Legislature(2017 - 2018)SENATE FINANCE 532
03/27/2017 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing: Alaska Gasline Development Corporation Board - David Wight, Hugh Short, and Warren Christian | |
| SB25 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | SB 25 | TELECONFERENCED | |
| + | HB 57 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
March 27, 2017
9:08 a.m.
9:08:15 AM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 9:08 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Anna MacKinnon, Co-Chair
Senator Click Bishop, Vice-Chair
Senator Mike Dunleavy
Senator Peter Micciche
Senator Donny Olson
Senator Natasha von Imhof
MEMBERS ABSENT
None
ALSO PRESENT
Hugh Short, Appointee; Warren Christian, Appointee; Randall
Hoffbeck, Commissioner, Department of Revenue; Mark Luiken,
Commissioner, Department of Transportation and Public
Facilities.
PRESENT VIA TELECONFERENCE
David Wight, Appointee; Fred Sturman, Self, Soldotna; Jeff
Wafford, UPS, Louisville, KY; Dana DeBell, Delta Airlines,
Los Angeles; Fred Sturman, Self, Soldotna; Aves Thompson,
Alaska Trucking Association, Anchorage.
SUMMARY
SB 25 MOTOR FUEL TAX; TRANSPORTATION MAINT. FUND
SB 25 was HEARD and HELD in committee for further
consideration.
CONFIRMATION HEARING: ALASKA GASLINE DEVELOPMENT
CORPORATION BOARD
Co-Chair Hoffman remarked about the public hearing process
as it related to education funding. He said that the public
should be aware that the senate intended to cut the
education budget by 5 percent regardless of public
testimony. He said that the public hearing was closed and
the item would not be reopened. He shared that lawmakers
could provide amendments, which could be considered in the
operating budget, but reiterated that the intent was to go
through with the 5 percent cut.
Co-Chair MacKinnon interjected that letters on the matter
could be submitted to the committee via email.
9:11:22 AM
^CONFIRMATION HEARING: ALASKA GASLINE DEVELOPMENT
CORPORATION BOARD - DAVID WIGHT, HUGH SHORT, and WARREN
CHRISTIAN
9:11:56 AM
DAVID WIGHT, APPOINTEE (via teleconference), discussed his
qualifications for the Alaska Gasline Development
Corporation board. He stated that he had a degree in
petroleum engineering and had worked in the energy industry
for 41 years. He said that half of his industry career was
related to gas processing and development. He further
discussed his resume (copy on file).
9:14:05 AM
Vice-Chair Bishop asked for Mr. Wight's opinion on debt
versus equity financing for the state's proposed liquefied
natural gas (LNG) project.
Mr. Wight thought that the financing would be determined by
the market. He believed that the project required some
equity investment by the state, but he could not say the
level. He thought that the purchasers, the market, and the
financers would look to a commitment from the primary
owners.
9:16:05 AM
Senator von Imhof referred to the state investment, and
wondered where Mr. Wight thought the funds would be found.
Mr. Wight acknowledged the state's budget and income
challenges, and expressed that the government of Trinidad
and Tobago was much in the same position. The country had
relied on investment banks to provide capital. He thought
that the project was still possible, and that all avenues
would be explored that would result in a minimum capital
investment from the state.
9:18:00 AM
Vice-Chair Bishop asked Mr. Wight about his top priorities
for the board for the upcoming year.
Mr. Wight thought it was important to improve investment
efficiency and cost structure. He believed that the project
size compared to the volume, timing, and price of the
market would need to be considered. He stated that the
financing of big projects was never easy. He said that
Federal Energy Regulatory Commission (FERC) filing and
negotiations about plant size would need to take place.
9:20:16 AM
Senator Dunleavy asked whether there were any other
projects that were similar to the project structure that
the administration had proposed.
Mr. Wight thought there had been many foreign governments
that had decided to own facilities rather than another
entity.
9:21:31 AM
Senator Dunleavy asked for specific names of foreign
governments.
Mr. Wight cited Qatar and Indonesia.
9:22:17 AM
Senator Dunleavy asked whether the approaches of Qatar and
Indonesia were similar to the model proposed by the
administration.
Mr. Wight replied that he was unable to definitively
determine whether the same model was being used.
Co-Chair MacKinnon thought that the question could be posed
to a subsequent testifier who was serving on the Alaska
Gasline Development Corporation (AGDC) board.
Senator Dunleavy answered in the affirmative.
9:23:20 AM
Senator Micciche noted that the two models mentioned by Mr.
Wight had significant private sector investment. He
wondered whether Mr. Wight planned to pursue the idea of a
state owned and controlled project.
Mr. Wight explained that he had spent his career with major
companies and had been involved in major capital
investments throughout the world. He believed that the
project should be a priority for the state and that it was
appropriate for the state to take a leadership role. He
explained that the state's capital investment should be
minimal, but big enough to drive the project with the rest
of the investors.
9:27:49 AM
Senator Micciche asserted that private entities were more
efficient than governments when it came to making
investments. He wondered how the board could encourage
efficiency in investment when it was itself a government
entity and therefore prone to thoughtless spending.
Mr. Wight thought that AGDC could act for the estate in the
same capacity as a large private company. He believed that
the biggest challenges facing the project were the size,
price, and environment. But he was optimistic.
9:30:15 AM
Senator Dunleavy discussed past legislation pertaining to
the gasline. He noted that in 2016 the 3 majors had backed
out of the project because it did not fit into their
portfolios. He wondered whether the 3 majors would be part
of the project moving forward if Alaska were more
economical.
Mr. Wight contended that the parties never felt the project
was uneconomic. He referred to his over 40 years of working
with major oil companies. He spoke to the company's limited
capital and the reality of having to prioritize projects.
He said that if the state wanted to see if the project
could be successful someone had to take a leadership role.
9:33:05 AM
Mr. Wight discussed gas resources in Trinidad and Tobago as
they related to the proposed Alaska gasline. He reiterated
that what the project needed was strong leadership.
9:35:19 AM
Co-Chair MacKinnon thanked Mr. Wight and invited Hugh Short
to the testifier microphone.
9:35:52 AM
HUGH SHORT, APPOINTEE, discussed his qualifications for the
position and offered biographical and employment history,
as well as his experience working on the board (copy on
file). He agreed with previous testimony that the project
faced challenges, and he relayed that the board had spent a
significant amount of time building a coalition of
investors, which included ConocoPhillips, Exxon, BP, and
the state. He said that the extended commodity downturn
throughout 2016 had put a significant amount of pressure on
each of those companies globally and locally. He reiterated
the challenges to the project that were highlighted by Mr.
Wight.
9:39:57 AM
Mr. Short said that the project finance model attached to
the project involved government participation. He relayed
that the previous model had been an equity model, where
each partner put in 25 percent. He related that the
currently project finance model meant that the state would
contribute equity to the project and would build the
project with the help of investment partners. He said that
the model would align the cost of capital over the entire
project, versus each company having their own return on
equity. The model would also reduce the cost and return of
the project, and could have some tax advantages.
9:41:57 AM
Senator Dunleavy commented that there was about $100 to
$110 million left in the accounts for the project. He
thought there were many Alaskans that questioned the
viability of the project. He wondered whether the money in
the account should be used to further the project at this
time.
Mr. Short relayed that the state had spent approximately
$175 million in the pursuit of a FERC license for the
Susitna-Wantana hydro project. He said that AEA and the
state were $75 million away from completing a full FERC
license when the decision was made to not move forward with
the project and not fund the remaining FERC work. He felt
that the state could have had an asset in the FERC license
that could have been sold, and he lamented that the state
could have made money from the hydroelectric plant, but
instead lost the invested money. He likened the gasline
project to the Susitna-Wantana project. He felt that having
a license in hand would be reflected as an asset on the
state's books. He felt that it would be foolish to not move
forward with the FERC licensing process for the gasline
project.
9:46:35 AM
Vice-Chair Bishop asked whether the AGDC budget would cover
the cost of completing the FERC license, or would
additional appropriations be expected.
Mr. Wight thought that the current budget would get AGDC
through the FERC process.
9:47:21 AM
Co-Chair MacKinnon asked what how much of the $100 million
in state assets AGDC expected to spend in FY18.
Mr. Short did not have the information at hand, but agreed
to provide greater detail at a later time.
9:47:58 AM
Senator Micciche commented that there were LNG projects in
the U.S. that had done the entire permitting process for
under $100 million. He asked whether the transparency of
the board with the legislature would be an objective for
Mr. Short.
Mr. Short answered in the affirmative. He lamented that
over the last 9 months the board had been in negotiations
with project partners over 4 key agreements. He expressed
frustration over the amount of information that had to be
discussed in executive session, and he said he understood
that the executive sessions had irritated the legislature.
He said that his goal for the future was to limit executive
sessions to a minimal amount. He relayed that transparency
was one of the board's biggest challenges because the
project was shrouded in multiple confidentiality
agreements. He said that transparency was the board's
biggest priority.
9:50:35 AM
Senator Micciche queried the criteria AGDC would use to
determine whether the project was economical or whether it
should be killed.
Mr. Short stated that AGDC was structured to give the
governor the ability to hire, and the legislature the
ability to retain or fire, board members. He said that he
had worked to serve independent and apolitically. He feared
that things could be politicized and that decisions would
be made based on the wrong criteria. He thought that if the
current board felt that the project was not feasible, and
was not an effective use of resources, the project would be
shut down.
9:54:10 AM
Senator von Imhof echoed the comments of Senator Micciche
and thanked Mr. Short for his service. She discussed the
FERC license as a milestone, and wondered if there was an
expiration date on the suite of permits. She wondered
whether the demand for the supplied product would change
within the lifetime of the FERC permit.
Mr. Short could not speak to a specific expiration of the
FERC license. He said that the state of Alaska had been
pursuing the project for his lifetime thus far, and had not
achieved the FERC license or induced any buyers. He thought
that achieving a FERC license and continuing to attempt to
get gas from the North Slope to tidewater was an important
pursuit.
9:56:48 AM
Senator von Imhof agreed, as long as the FERC license was
transferrable. She thought clearly global economics would
determine the future of the project.
9:57:28 AM
Co-Chair MacKinnon asked who Mr. Short thought should be
responsible for the marketing of Alaska's natural gas.
Mr. Short replied that AGDC played an important role in
communicating with the market. He listed the various reason
why the project was exciting. He believed that the
marketing of Alaska's gas rested on the shoulders of the
State of Alaska.
9:59:11 AM
Co-Chair MacKinnon referred to initial legislation that
contemplated DNR as a possible marketer of the gas. She
understood that Mr. Short believed that AGDC should be in
charge of marketing Alaska's gas.
Mr. Short responded that DNR and AGDC had been in
conversation about streamlining the process of gas sales.
He felt that the biggest challenge the board faced was to
be more efficient. He said that if AGDC and DNR needed to
craft a cooperative agreement to be able to efficiently
tackle the task to get to market, while maintain the
discipline of DNR negotiating the deal, then that should be
the process that was pursued.
10:00:32 AM
Co-Chair MacKinnon asked who would benefit from competition
in the scenario under which all the project partners sold
gas in the global market with all eyes focused on Asia.
Mr. Short felt that one of the biggest challenges was
determining whether to sell gas through a joint marketing
agreement with our partners, or under independent sales. He
lamented that it had been difficult to negotiate a joint
marketing agreement with four separate parties. He said
that at the end of the day each gas seller and buyer would
have to negotiate a deal and common economics would dictate
that the pricing would be similar. He felt that the state
would benefit if some level of production and sale of gas
could be induced.
10:02:31 AM
Co-Chair MacKinnon asked if one was a natural gas buyer
such as Asia or China, would the price be better of less
people were marketing gas in Alaska.
Mr. Short was unsure whether there was an absolute answer
to the question. He thought that the cost structure would
dictate the available margin. He said that the buyer's
ability to negotiate significantly different deals based on
the same source of gas would be limited because of the
underlying cost structure of the entire infrastructure.
10:04:01 AM
Co-Chair MacKinnon hoped that someone could explain to why
putting more gas, from a fourth seller, would be beneficial
to the state. She thought that companies that already had
marketing potential in other regions and nations would have
an easier time at selling than the state.
Co-Chair MacKinnon thanked Mr. Short for his service.
10:05:03 AM
AT EASE
10:05:49 AM
RECONVENED
Co-Chair MacKinnon informed that the committee would not be
taking public testimony on the confirmations.
10:06:26 AM
WARREN CHRISTIAN, APPOINTEE, discussed his qualifications
for the Alaska Gasline Development Corporation (AGDC) Board
(copy on file).
10:08:25 AM
Vice-Chair Bishop asked how many board meetings Mr.
Christian had attended thus far.
Mr. Christian specified that he had attended all of the
board meetings that had been held since his appointment.
Vice-Chair Bishop asked whether Mr. Christian had seen any
opportunity to bring suggestions to the project to lower
project costs.
Mr. Christian stated that the management team had engaged
him in the FERC process, through which he believed cost
reductions would be realized. He said that permitting often
increased the cost of a project, but that he could work to
lower the permitting costs.
10:09:45 AM
Senator Dunleavy asked whether the goal of AGDC was to
receive a FERC license or to determine the viability of the
project.
Mr. Christian opined that the FERC process was critical. He
said that the FERC permit would be viable for three years,
after which there was a possibility of extension. He stated
that the third party tolling and third party financing, as
well as the federal tax exemption because of state
ownership, would be beneficial to the project. He relayed
that AGDC would be returning to the legislature to ask for
additional funding because the budget only covered the
project through FY 18, and the FERC permit would not be
procured by that deadline.
10:12:18 AM
Senator Olson expressed concern that the project was not
being efficiently handled. He worried that the board would
not have the self-discipline to cancel the project if
necessary. He lamented that the state had poured millions
of dollars into projects that had so far proved fruitless.
Mr. Christian agreed with Senator Micciche that there was a
difference between state ownership and state control. He
was not in favor of the state running anything in the
private sector. He considered that the method by which it
was possible to determine if the project was viable was to
determine whether the model could no longer be
substantiated. He did not think the state was ready to
discontinue the project. He believed that the FERC process
should be continued to completion.
10:16:30 AM
Co-Chair MacKinnon asked Mr. Christian who he though should
be selling Alaska's natural gas.
Mr. Christian thought the reasonability of marketing the
gas belonged to DNR, he added that the responsibility of
marketing the project lie with AGDC.
10:17:12 AM
AT EASE
10:17:34 AM
RECONVENED
FRED STURMAN, SELF, SOLDOTNA (via teleconference),
commented on the AGDC confirmations. He expressed support
for Mr. Short. He testified that that the project should be
terminated.
10:19:32 AM
Vice-Chair Bishop FORWARDED the appointments of David
Wight, Hugh Short, and Warren Christian to a Joint Session
for consideration in accordance with Alaska Statute. He
relayed that this did not reflect an intent by any member
Senate Finance Committee to vote for or against the
confirmation of the individuals during any further
sessions.
There being NO OBJECTION, it was so ordered.
10:20:14 AM
AT EASE
10:21:29 AM
RECONVENED
SENATE BILL NO. 25
"An Act relating to the motor fuel tax; relating to
the disposition of revenue from the motor fuel tax;
relating to a transportation maintenance fund; and
providing for an effective date."
10:21:37 AM
Co-Chair MacKinnon OPENED public testimony.
10:22:10 AM
JEFF WAFFORD, UPS, LOUISVILLE, KY (via teleconference),
testified in opposition to SB 25. He discussed the impact
the bill would have on UPS (copy on file):
Thank you for the opportunity to provide testimony on
the proposed Motor Fuel Tax Bill and the impact it
could have on UPS and the air cargo industry. UPS is
one of several in our industry that oppose an increase
in the tax on jet fuel. UPS appreciates the long-
standing working relationship with the State of
Alaska. We have more than 1,100 employees in Alaska,
including 489 pilots who are domiciled here.
Traditionally, Alaska has played an important role in
UPS's global reach; not only do we deliver to
thousands of customers daily, but Anchorage serves as
our gateway to the Asia-Pacific region. Anchorage also
serves as the training location for our Representative
Doogan-11 and 747 fleets.
UPS located in Alaska because of the business-friendly
climate created by elected leadership. We pay close to
$6 million in general and aviation taxes here, as well
as approximately $7.2 million in landing fees annually
to cover costs at airports. We have also invested into
the local area, spending millions on a flight training
center that celebrated its tenth anniversary in
Anchorage last year.
We sympathize with the situation you are faced with.
We also understand that the budget outlook in Alaska
for future years in sunder a tremendous amount of
scrutiny given the lower price of oil and what it
means to the budget of Alaska.
UPS is in a unique situation as it related to the
proposed motor fuel tax bill. First, UPS faces the
risk of higher taxes on two different business units;
ground in the form of the motor fuel tax increase and
air in the form of the increased jet fuel tax. Second,
UPS actually supports the increase in the motor fuel
tax as it is a pure user fee. UPS uses most, if not
all, of the reads in Alaska and we believe we should
pay into maintenance of that infrastructure.
However, we oppose the jet fuel tax as it's not a user
fee. UPS and other airlines already pay user fees to
airports in terms of landing fees. As I mentioned
earlier, we pay roughly $7.2 million in landing fees
to the Alaska International Airport System each year.
AIAS is self-sustaining and requires little if any
state funding as the passenger and commercial airlines
pay for operational support and infrastructure
improvements.
In fact, the AIAS is thriving, and making an important
economic impact on the state. According to a DOT
study, the AIAS accounts for 17,000 jobs, including
one in ten jobs in Anchorage and one in 20 jobs in
Fairbanks.
Increasing the jet fuel tax also increases the
indirect subsidy to airports where there are no
landing fees and which UPS does not regularly use.
UPS does contract with carriers to deliver packages to
airports outside of the AIAS, but this is on a minimal
basis, and UPS is already paying jet fuel taxes on
domestic flights to subsidize those airports, along
with fees to the contracted carriers for any costs
they may incur.
In addition, UPS, Delta, and other members of the
aviation community, including those involved in
Airlines for America and the Cargo Airlines
Association, are concerned that targeting the aviation
industry for a budget shortfall could cause a
reduction on cargo and commercial flights to Alaska.
This increase could also cause an accelerated push
toward dependence on newer aircraft that can bypass
Anchorage, as at least one cargo carrier had started
to do already.
A decrease in the number of flights raises further
concerns, including the potential of diminished
investments in infrastructure if not as many airlines
are paying into the aviation fund through fuel taxes.
As it stands, cargo-related revenues account for
nearly two-thirds of AIAS revenues. If higher costs
cause carriers to fly elsewhere, this could indirectly
lead to either a reduction on revenues, or lead to the
remaining carriers having to pay more into the system
to account for those who bypass Alaska.
Again, UPS empathizes with the state of Alaska and its
budget deficit. We appreciate the partnership we've
had here and the growth-friendly environment that has
allowed UPS to operate here over many years. We hope
that you will greatly consider the consequences of
what an increase in the jet fuel tax can mean to the
great state of Alaska.
10:27:29 AM
DANA DEBELL, DELTA AIRLINES, LOS ANGELES (via
teleconference), testified in opposition to SB 25. She
relayed that Delta currently operated 17, peak day flights
to Alaska into Anchorage and Fairbanks, where they operated
year round, and seasonally into Juneau, Sitka, and
Ketchikan. She expressed concern that the increased income
tax would make an already tough environment to operate in
even more challenging. She expounded on the benefits that
Delta doing business in Alaska brought to the state. She
asserted that the tax increase would compound the already
challenging competitive environment. She shared that
through the connection to Delta hubs in various cities,
Alaska was only one-stop away from over 600 destinations on
5 continents. She reiterated that it was a challenge to
operate profitably in Alaska.
10:30:49 AM
FRED STURMAN, SELF, SOLDOTNA (via teleconference),
testified in opposition to the bill. He expressed concern
for the budget shortfall in his area of the state and the
subsequent job losses. He did not believed that taxes
should be implemented until further budget cuts were made.
10:33:45 AM
AVES THOMPSON, ALASKA TRUCKING ASSOCIATION, ANCHORAGE (via
teleconference), spoke in support of the bill. He expressed
support the development of a balanced, durable, and long
term fiscal plan that utilized cuts to state government,
use of permanent funds earnings, and taxes if required. He
believed that the tax proposed in the legislation was
acceptable within the framework of a long term fiscal plan.
He thought that action was critical during the current
legislative session. He said that the association supported
a motor tax increase if the funds were dedicated to
transportation needs. He stated that the trucking industry
paid 45 percent of the state motor fuel tax. He suggested
that intent language could be added that would make a
commitment to a highway fuel tax account that could be used
for roads and bridges. He hoped that the uses of the Public
Transportation Fund could be reined in so that the funds
could be directed toward transportation maintenance. He
relayed that he supported the change made by the house that
extended the implementation date to $.08 in 2017, and the
same in 2019.
10:37:13 AM
Co-Chair MacKinnon CLOSED public testimony.
10:37:45 AM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
discussed the presentation, "State of Alaska Department of
Revenue: SB 25 - Motor Fuel Tax," (copy on file). He said
that the presentation contained information from two
departments, revenue and transportation, as well as
sectional analysis and fiscal note information.
10:38:16 AM
Commissioner Hoffbeck turned to Slide 2, "Motor Fuel Tax
Increase":
"An Act relating to the motor fuel tax; relating to
the disposition of revenue from the motor fuel tax;
relating to the transportation maintenance fund; and
providing for an effective date."
10:38:57 AM
Commissioner Hoffbeck showed Slide 3, "Motor Fuel Tax
History":
· Began in 1945
· Tax rates have increased over time, but structure
unchanged
· Last increase: highway 1970, marine 1977,
aviation fuel 1994
· Tax was suspended from Sept. 1, 2008, to Aug. 31,
2009
· In 2015, HB 158 added $0.0095 surcharge on
· motor fuels and some other refined fuels
· Intended for spill prevention and response fund
10:39:55 AM
Commissioner Hoffbeck discussed Slide 4, "Relative Motor
Fuel Tax Rate":
· Alaska's fuel taxes are among lowest in U.S. (1)
o Highway fuel: lowest and the longest time since
increase
o Jet fuel: 35thout of 50
o Aviation gas: 24thout of 50
· Under this bill, Alaska taxes would be:
o Below national average for highway fuel
o Above national average for jet/aviation fuel
(1)Per Institute on Taxation and Economic Policy 2017
No comprehensive data for other states' marine fuel
taxes.
However, we believe that in most states the "marine" rate
is the "highway" rate.
Therefore, our "marine" rate is likely also one of the
lowest in the country.
10:41:51 AM
Commissioner Hoffbeck turned to Slide 5, "Motor Fuel Tax
Proposal," which showed a table that reflected the change
in rates over time under the bill. The current price of
highway fuel was $.08, and was expected to go up 50 $.16 on
July 1, 2017, and $.24 on July 1, 2018. The current price
of marine fuel was $.05, and was expected to go up to $.10
on July 1, 2017, and $.24 on July 1, 2018. The current
price of jet fuel was $.032, and was expected to go up to
$.064 on July 1, 2017 and $.096 on July 1, 2018. They
current "off road use' credit was -$.06 and was expected to
change to -$.12 in July 2017, and -$.18 in July 2018.
10:42:42 AM
Commissioner Hoffbeck displayed Slide 6, "Motor Fuel Tax
Impacts (examples)," which showed a table that offered
several examples of how the prices would affect Alaskans.
10:44:25 AM
Commissioner Hoffbeck moved to Slide 7, "Disposition of
Revenues":
· Creates "Transportation Maintenance Fund" as a new
fund within the General Fund.
o Aviation fuel taxes are other funds (dedicated
as required for participation in a federal
program) under current law
o HB 60 moves taxes on highway and marine fuel
from Undesignated General Fund to Designated
General Fund for budgeting
o Creates confidence that revenues from motor
fuel will be used to build and maintain
transportation infrastructure
Commissioner Hoffbeck said that people were more willing to
pay a tax when they were given assurances that the fund
would support the infrastructure for which the tax was
being collected. He related that though the funds could not
be dedicated, a designated fund structure would be created
within the general fund. [He noted that the slide should
reflect SB 25, not HB 60.]
10:45:24 AM
Senator Micciche asked how the funds would be accounted for
in the budgetary process.
Commissioner Hoffbeck stated that the money would be set in
separate funds: aviation, marine, and highway, and the
money to fund the services for those areas would be drawn
from the fund first. He said supplemental funds would come
from other general funds sources.
Senator Micciche asked whether Commissioner Hoffbeck
envisioned earmarking the funds.
Commissioner Hoffbeck answered in the affirmative.
10:46:39 AM
Senator von Imhof wondered whether there had been an
analysis done on how the increase would affect the fees and
taxes already paid to the state by large jet airlines.
Commissioner Hoffbeck offered to provide a report compiled
by DOT that examined landing fees and taxes associated with
various airport operations in hub cities.
10:47:50 AM
Commissioner Hoffbeck spoke to Slide 8, "Revenue Impact":
o Additional revenue about $40 million first
year, $80 million per year thereafter
ƒ$0.4 million will be shared with
municipal-owned airports
ƒRemainder: Transportation maintenance
fund, special accounts for road, water
transport, and aviation facilities
o Estimates based on fall 2016 revenue forecast
o Does not account for changes in fuel demand or
stockpiling
Commissioner Hoffbeck noted that approximately $71.4
million would come from marine and highway taxes, and
approximately $9.3 million from jet fuel. He shared that
the fall 2016 revenue forecast assumed that $370 million
gallons of highway fuel would be sold within the state, 120
million gallons of marine fuel, 130 million gallons of jet
fuel, and 10 million gallons of aviation fuel. He added
that of the 130 gallons of jet fuel that was taxed there
was 480 million gallons that were exempt because of the
international flight exemption.
10:49:05 AM
Co-Chair MacKinnon clarified that the tax was proposed to
collect $40 million additional dollars.
10:49:25 AM
Commissioner Hoffbeck addressed Slide 9, "Implementation
Cost":
o Dept. of Revenue must update:
ƒTax Revenue Management System (TRMS)
ƒRevenue Online (ROL) which allows a
taxpayer to file a return and apply for a
dealer license online
ƒTax return forms
o One-time implementation cost of $50,000 to
recreate tax forms and reprogram and test the
tax system to accommodate the rate changes
o No additional costs to administer the tax
program
Commissioner Hoffbeck qualified that there was minimal cost
associated with implementation of the tax.
10:49:59 AM
Co-Chair Hoffman asked which airports in the state were
municipally owned.
Commissioner Hoffbeck agreed to provide the information at
a later date.
Co-Chair Hoffman wondered how much the average Alaskan
benefitted from the taxes on marine fuel.
Commissioner Hoffbeck deferred the question to a later
date.
10:51:09 AM
Vice-Chair Bishop understood that the taxes would be
collected at the wholesale level, and not the retail level.
Commissioner Hoffbeck answered in the affirmative.
Commissioner Hoffbeck listed the municipalities that were
receiving payments from the gas tax funds:
Yakutat
Wrangell
Wasilla
Venetie Tribal Government
Thorne Bay
Soldotna
Sitka
Seldovia
Kwinhagak
Pelican
Palmer
North Slope Borough
Nenana
Kodiak
Ketchikan
Klawock
Kenai
Kake
Juneau
Haines
Igiugig
Delta Junction
Craig
Anchorage
Akutan
10:52:04 AM
Senator Dunleavy asked requested clarification of the
definition of "off road use credit".
Commissioner Hoffbeck explained that there was a provision
within the statute that allowed users to apply for
reimbursement of the tax paid on motor fuel purchased in
association with the highway tax that was used for non-
highway related purposes, such as a four-wheeler.
Senator Dunleavy surmised that Alaskan's who used the gas
for their four wheelers could apply for the credit.
Commissioner Hoffbeck answered in the affirmative.
10:53:21 AM
Senator Olson wondered whether the Origin Destination
exemption under AS 43.40.100 would remain intact under the
legislation.
Commissioner Hoffbeck stated that the bill did not change
the exemption in any way.
Senator Olson thought that the exemption created an unfair
advantage for carriers that traveled internationally.
Commissioner Hoffbeck replied that the justifiability of
the exemption had been questioned. He shared that part of
the exemption was federally mandated; if a flight was
leaving Anchorage or Fairbanks to land in a foreign
destination it could not be taxed. The state had increased
the exemption by saying that if a flight was arriving from
a foreign destination it would not be taxed, which expanded
the federally required exemption. He admitted that the
fairness of the exemption was in question, but that
generating business was also a consideration.
10:55:35 AM
Senator Olson wondered if the administration would be in
favor of abolishing the exemption, in order to create a
more equal playing field.
Commissioner Hoffbeck said that the economics of abandoning
the exemption would need to be studied before a
determination could be made.
10:56:33 AM
MARK LUIKEN, COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND
PUBLIC FACILITIES, referenced the presentation "Alaska
Department of Transportation and Public Facilities - Senate
Bill 25" (copy on file).
Commissioner Luiken looked at Slide 2, "Scope":
o This briefing addresses the Department of
Transportation & Public Facilities (DOT&PF)
operating budget.
o The funds generated by Alaska's Motor Fuel Tax
that will be placed in the Alaska
Transportation Maintenance Fund (DGF/Other)
replace an equal amount of Unrestricted General
Funds (UGF) that currently fund DOT&PF's
operating budget.
ƒUGF to DGF fund swap: $64.8M
ƒUGF to Other fund swap (Aviation): $4.5M
ƒTotal fund swap: $69.3M
o The budget components that are recipients of
the fuel tax revenue are the regional Highways
& Aviation components and the Alaska Marine
Highway System.
SB 25 was HEARD and HELD in committee for further
consideration.
Co-Chair MacKinnon discussed housekeeping.
ADJOURNMENT
10:58:48 AM
The meeting was adjourned at 10:58 a.m.