hardship
on the fishing industry.
Mr. Fisk responded that, historically, the Fisheries Business Tax
has been due on April first, due to the fact that oftentimes
"fishermen receive retroactive payments over the course of the
winter." In an effort to make taxation filing easier, this
legislation would consolidate a variety of taxes, including the
hatchery assessment tax and the marketing tax, by making them
uniformly due at the same time.
Senator Olson asked what impact would occur were the price of fish
to lower and negate the retroactive payments.
Mr. Fisk could not recall any situation wherein a fisherman was
required to pay back a company due to a reduction in price.
Senator Olson asked the burden were no retroactive funds
forthcoming during the winter months.
Mr. Fisk responded that absent any retroactive checks, the
fisherman would be required to pay based upon the price received at
the time of delivery.
KATHY HANSEN, Executive Director, Southeast Alaska Fishermen's
Alliance, testified in support of the bill as it would address "a
tax clarity and tax fairness issue." Noting that she had been a
participant in the development of this legislation, she shared that
the bill is "a tightly woven compromise" resulting from discussion
"between the industry, processors, and all the agencies that are
involved in direct marketing licensing."
Co-Chair Wilken noted that Members' packets contain several letters
in support of the legislation, including one from the Alliance,
[copy on file] dated March 22, 2004.
Senator Stedman noted that the legislation was initiated and
furthered by the Salmon Task Force, which is comprised of fishermen
and processors. This issue has required attention for several
years.
Co-Chair Green asked whether the legislation's new subsections
contain any further language that should be addressed.
Senator Stedman responded in the negative. He stated that work has
been conducted in regards to this issue for several years. Both the
fishing and processing industries support it.
Co-Chair Green asked whether the new language in the bill would
disadvantage any agency or group.
Senator Stedman responded no. The intent of the legislation is to
"conceptually enhance" the State's value-added fisheries products,
assist the industry in their modernization efforts and response to
market conditions, enhance the product price, and address some tax
reporting issues. The hope is that these efforts would result in
increased revenue to both the State and the industry.
Senator Dyson moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
There being no objection, CS SB 286 (FIN) was REPORTED from
Committee with indeterminate fiscal note #1 from the Department of
Revenue and zero fiscal note #2 from the Department of Fish and
Game.
SPONSOR SUBSTITUTE FOR SENATE BILL NO. 328
"An Act relating to the national forest income program in the
Department of Community and Economic Development and to the
authority of the department to adopt regulations; making
conforming amendments; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained that this bill would provide the
Department of Community and Economic Development with the necessary
authority to adopt regulations required "to implement a federal
program commonly know as National Forest Receipts."
SENATOR BERT STEDMAN, the bill's sponsor, stated that this
legislation would allow the State to align with federal changes to
the National Forest Receipts (NFR) program.
DICK COOSE, Staff to Senator Stedman, read the SB 328 introduction
statement as follows.
Historically, the distribution of funds under the National
Forest Receipts Program was authorized under a 1908 federal
law (16 USC 500) where 25% of the annual income earned from
activities within a national forest was shared with the State
for distribution to boroughs, cities, and regional education
attendance areas located within the national forest. With the
passage of the "Secure Rural Schools and Self-Determination
Act of 2000" (P.L. 106-393), National Forest Receipts payments
to the State for fiscal years 2002 - 2007 will be based upon
the average of the three highest annual payments made to the
State during the "eligibility period" of fiscal years 1987 -
2000.
Payments to the State under the Secure Rural Schools and
Community Self-Determination Act stabilized for the period
2002-2007 rather than fluctuate and significantly dropping due
mainly to the drastic reduction in national forest timber
harvest the past several years. Distribution to the boroughs,
cities, and rural education attendance areas changed only in
that the federal act required that at least 15% but no more
than 20 % of each local entities payment be spent on "special
projects" with the balance to be spent on the traditional
schools and roads categories. The special projects are defined
in the Federal act.
SB 328 allows the Department of Community and Economic
Development to prepare regulations to reflect the distribution
and accounting for the 15-20% special projects distributions
required by the Federal act.
Senator Stedman reminded that it would be beneficial to align the
State with federal forestry statutes, particularly were the NFR
receipt program to continue into the future.
Co-Chair Wilken asked when the current NFR program would expire.
Mr. Coose responded that the current authorization is in effect
through the year 2007.
Co-Chair Wilken asked whether extending the NFR program beyond that
date would require federal re-authorization.
Mr. Coose affirmed that it would.
Co-Chair Green understood therefore that the primary purpose of
this legislation is to conform to federal changes.
Co-Chair Wilken understood that some of the statutory issues being
addressed occurred when the State combined two departments.
Senator Stedman clarified that the legislation is required due to
federal changes.
Mr. Coose explained that one of the federal regulations that
changed was the mandate that 20-percent of the receipts be spent in
support of special projects. The Department must receive
authorization to rewrite regulations in that regard. He also noted
that the Department could further respond to Co-Chair Wilken's
comment regarding the departments' consolidation issue.
Co-Chair Green asked for an example of what would constitute a
special project.
Mr. Coose explained that there are two kinds of special projects:
one being a local government or community project such as the
construction of a community shelter at Ward Lake in Ketchikan or a
project to enhance search and rescue endeavors in Juneau, Sitka,
and Ketchikan as well as some forestry service education projects.
He expressed that the projects are clearly defined in federal law.
Amendment #1: This amendment inserts new language in Section 1,
page two, following line two, as follows.
(m) In this section, "number of children in average daily
membership" means that the number of full-time equivalent
students enrolled and residing in the city school district or
regional education attendance area that receives a share of
the income from the public schools allocation of the fund
created in (b) of this section.
Co-Chair Wilken moved to adopt Amendment #1 and objected for
explanation.
Senator Stedman explained that the forest service receipts are
shared based upon acreage. In addition to the major boroughs such
as the City & Borough of Sitka and the City and Borough of Juneau,
some of the unorganized communities are grouped together and then
the receipts are shared. Currently, however, some communities are
including correspondence study students in their calculations,
which adversely weighs their school district over another.
Amendment #1 "would level the playing field" by eliminating this
disparity.
Senator Dyson asked for further explanation regarding these
correspondence school enrollment calculations.
Senator Stedman responded that one school in particular has
expanded its distance correspondence school enrollment. This has
served to increase their average daily student count. This
amendment would allow only those students residing in and attending
the community school to be factored into the equation. This would
correct this current inequity.
Co-Chair Wilken stated that the intent of the NFR was to assist
individual school districts in the operation of their schools by
utilizing a funding formula based upon "students actually in
seats." As depicted in the Department of Education and Early
Development chart dated March 11, 2004 and titled "Correspondence
History FY99-FY05 Projected" [copy on file] the community of Craig
had eight students enrolled in its correspondence program in FY
2000. 574 were enrolled in FY 2004. The NFR is being used to fund
those 574 correspondence students who do not physically participate
in the school district. The amendment would serve to allocate the
NFR, as intended, based upon those students who are physically
present in the schools.
Senator Stedman stated that the communities that are embedded in
the Tongass National Forest are unable to tax federal forest
service lands, are unable "to expand into other resource based
areas or do economic expansions to keep their population employed."
He voiced appreciation for the efforts being exerted by Alaska's
Congressional delegation in Washington to extend the NFR program.
Senator Dyson asked for confirmation that the City of Craig has a
correspondence school program.
Senator Stedman affirmed that the school has a substantial amount
of correspondence students.
Co-Chair Wilken referred Members to the aforementioned Department
of Education and Early Development correspondence program chart.
Senator Dyson asked whether the students enrolled in Craig's
correspondence program are from Craig, are from elsewhere, or are a
combination of both.
Senator Stedman understood that the students are from around the
State.
Senator Dyson asked for confirmation that the correspondence
program being referenced could include students who live in Craig.
Senator Stedman responded that the program is a combination of
students both within and outside of Craig.
Senator Dyson asked, therefore, whether the amendment would exclude
students who reside in Craig but are enrolled in the correspondence
program from being counted as part of the Craig school enrollment.
Co-Chair Wilken expressed that further information in this regard
must be acquired.
Senator Stedman acknowledged.
Senator Dyson declared that students who live in Craig but who are
enrolled in the correspondence program should be counted as Craig
school students.
Co-Chair Green interjected that the amendment would not exclude in-
district correspondence students as it specifies that those who
enroll and reside in Craig would qualify.
Co-Chair Wilken agreed that the amendment's language does address
Senator Dyson's concern.
Co-Chair Wilken requested that a breakout of the in-district
students be specified in the chart.
Senator Olson asked how the adoption of this amendment would affect
the Craig School District. He opined that the amendment should be
held until that information is available.
Co-Chair Wilken stated that the amendment could be adopted prior to
receipt of that information.
Senator Olson asked whether this amendment would affect charter
schools.
Senator Stedman stated that the answer would be forthcoming.
Co-Chair Green commented that charter school students who are
enrolled and reside in the school district would not be affected by
the adoption of this amendment.
Senator Olson acknowledged.
Co-Chair Green stated that the purpose of NFR is to provide
assistance to local communities within the national forest based
upon residency.
Senator Hoffman asked whether any of the 574 students who are
enrolled in the Craig correspondence program were counted in the
receipt of NFR dollars in any other district.
Senator Stedman understood the question to be whether any of the
students are being "double counted" in that they might be counted
as being enrolled in both a correspondence program and in the
community in which they reside. He assured that further information
in this regard would be forthcoming.
Co-Chair Wilken declared, "that if they are, they shouldn't be." He
suspected that this is not the case.
Senator Hoffman therefore asked how the students who are not
residents of Craig would be accounted for were the amendment
adopted.
Co-Chair Wilken understood that they would get State support
through the State Student Foundation Formula which is a separate
accounting. The NFR is additional funding to the State Foundation
Formula.
Co-Chair Wilken removed his objection to the Amendment.
There being no further objection, Amendment #1 was adopted.
Co-Chair Wilken ordered the bill to be HELD in Committee.
CS FOR SENATE JOINT RESOLUTION NO. 3(JUD)
Proposing an amendment to the Constitution of the State of
Alaska relating to an appropriation limit and a spending
limit.
This was the fourth hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this legislation would allow a
Constitutional spending limit proposal to be placed on a Statewide
election ballot.
Amendment #1: This amendment deletes language in Section 1, page
two, subsection (c)(3) and replaces it with new language as
follows.
(3) of money received by the State from a source other than
the State or federal government that is restricted to a
specific use by the terms of a gift, grant, bequest, or
contract;
In addition, following ";" in Section 1, subsection (c)(8) on page
two, line 21 the word "and" is deleted and a new paragraph is
inserted to read as follows.
(9) of money for expenditure by a State agency to provide
services to another State agency that has also received an
appropriation of the same money; and
LUCKY SHULTZ, Staff to Senator Dyson, explained that in response to
Members' concerns regarding the appropriateness of language in
Version 23-LS0296\B pertaining to the appropriation calculation
exemption "of donations, gift, and grants to the State for specific
purposes," Amendment #1 would replace that language "with more
appropriate language" pertaining to the exemption of such statutory
designated program receipts as gifts, grants, bequests, and
specifically, contracts.
Senator Dyson moved to adopt Amendment #1.
Co-Chair Wilken objected for explanation.
CHERYL FRASCA, Director, Office of Management and Budget, Office of
the Governor, clarified that this amendment would align the bill's
language with current State Statutes pertaining to statutory
designated program receipts.
Mr. Schultz continued that the amendment would also incorporate a
new exemption into the bill in order to allow for an exchange of
interagency receipts in that one State agency could expend money in
order to provide services to another State agency. This is not
additional income and should therefore be appropriately reflected.
The amendment would also address reimbursable agreements.
AT EASE 9:39 AM / 9:39 AM
Senator Hoffman inquired as to the necessity of addressing the
interagency receipt language, as, were the funds already included
in one department's budget, they would be incorporated into the
allocation base.
Ms. Frasca responded that the amendment would address the issue of
duplicated expenditures. She explained that when developing a
fiscal summary that compares one year's budget to the next, there
is a line item element through which to identify components that
should be backed out or would reduce duplicated expenditures that
had been appropriated twice. The proposed language would serve "to
exclude the duplication so they count only once under the limit."
Examples would include "highway working capital fund appropriations
to the Internal Services Fund for telecommunications" as well as
interagency receipts.
Co-Chair Green asked regarding a component of the Department of
Health and Social Services budget that would be affected by the
proposed statutory designated program receipts language.
Ms. Frasca responded that the amendment would address the pro-
share/fair share component in the Department as these funds are
categorized as a contractual relationship between a health facility
through which federal Medicaid funds are received and then returned
to the State. The amendment would address this contractual issue.
Co-Chair Green asked whether "this implies that it is a contract
with the State."
Ms. Frasca clarified that it is a contractual agreement between a
hospital and the State.
Co-Chair Green understood therefore that it is not a contractual
agreement between the hospital and the federal government.
Ms. Frasca affirmed that, when pertaining to the fair share/pro
share arrangement, it is not.
Co-Chair Wilken removed his objection.
There being no further objection, Amendment #1 was ADOPTED.
Amendment #2: This amendment inserts new language into Section 2,
subsection (d) on page three, line three following the word "fund"
as follows.
if the balance in the fund is less than $2,000,000,000. The
amount deposited into the budget reserve fund under this
subsection shall not exceed the amount that, when added to the
balance in the fund before the deposit, equals $2,000,000,000.
After deposit is made under this subsection, any excess
general fund money shall be deposited into a budget reserve
fund established by statute
Senator Dyson moved to adopt Amendment #2.
Co-Chair Wilken objected for explanation.
Senator Dyson explained that this amendment would address the
question of how to deal with excess funds were the money available
for appropriation to exceed the limit. The original version of the
bill decried that the excess funds must be deposited into the
Constitutional Budget Reserve (CBR). However, utilizing these funds
to rebuild the CBR to approximately a seven billion dollar level
has not been viewed as the "wisest public policy." Therefore,
rebuilding the CBR to some acceptable or prudent level would serve
to strengthen the State's bond rating and provide flexibility with
which to respond "to foreseen and unforeseen fluctuations in
revenue." This Amendment would specify a CBR limit of two billion
dollars. This would be one billion dollars beyond Governor Frank
Murkowski's recommendation that a one billion dollar minimum
balance be established. Additional revenue beyond the two billion
dollars would be deposited into the existing Statutory Budget
Reserve (SBR) fund. He voiced support for the amendment.
Co-Chair Wilken recalled that prior to the State's withdrawing
funds from the CBR beginning in 1994, money from the SBR was
utilized between 1990 and 1994. The balance currently is the SBR is
minimal.
Senator Dyson read Section 2, subsection (d), as it would read were
the amendment adopted.
(d) The amount of money in the general fund available for
appropriation at the end of each fiscal year shall be
deposited in the budget reserve fund if the balance in the
fund is less than $2,000,000,000. The amount deposited into
the budget reserve fund under this subsection shall not exceed
the amount that, when added to the balance in the fund before
the deposit, equals $2,000,000,000. After deposit is made
under this subsection, any excess general fund money shall be
deposited into a budget reserve fund established by statute.
Co-Chair Wilken understood that adoption of the amendment would
limit the CBR balance to two billion dollars and anything beyond
that amount would be deposited into the SBR. He asked whether the
language stating that, "any excess general fund money shall be
deposited into a budget reserve fund established by statute" should
be amended to clarify that this fund is the SBR.
Ms. Frasca suggested that amendment language specifying the general
fund also be deleted, as such things as excess Permanent Fund
earnings should also be deposited into the budget reserve fund.
Senator B. Stevens noted that, in response to his question as to
whether the Permanent Fund Earnings Reserve Account was a
subaccount of the general fund or the Permanent Fund, the position
of the Department of Revenue's Commissioner was that it was a
subaccount of the Permanent Fund. As a result of the Commissioner's
remarks, he understood that those earnings would not available for
appropriation as a general fund subaccount. Therefore, the
Permanent Fund earnings reserve account would not be a
consideration in this bill.
Ms. Frasca agreed that this would be the case "in terms of the
categorization;" however, she stated that a future Legislature
could appropriate the balance of the Permanent Fund earnings
reserve account into the general fund.
Senator B. Stevens acknowledged. He noted that this legislation
differs from separate earnings reserve account legislation that he
has proposed, in that, by specifying that excess general funds
would fund the earnings reserve account, there is a different
funding mechanism.
Co-Chair Wilken suggested therefore that the general fund language
in the amendment remain as is with the option of revisiting it as
the bill progresses.
Senator Dyson stated that amending the language to specifically
denote SBR is worthy of consideration.
Senator Dyson asked Ms. Frasca whether the language specifying that
general fund money would be available for appropriation should be
revisited.
Ms. Frasca asked that additional time be provided before that
determination is made.
Senator Dyson asked the Members and Ms. Frasca to reflect upon
whether two billion dollars is an appropriate CBR limit.
Ms. Frasca requested that she be provided sufficient time to be
able to confer with the Department of Revenue in that regard.
SFC 04 # 55, Side B 09:51 AM
Senator Bunde asked the rationale behind designating two billion
dollars as the CBR limit, particularly as the State typically
requires, annually, half a billion to provide for cash flow issues
aside from sufficient funding with which to provide for such things
as a downturn in revenue or a catastrophic event. In addition, the
fact that the State borrowed five billion dollars from the CBR and
has yet to fully reimburse that amount is an irritant.
Senator Dyson voiced appreciation for that concern. He also voiced
appreciation for the efforts being exerted by Senator B. Stevens to
present legislation to reimburse the CBR.
Senator Dyson voiced the understanding that the ability of the CBR
to reach a five billion balance was unanticipated, and that the
Governor's recommendation that a one billion dollar CBR limit be
specified as the account "floor" or level that must not be breached
was the amount required to maintain such things as the State's bond
rating. In addition, he referenced separate testimony pertaining to
loan rates, inflation, the financial market and the impact that
such things incur on the State's financial situation.
Senator B. Stevens expressed the hope that someday the Legislature
could face the problem of what to do with an excess balance in the
CBR. He also stressed that reimbursing the CBR is "a constitutional
obligation" and unless that issue were resolved, either by changing
the Constitution or by repaying the amount borrowed, the
establishment of a one billion dollar floor as recommended by the
Governor or a two billion dollar floor as suggested in this
amendment would serve to prohibit that reimbursement as future
Legislators could appropriate excess funds elsewhere.
Senator Dyson clarified that rather than establishing a two billion
dollar floor, this amendment would establish that amount as the
maximum CBR "ceiling" or limit.
Senator B. Stevens understood that this limit would only apply to
the amount of general fund contributions to the CBR.
Senator Dyson clarified that the two billion dollar limit would
apply to total funds in the account regardless of where they
originated. He requested Members to contemplate whether a two
billion dollar balance in the CBR combined with the money that
might be deposited into the SBR would qualify as a reimbursement of
the money the State has borrowed from the budget reserve.
Senator B. Stevens responded that time would be required to
appropriately consider the situation. However, he voiced discomfort
that the Legislature might allocate funds in excess of the proposed
two billion dollar mark to other savings accounts rather than
repaying the entirety of the money owed to the CBR. This mechanism
could displace the State's debt obligation to the CBR.
Senator Hoffman asked whether this language would serve to repeal
the CBR repayment language. This would be contrary to the original
intent of Legislators who, acting upon a vote of the people,
allowed funds to be borrowed from the CBR with the understanding
that the money would be repaid. He stated that, years ago, the
Legislature, without success, inquired of the Administration at the
time, as to whether settlement money the State received from oil
companies could be utilized to repay the CBR. Therefore, he agreed
with Senator B. Stevens that the entire amount of money that has
been borrowed from the CBR should be repaid. This bill, he
continued, in addition to establishing a spending limit, would also
attempt to amend, by establishing a spending cap, a vote of the
people that specified that the CBR should be reimbursed.
Senator Olson asked whether a majority vote of the Legislature
would be required in order to access funds from the SBR as opposed
to the three-quarter vote that is required to access the CBR.
Co-Chair Wilken affirmed that a majority vote could access the SBR.
Senator Dyson, in response to Senator Hoffman's concern, asked for
clarification regarding whether the adoption of this amendment
would eliminate the Constitutional requirement that the CBR be
reimbursed to the level it was at the time the Constitution was
amended to allow funds to be borrowed from the CBR.
Mr. Schultz responded that the Version "B" committee substitute
contains language that would repeal Article IX, Section 17(d) of
the Constitutional budget language that specifies that any
withdrawal of funds from the CBR must be repaid. Amendment #2 would
add new language to Section 17(d).
Senator Dyson therefore stated that it must be clarified that were
the people of the State to approve language as presented in this
legislation, the voters would be changing language that they had
previously approved in this regard. He stated that, provided that
it is clearly communicated to the people of the State, Legislators
have the right to determine an appropriate CBR fund level. The real
discussion should be what is an appropriate level for the CBR.
Senator Hoffman stated that the single subject rule should be
applied in this instance, as the language contained in the
Amendment regarding a specified CBR level is a completely different
topic that should require a separate Constitutional amendment aside
from the spending limit. While it does pertain to managing the
State's funds, aligning it with a spending limit might be a
stretch.
Senator Bunde understood that the reason that a two billion dollar
limitation is being presented is to provide sufficient funding
above the Governor's one billion dollar "floor" recommendation that
supports the State's credit rating. Therefore, in addition to
maintaining a one billion dollar floor, $500,000,000 is required to
support cash flow issues throughout the year and another
$500,000,000 would be available to address claustrophobic events or
such things as financial market fluctuations and oil price
declines.
Senator Bunde stated that the position of maintaining a one billion
dollar floor to insure the State's credit rating has also been
questioned as the State has other options through which to support
its bond ratings such as acquiring a line of credit from a
financial institution. The problem with doing that, he professed,
is that it would incur additional debt service whereas maintaining
one billion dollar balance in the CBR would not cost the State
anything. It would also garner interest earnings even though
utilizing the CBR in this manner would tie up a lot of money.
Knowing which position to advance is a dilemma.
Co-Chair Wilken asked that Senator Dyson consider holding this
amendment for further discussion.
Senator Dyson agreed. He also acknowledged Senator Hoffman's point
about the single subject rule and stated that further research in
that regard would be undertaken.
Senator Dyson stated that an amendment that would specify a four-
year termination date on this proposal is being considered, with a
provision that it could be re-authorized.
Co-Chair Wilken asked what the fee might be were the State to
arrange for a one billion or half a billion dollar line of credit
with a major financial institution. He considered this a viable
option and suggested that it might be less expensive than the cost
associated with investing the CBR on a short-term rather than long-
term basis. With $28 billion in the bank, the fee for a line of
credit should be "relatively" reasonable. Perhaps an informal
inquiry could be made.
Ms. Frasca stated that information in this regard would be
forthcoming.
Senator Dyson voiced uncertainty as to whether providing
$500,000,000 to address such things as fluctuations in the
financial markets or the price of oil is sufficient. He asked Ms.
Frasca or the Department of Revenue to provide further information
to the Committee in this regard.
Senator Dyson moved to withdraw the motion to adopt Amendment #2.
There being no objection, Amendment #2 was WITHDRAWN from
consideration.
Co-Chair Wilken ordered the bill HELD in Committee.
SENATE BILL NO. 366
"An Act relating to the levy and collection of sales and use
taxes, to the levy and collection of municipal sales and use
taxes, and to municipal sales and use taxes on alcoholic
beverages; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this bill, which is sponsored by the
Senate Finance Committee, would institute a statewide four-percent
sales tax on sales, lease, rental, and use of tangible property and
services within the State.
Senator B. Stevens moved to adopt committee substitute, Version 23-
LS1051\U as the working document. He then objected to the motion in
order to explain the changes in the committee substitute.
Co-Chair Wilken noted that Kathryn Kurtz, Legislative Counsel,
Division of Legislative Legal and Research Services, has provided a
Version "U" Sectional Analysis [copy on file], dated March 24,
2004.
Senator B. Stevens stressed that this is a working document and as
such would continue to evolve over time. Changes in Version "U"
include: the addition of three new sections to the list of
limitations on the powers of Home Rule municipalities to Section 5,
on page two, beginning on line seven.
Co-Chair Wilken interjected that numerous individuals have
indicated the desire to testify regarding this bill.
Senator B. Stevens expressed the understanding that this would be a
Committee work session with the goal of developing a new committee
substitute based upon Department and Member input. Therefore, he
asked that the hearing be limited to Committee discussion.
Co-Chair Wilken apologized for not clarifying that this hearing
would be a work session, as it is the bill's first hearing and "a
foundation on what we are talking about" must be established. The
Version "U" committee substitute was distributed to the public with
the understanding that public testimony would be taken at a later
date.
Senator B. Stevens explained that some of the changes incorporated
into the committee substitute would address concerns presented by
State departments, specifically the Department of Revenue. However,
not all of the concerns have been addressed, as this is a
continuing work in progress. In addition to changes in Section 5,
other changes include: language in Section 12, page three, line 27,
that would allow municipalities to adjust their local tax system in
order to qualify for the one-percent return the State would rebate
to the municipality; language in Section 16, subsection (7) on page
five, line 29 would provide an exemption for goods for resale by
the mining and manufacturing industry was added because it was
inadvertently omitted in the original committee substitute; the
reference to a local bed tax, were it separate from the local sales
tax, as specified under AS 29.45.700, in Section 16, subsection
Sec. 43.44.060. Relationship to municipal levies. on page six, line
29 would allow it to remain in place; language in Section 16, Sec.
43.44.060, subsection (c) on page seven, beginning on line 18 would
address the situation of two different taxation rates resulting
from a city within a borough by combining the two rates and then
splitting the revenue rebated to that taxing regime proportionately
between the two entities.
Senator Hoffman asked for further information regarding how the
State's one-percent tax rebate would be split between a
municipality and a borough.
Senator B. Stevens responded that the one-percent rebate would be
divided between the two entities depending on their individual tax
levies. A five-percent tax on behalf of the local entities would be
collected were a municipality to levy a two-percent tax and the
borough to levy a three-percent tax. One percent of the five
percent tax would be rebated and prorated proportionately between
the two.
Senator Hoffman understood therefore that the language specifically
defines how the split would occur as opposed to it being an
optional situation.
Senator B. Stevens responded that this would be the guideline for
any community that that a dual city/municipality taxation system.
Senator B. Stevens explained that other changes in Version "U"
include language in Section 16, Sec. 43.44.130. Authority to enter
streamlined sales and use tax agreement. on page nine, beginning on
line nine that "would permit the State to enter into a multi-state
sales agreements for catalog sales," and, were any agreement to
occur on the federal Congressional level regarding Internet sales,
this would allow the State to participate in that agreement. In
addition, this language would allow the purchase of a large ticket
item that is taxed in one of certain participating states to be
exempt from taxation in Alaska. He noted that this would prevent
"dual taxation," and he noted that these types of agreements
currently exist between some states.
Senator B. Stevens further explained that some issues not addressed
in this committee substitute include whether or not to establish a
sales tax limitation; or whether or not to exempt such things as
industrial equipment that is used in development or exploration or
transportation expenses as exampled by taxing items shipped on the
Alaska Railroad that would probably be taxed again when sold at the
retail level. He voiced support for exempting both of these
components. Another issue not addressed is whether or not to
incorporate penalties for non-compliance or non-enforcement
language.
Co-Chair Wilken asked whether Version "U" addresses the entirety of
the Department of Revenue concerns as detailed in the Department's
March 19, 2004 memorandum [copy on file] signed by Deputy
Commissioner, Steve Porter, and addressed to Senator B. Stevens.
Senator B. Stevens responded that Version "U" addresses most but
not all of the concerns. Efforts on how to address the remaining
concerns are continuing.
PHELAN STRAUBE, Staff to Senator Ben Stevens, informed the
Committee that efforts are continuing in regards to incorporating
into the bill, language, as suggested by Senator Hoffman, that
would allow a small business to withhold from submitting a tax
every 30 days as required, until such a time that the tax owed
amounted to a minimum of $250.
Senator B. Stevens noted that another area requiring further
discussion would pertain to a sixty dollar per transaction
limitation, specifically how it would affect existing local revenue
streams. He also noted that language exempting wages and interest
from taxation was also inadvertently omitted from the bill's
exemption list.
Senator Bunde asked whether the intent of the bill is to limit the
collection of tax to only those entities holding a State business
license as enforcing collection of the tax on such things as garage
sales would be an administrative nightmare.
Senator B. Stevens responded that Section 16, subsection (6)(A) on
page five, beginning on lines 25 would exempt the resale of
property if a purchaser resells the property, by itself or in
combination with other property, "in the ordinary course of
business."
Senator Hoffman stated that such things as garage sales could also
be exempted by language in Section 16, subsection (3) on page five,
line 17 that would exempt "occasional sales."
Senator B. Stevens concurred.
Senator Hoffman asked about his request to provide a senior citizen
sales tax exemption in the bill.
Senator B. Stevens responded that while this issue was discussed,
it was determined that the municipalities that currently exempt
senior citizens from taxation could address this on the local level
by utilizing the one-percent rebate to assist seniors or by
providing them a tax credit.
Senator Hoffman stated that he would support a senior citizen tax
exemption. For clarification, he pointed out that while one of his
requests was to exempt diesel fuel utilized in the generation of
electricity, the language in Section 16, subsection (5) on page
five, line 22, that exempts "the sale of natural gas, diesel fuel,
heating oil, water, electricity, steam, or refuse and garbage
collection service" would serve to exempt diesel fuel in its
entirety. He voiced that his suggestion limited the diesel fuel
exemption whereas the language as written would serve to provide a
disparity between gas users and diesel users.
Senator B. Stevens acknowledged the comment and stated that this
exemption would be revisited.
Senator Dyson opined that the endeavor to exempt industrial
machinery would be difficult as it would be a challenge to provide
this exemption to a specific industry such as the oil industry and
large construction projects but not consider exempting such things
as commercial fisherman or fish processors.
Senator B. Stevens responded that this had been considered without
resolution. However, it should be noted that while the four percent
tax might apply to every purchase, there is a maximum $60 tax
limit. This "ceiling," which could be described as an invoice sales
tax rather than an itemized sales tax, was included in the bill in
an attempt to address this concern.
Senator Dyson acknowledged the explanation.
Senator Olson asked how the tax would be applied to harvesters of
products, be it either fishermen harvesting from the sea or farmers
harvesting potatoes who might sell their products either on a
wholesale or retail basis.
Mr. Straube interjected that were a fisherman to purchase cans that
would be utilized in the process of his harvest, the purchase of
those cans would be exempt from the sales tax. Manufacturing
components would also be exempt from taxation under provisions of
this bill.
Senator B. Stevens continued that, the concept "is that any item
that is either sold or purchased in the process for total resale is
exempt." A borough would have the ability to implement a landed raw
fish tax, whereas the State would have the ability to tax the final
product where that product sold in the State. This sales tax would
not apply to a product manufactured in the State but sold outside
of the State.
Co-Chair Wilken suggested that the word "sewer" be added to the
list of exemptions in the aforementioned Section 16, subsection (5)
on page five, line 22.
Senator B. Stevens agreed that some of the activities specified in
that section might not be owned by a municipality.
Co-Chair Wilken affirmed that this is the case in the City of
Fairbanks.
Co-Chair Wilken asked regarding the status of the bill's fiscal
notes.
Senator B. Stevens responded that the adoption of the Version "U"
committee substitute would provide the Department of Revenue with
significant information with which to develop a fiscal note.
However, he requested that development of the fiscal note be
delayed until a new committee substitute that encompasses the items
that were inadvertently omitted from Version "U" is developed.
Co-Chair Wilken suggested that a separate estimate be developed
that would depict how much sales tax would be lost were senior
citizens exempted.
Senator Bunde asked the anticipated annual expense of administering
the program, as he was concerned that these expenses might outweigh
the revenue the tax would generate.
Senator B. Stevens understood that the Department has calculated
those figures.
ROBIN WILSON, Tax Division, Department of Revenue, testified via
teleconference from an offnet site and stated that while the
Department would work with Senator B. Stevens to develop a fiscal
note, it could not provide one at this time as the Committee has
some important decisions yet to make. The Version "U" committee
substitute has not been reviewed by the Department and language
regarding such things as the tax limitation could complicate the
development as it would affect costs. She assured however, that
once the exemption structure is clarified, a fiscal note would be
developed.
Senator B. Stevens withdrew his objection to the committee
substitute, with the understanding that a new committee substitute
would be provided in short order.
There being no further objection, the Version "U" committee
substitute was ADOPTED as the working document.
Co-Chair Wilken asked that the handout titled "State Sales Tax
Issue Primer" [copy on file], dated March 2004, that was developed
by the Alaska Municipal League (AML) be explained.
KEVIN RITCHIE, Executive Director, Alaska Municipal League, voiced
appreciation for the Committee's endeavors to address the State's
fiscal dilemma by considering a variety of revenue generating
options including a State sales tax.
SFC 04 # 56, Side A 10:39 AM
Mr. Ritchie stated that the AML would be available to assist the
Committee in this endeavor. He noted that the intent of the "State
Sales Tax Issue Primer" is to examine some of the impacts that
would result were a State sales tax implemented as well as to
acknowledge that this State is different from other states. Since
Statehood, even when times were tough, sales taxes have been
reserved to be a municipal tax, as it is recognized that many small
communities do not have any other viable option through which to
generate revenue aside from property taxation. He also noted the
wide costs of living variations in the differing regions of the
State is a consideration in this issue.
Mr. Ritchie noted that in response to questions pertaining to
revenue sources, AML would first recommend the use of the earnings
of the Permanent Fund and the adoption of the Percent of Market
Value (POMV) Program.
Mr. Ritchie declared that a "direct partnership" between
municipalities and the State must be sought regarding the
development of the fiscal notes, as the exemption list provided in
the bill is "a huge issue" that would affect both the State and
municipalities' sales tax revenues. He noted that the Kenai
Peninsula Borough and the City and Borough of Juneau currently are
the largest sales tax collection organizations.
Mr. Ritchie concluded his remarks by stating that AML would be
available to answer questions regarding the Sales Tax Primer and
would welcome participation in the continuing development of the
bill.
Co-Chair Wilken voiced appreciation for AML's assistance, the
Primer, and the suggestion to develop a Sales Tax Exemption
Commission.
Senator Olson assumed that from "the negative approach" presented
in the Primer that AML has a negative view of the State Sales Tax.
He asked whether the exemption approach would be more palatable to
municipalities were it to mirror exemptions currently in place at
the local level.
Mr. Ritchie responded that each area of the State is different and
that difference is reflected in each area's specific exemptions.
Beginning on page 16 of the Primer, there is a definition and an
overview of various communities' tax exemptions, and in short,
there are no common or uniform tax exemptions. He also clarified
that this non-uniformity also pertains to the tax limitation as
some municipalities have a limit on a total invoice while others
might apply it to a single purchase.
Senator B. Stevens complimented Mr. Ritchie and AML on the
information provided in the booklet. Continuing, he spoke to the
issue as depicted on page ten of the Primer in the section titled
"A State Sales Tax in Not Fair to Alaskans" which bases its anti-
tax position on the fact that the price of goods in rural
communities is substantially higher than that of urban communities.
While labeling this as a major policy call, he declared that he has
"yet to rationalize within my mind" a justification as to why it is
acceptable on the local level to tax products to fund local
government but it is labeled "unfair" for the State to tax those
same products. On the same subject, he noted that urban areas use
property taxes as a mechanism through which to fund government. He
noted that the State provides goods and services, including
education, "at a equal level" to all areas of the State be it urban
or rural.
Senator Bunde opined that the information on this page intimates
that the proposed Sales Tax would be unfair due to the fact that
because the price of an object such as milk is more expensive in
one area of the State, the purchaser would be required to pay more
tax. Continuing, he recalled testimony to the affect that, in one
areas of the State, a Permanent Fund Dividend check equates to
approximately 30-percent of the household income. Therefore, were
an income tax implemented, that area of the State would be paying
little or no income tax while another area of the State would be
paying substantially more. He opined, however, that the income tax
scenario is fairer than the sales tax scenario.
Senator Hoffman, furthering Senator Bunde's comments, stated that
what is relevant in an income tax scenario is that everyone in the
State is treated equally whether they are in an economically
depressed area or not. The problem with a State sales tax is that
the State would be receiving additional dollars from communities
where the price of things such as milk is higher. This differs from
the local tax scenario in that everyone in the community would pay
the local government the same tax amount. He stated that there is
fairness in a local sales tax as the individuals living within
those boundaries are treated equally. In conclusion, he agreed that
Rural areas would be treated unfairly were a Statewide sales tax
implemented.
Senator B. Stevens proclaimed that these discussions would
continue; however, he argued that the State sales tax would be fair
because it would be applied equally in all parts of the State
regardless of the different pay scales, expenses, and other
amenities. A State sales tax would be the most equitable thing that
could be applied across the State and furthermore, the areas that
are more affluent, spend more money and therefore would contribute
more money.
Senator Hoffman declared that it would be fair to tax on a per
gallon basis rather than a price per gallon basis. Therefore,
whatever one consumes, one pays for whether it be marine, aviation,
or motor fuel. He recognized this as being a fair taxation method
as opposed to the inequities presented by a State sales tax based
on price.
Senator Olson noted that contrary to State programs that provide
cost of living allowance considerations for the price of services
or employment, private business employees are not provided these
benefits.
Senator B. Stevens countered that private industry employees would
also not have the option to not pay local sales or property taxes
on such things as rent.
Senator B. Stevens stated that a new committee substitute would be
forthcoming.
Co-Chair Wilken stated that an opportunity for public testimony on
this bill would be forthcoming.
Co-Chair Wilken ordered the bill HELD in Committee.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 10:54 AM.
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