Legislature(2015 - 2016)BELTZ 105 (TSBldg)

03/15/2016 01:30 PM LABOR & COMMERCE

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Audio Topic
01:31:18 PM Start
01:31:40 PM SB111
01:39:12 PM Economic Impacts of Alaska Fiscal Options - Draft Conclusions
03:15:16 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: TELECONFERENCED
"Economic Impacts of Alaska Fiscal Options -
Draft Conclusions" by Professor Gunnar Knapp
Institute of Social & Economic Research
+ Bills Previously Heard/Scheduled: TELECONFERENCED
-- Public Testimony --
+= SB 111 LIMIT FLAME RETARDANT ITEMS/FURNITURE TELECONFERENCED
Moved CSSB 111(L&C) Out of Committee
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                         March 15, 2016                                                                                         
                           1:31 p.m.                                                                                            
                                                                                                                                
                                                                                                                              
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Mia Costello, Chair                                                                                                     
Senator Cathy Giessel, Vice Chair                                                                                               
Senator Kevin Meyer                                                                                                             
Senator Gary Stevens                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Johnny Ellis                                                                                                            
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Dan Ortiz                                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 111                                                                                                             
"An Act relating to flame retardants and to the manufacture,                                                                    
distribution, and sale of products containing flame retardants;                                                                 
and providing for an effective date."                                                                                           
                                                                                                                              
     - MOVED CSSB 111(L&C) OUT OF COMMITTEE                                                                                     
                                                                                                                                
ECONOMIC IMPACTS OF ALASKA FISCAL OPTIONS - DRAFT CONCLUSIONS                                                                   
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 111                                                                                                                  
SHORT TITLE: LIMIT FLAME RETARDANT ITEMS/FURNITURE                                                                              
SPONSOR(s): SENATOR(s) WIELECHOWSKI                                                                                             
                                                                                                                                
04/16/15       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/16/15       (S)       L&C, JUD                                                                                               
01/28/16       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      

01/28/16 (S) Heard & Held

01/28/16 (S) MINUTE (L&C) 03/15/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg) WITNESS REGISTER NANCY BALE, Member Alaska School Nurses Association Anchorage, Alaska POSITION STATEMENT: Testified in support of SB 111. WESTON EILER, Staff Senate Labor and Commerce Committee and Senator Mia Costello Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Described the changes in the proposed CS for SB 111. SENATOR BILL WIELECHOWSKI Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Sponsor of SB 111. GUNNAR KNAPP, Director Institute of Social and Economic Research (ISER) University of Alaska - Anchorage Anchorage, Alaska POSITION STATEMENT: Summarized the conclusions of ISER's draft report "Economic Impacts of Alaska Fiscal Options." ACTION NARRATIVE 1:31:18 PM CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing Committee meeting to order at 1:31 p.m. Present at the call to order were Senators Giessel, Meyer, and Chair Costello. SB 111-LIMIT FLAME RETARDANT ITEMS/FURNITURE 1:31:40 PM CHAIR COSTELLO announced the consideration of SB 111. This is the second hearing and there is a committee substitute (CS). 1:32:33 PM NANCY BALE, Member, Alaska School Nurses Association, testified in support of SB 111. She maintained that Alaska's joining other states that have passed legislation pertaining to flame retardants will protect young children and their families from harmful chemicals. She encouraged the committee to pass SB 111. 1:33:49 PM CHAIR COSTELLO closed public testimony. 1:34:02 PM SENATOR GIESSEL moved to adopt the CS for SB 111, labeled 29- LS0518\P, as the working document. CHAIR COSTELLO objected for discussion purposes. 1:34:27 PM WESTON EILER, Staff, Senator Mia Costello, Senate Labor and Commerce Committee, Alaska State Legislature, described the changes in the proposed new CS. The first change is on page 2 where a new subsection is added on lines 23 - 26 that deals with an exemption for motorized vehicles designed to be used by kids. The second change is to the violation section on page 3, lines 2 - 4. Fines in the original version of the bill were to be enforced by the Department of Labor and Workforce Development, but now will be enforced by the Department of Law. CHAIR COSTELLO removed her objection and finding no further objection, version P was before the committee. 1:36:15 PM SENATOR MEYER asked for an example of an off-road motorized vehicle used by kids, included in subsection (b). MR. EILER said the industry brought this forward. It refers to dirt bikes and small off-road vehicles. SENATOR GIESSEL moved to report the CS for SB 111, labeled 29- LS0518\P, from committee with individual recommendations and attached zero fiscal note. 1:37:06 PM CHAIR COSTELLO announced that without objection, CSSB 111 (L&C) is reported from the Senate Labor and Commerce Standing Committee. SENATOR BILL WIELECHOWSKI, Alaska State Legislature, sponsor of SB 111, thanked the committee for hearing and passing the bill. 1:37:34 PM At ease ^Economic Impacts of Alaska Fiscal Options - Draft Conclusions Economic Impacts of Alaska Fiscal Options - Draft Conclusions 1:39:12 PM CHAIR COSTELLO reconvened the meeting and announced the next order of business would be a presentation by Gunnar Knapp with the Institute of Social and Economic Research, University of Alaska, Anchorage. He will present his analysis of the tax proposals before the legislature. 1:39:37 PM SENATOR STEVENS joined the committee. 1:40:39 PM GUNNAR KNAPP, Director, Institute of Social and Economic Research (ISER), University of Alaska - Anchorage (UAA), summarized the conclusions of ISER's draft report "Economic Impacts of Alaska Fiscal Options." He noted the report is on their website and ISER is inviting comments. There are small changes to this addition but not substantively. He reviewed the presentation outline starting with the study background, revenue impacts of taxes and dividend cuts, short-run economic impacts of fiscal options, regional differences in impacts of fiscal options, total economic impacts of reducing the deficit, and other economic impacts of fiscal options. 1:42:48 PM DR. KNAPP reviewed the selected fiscal options they studied: •Revenue impacts of taxes and dividend cuts -What share would non-residents pay? -What share would be offset by lower federal taxes? -What would be the relative impacts on different income groups? •Short run economic impacts of spending cuts, taxes and dividend cuts. Per hundred million of deficit reduction: -What would be the impacts on Alaskans' incomes? -What would be the impacts on Alaska jobs? •Regional economic impacts -How would the impacts of different options vary between regions? •Total economic impacts of reducing the deficit -What would the total short-run impacts on income and jobs of reducing the deficit by different amounts? He presented slide 7 with a table of the fiscal options they studied: Spending cut: workers - Spending cut achieved entirely by reducing state workforce Spending cut: broad-based - Spending cut achieved by broad range of cuts to state spending Spending cut: capital - Spending cut achieved by cutting the capital budget Spending cut: pay - Spending cut achieved entirely by reducing pay of state workers Income tax: progressive - Constant percentage of federal income tax liability Income tax: flat rate - Constant percent of federal taxable income Sales tax: more exclusions - Sales tax excluding food at home, shelter, health care and education Sales tax: fewer exclusions - Sales tax excluding only health care and education Property tax: - Statewide tax on real and personal property with exclusions for property taxes paid to local governments Dividend cut: - Reducing dividends and using PF earnings that would have gone to dividends for general fund spending Saving less: - Reducing savings of PF earnings that currently are saved in the PF principal (inflation proofing) or added to the PF earnings reserves, and using the money for general fund spending Excise tax: motor fuels - Increase in state motor fuels tax Excise tax: alcohol - Increase in state alcoholic beverages tax Excise tax: tobacco* - Increase in state tobacco tax 1:46:11 PM He noted they studied only some of Alaska's potential fiscal options. •We studied: -Options that are part of the broad political discussion -Options we had time, funding and expertise to analyze •We didn't study -Complex options requiring detailed industry-specific expertise •Changes to oil credits or oil taxes •Changes to other resource industry taxes -Changes to how the state delivers services •K12 education, University of Alaska, Medicaid, etc. -"Re-plumbing" of state finances (SB114, SB128, etc.) 1:47:19 PM SENATOR GIESSEL asked who funded the study. DR. KNAPP replied the total funding was $60,000; $30,000 came from the Department of Revenue and $30,000 from the Office of Management and Budget. SENATOR GIESSEL asked if the administration requested the study. DR. KNAPP answered yes. SENATOR GIESSEL asked if the administration provided ISER with what to include in the study. DR. KNAPP said no; the authors designed the study and topic areas entirely. He emphasized that they studied only some of the potential economic impacts of the fiscal option: We studied: -Revenue impacts -Short-run economic impacts -Total short-run economic impacts on Alaska economy We didn't study: -Long-run & indirect impacts What we could study was limited by: -Data -Complexity -Funding & time He noted the impacts they didn't study are important. This study is only a start at understanding potential economic impacts of fiscal options. CHAIR COSTELLO asked if there is a plan to study the long-term impacts. DR. KNAPP reported that the end of the study contains a list of relevant areas for future study. 1:50:34 PM DR. KNAPP emphasized that they are not advocating for or against any fiscal options or choices. The only purpose is to help inform the fiscal discussion. Their analysis is relevant to their fiscal choices and is far from sufficient as a sole basis for arguing for or against any fiscal options. 1:51:30 PM DR. KNAPP reiterated that they prepared this study independently: •The Department or Revenue and Office of Management and Budget funded this study •They had no influence over the study design, analysis or conclusions •The findings are only what is reported in their report and presentations - They are not necessarily what other people say they are 1:52:06 PM DR. KNAPP turned to the revenue impacts of taxes and dividend cuts. He displayed a chart showing that non-residents would pay about 9-11 percent of sales taxes and about 7 percent of income taxes. He described the logic behind that analysis. CHAIR COSTELLO noted that 82.9 percent and 83.9 percent of income tax would be paid by Alaskans. The committee learned that not all Alaskans would pay income tax. DR. KNAPP said he would address that later in the presentation. 1:54:26 PM SENATOR STEVENS asked how a Seattle-based fisherman's income tax would be calculated in Alaska. DR. KNAPP said he would need to learn the details of the situation and the tax would be difficult to determine. CHAIR COSTELLO asked what the assumptions were in this study. DR. KNAPP said they are in Appendix A of the report. More data could be added to the final report if there is a need to do so. 1:56:10 PM He displayed a chart showing that the impacts of state taxes and dividend cuts on Alaskans' incomes would be partially offset by reductions in their federal taxes. Higher-income households that pay higher tax rates would benefit most. The chart shows estimates of these offsets. He noted that the higher the income, the more pronounced the impact. SENATOR MEYER asked if sales tax is deductible on the federal form. DR. KNAPP said yes and added there is discussion in Matt Berman's report about who would deduct sales tax. He noted the difference between the dividend cut and the income taxes and sales taxes for non-residents versus residents, is that some of the sales and income taxes are paid for by non- residents. The dividend cut has a higher economic impact when not offset by non-residents. 2:00:31 PM DR. KNAPP showed slide 15, which illustrates the estimated effects of taxes and dividend cuts for 10 groups of Alaska households, grouped by their per-capita cash income in 2013, from the lowest 10 percent to the highest 10 percent. Slide 16 shows the three lowest-income groups had average household incomes of less than $45,000. The highest-income group had an average household income of more than $200,000. He said this relative range of income distribution is more than any other state. He noted 21 percent is earned by the highest income group and is equivalent to the rest of the groups. 2:03:26 PM He discussed on slide 18 how options affect different groups: income reduction per person - the average per capita disposable income reduction per $100 million in deficit reduction. He used various lines on a graph to make his points: the brown line shows that the dividend cut takes more from low income. The red line shows that the income tax is the most progressive and collects nothing from the lowest income group. The sales and property taxes have an intermediate effect. SENATOR GIESSEL noted that the committee was told that estimates show that 43 percent would pay no income tax. She asked if that was taken into account on this chart. DR. KNAPP said Dr. Berman's estimates show some income tax kicking in at the lower level. Dr. Knapp did not know how to reconcile Senator Giessel's statement and noted, if it were true, you would expect the red line to remain at zero. He said he would need to see the source of that information. SENATOR GIESSEL said the statement came from DOR. DR. KNAPP said he'd look into it, but his impression is that DOR said ISER's analysis was more complex than theirs. He said for the final report he would check to see if there is a discrepancy and what would explain it. Clearly, most of the burden of income tax would be borne by high income people. SENATOR MEYER thought DOR said anyone under $50,000 would pay no income tax. He agreed with Dr. Knapp's theory. DR. KNAPP said he'd be surprised to learn that anyone earning less than $50,000 would not pay any income tax. 2:09:37 PM DR. KNAPP turned to slide 20 that shows how options affect different groups: percentage income reduction per person, as opposed to dollars in the previous slide. He noted this is cash income and some lower income households use cash equivalents CHAIR COSTELLO asked how the study calculated children's dividends. DR. KNAPP said they were included in household income. His colleague looked at detailed data on the different taxes different people pay. He used that to estimate the marginal tax that would be paid by each group. It's a complex calculation, but intuitively reasonable. 2:12:31 PM Slide 21 shows how the combination of options would have intermediate effects on households of different income levels. Slide 22 is the same graph in percentage terms. The combinations of options would have intermediate effects on households of different income levels. 2:14:03 PM DR. KNAPP turned to the saving less option: Saving less (and using the money to fund government) would have no short-run economic impacts on the Alaska economy. •Options for saving less include: -Reducing inflation-proofing transfers to PF principal -Adding less to the PF earnings reserve •Saving less would not: -take any money out of the economy -have any short-run impacts on jobs or income •But it would reduce: -our future investment earnings -how much savings we leave for future Alaskans DR. KNAPP explained that the graph on slide 25 illustrates that from 2010 to 2015, Alaska saved an average of $1.4 billion annually of Permanent Fund realized earnings. He distinguished between the concept of sustainably saving less and unsustainable saving; use of current earnings, as opposed to drawing down the CBR. In contrast, spending cuts, taxes, and dividend cuts would have significant short-run economic impacts. They would all take significant amounts of money out of the economy, but they would do so in different ways, with different impacts on different Alaskans and different relative impacts on public and private employment. CHAIR COSTELLO pointed out she was told that states that implement an income tax see lower job growth. DR. KNAPP said that is an example of a longer term potential economic impact of an option that they didn't study. He suggested it would be useful for someone to research it. He noted that 35 states have income taxes and not all of their economies are having issues. SENATOR MEYER asked if the study considers the efficiency of collecting the revenue. DR. KNAPP said no; his general understanding is it is cheapest to have a state income tax formula that is based on the federal income tax, and that a sales tax is more expensive to collect. The study is focused on the money coming out of the economy 2:20:01 PM SENATOR MEYER said he mentioned it because DOR estimated it would take an additional 50 employees to collect an income tax. He assumed if the PFD was reduced there would be no need to add more state employees. DR. KNAPP said that is a relevant consideration. 2:20:38 PM He said slide 27 shows how ISER compared relative impacts of spending cuts, taxes, and dividend cuts. They used a standard "economic impact analysis" using the IMPLAN model. They began with the question, "How does spending change?" They standardized it with impacts per $100 million of deficit reduction. They paired both low and high impact estimates based on different assumptions about how changes in income affect spending and multiplier impacts. They also paired low and high assumptions estimated from different data sources. The earlier presentations presented high impact estimates. Low impact estimates are slightly smaller, but have the same relative impacts. CHAIR COSTELLO asked if they considered the relative size of families in different areas of the state. DR. KNAPP reiterated that family size is built into the calculation. He also reiterated that different cuts have different impacts. The report gives examples of the potential range of impacts. DR. KNAPP explained slide 28, the economic impacts of spending cuts depending on what is cut. Cuts affect: •Direct impacts on workers' incomes and jobs for both government workers and contractor workers •Impacts on contractor sales and spending •Impacts of reductions in state services -Instructure development and maintenance -Resource management (fish catches, mine permitting) -Transportation (Marine Highway service, road plowing, etc.) -Quality of social services (schools, health care, parks, etc.) He concluded that you can't generalize about economic impacts of spending cuts. Estimates illustrate a range of potential impacts. 2:26:55 PM He discussed the input-output modeling methodology for estimating short-run economic impacts of fiscal options, on slide 29, such as spending cuts, dividend cuts, and taxes. There are both direct income impacts and job impacts, as well as off- shoot impacts from those impacts, such as spending. 2:28:46 PM He showed the calculation of direct impacts on income on slide 30. He assumed a short-run economic impact per $100 million of deficit reduction. He listed spending cut options and impacts of direct earned income in millions, direct other income in millions, and why the direct income impact is less than $100 million. CHAIR COSTELLO asked about the capital spending cut option, which is less than any other option. She asked about the construction industry. DR. KNAPP said in cutting the capital budget by $100 million, a lot of construction jobs will be lost, but not as much as if workers alone were cut. CHAIR COSTELLO said this illustrates how complex the calculation is because the operating budget is where state workers would be paid. DR. KNAPP pointed out that a dramatic drop in capital spending affects the money coming into the state economy and that will be seen in coming years. 2:33:25 PM DR. KNAPP turned to the topic of calculating economic impacts on slide 31: multiplier income impacts, with short-run economic impacts per $100 million of deficit reduction. He noted pay cuts have a smaller multiplier impact than dividend cuts because more of pay goes to federal taxes and savings. 2:34:52 PM He continued with calculating economic impacts on slide 32: job impacts, short-run economic impacts per $100 million of deficit reduction. Job impacts are biggest for cutting government workers because they include direct losses of government jobs. Taxes and dividend cuts have only multiplier impacts on jobs. He showed the short-run economic impacts under a high scenario on slide 33 and a summary of fiscal options and estimated impacts per $100 million of deficit reduction on slide 34. 2:39:13 PM The graph on slide 35 shows estimated job impacts per $100 million of deficit reduction (FTE jobs) and income impacts on slide 36. He emphasized that all the numbers are big and affect the economy. The differences aren't that great unless a large share is going outside to buy supplies for construction. 2:40:37 PM The economic impacts of reducing the deficit will depend on what combination of options are used - slide 37. Slide 38 is a table from the report giving examples of ranges of estimated economic impacts per $100 million of deficit reduction resulting from selected potential combinations of fiscal options. It makes the point that the impacts will be different based on the combination of those that are chosen. 2:42:43 PM CHAIR COSTELLO asked what the 25 percent represents. MR KNAPP provided a hypothetical example that combines four approaches to raising $100 million, and 25 percent would be one- fourth each, or the average of each option. It illustrates examples of potential combinations. 2:43:57 PM DR. KNAPP turned to regional differences in economic impacts of fiscal options. He showed that income distribution varies for different regions of Alaska. His chart highlighted the share of total 2013 federal income tax exemptions by adjusted gross income group and Alaska census areas - slide 40. 2:45:50 PM He showed the share of state government jobs in wage and salary earnings in different regions - slide 41. Regional economic impacts of state spending cuts would depend on how important state government jobs and income are in the regional economy. Some regions are much more dependent than others. Slide 42 shows the relative importance of local government jobs in the economy. Regional economic impacts of cuts to revenue sharing, K-12 education, and other ways that state spending helps fund local government would depend on how important local government jobs are in the regional economy. Some regions are much more dependent than others. 2:47:31 PM DR. KNAPP turned to the total economic impacts of reducing the deficits. Slide 44 shows the estimated income and job impacts of reducing the deficit by different amounts using different options. This gives a sense of what the effect on jobs and income there would be at any particular level. Slide 45 shows how big Alaska's economy is. It lists selected estimates of Alaska income and employment in 2014. The source is the Bureau of Economic Analysis. Slide 46 shows the estimated percentage income impacts of reducing the deficit by different amounts using different options. Slide 47 shows how jobs are impacted. He emphasized that he isn't saying any of the numbers is the right estimate. The purpose of the table is to facilitate a comparison of fiscal options. 2:52:07 PM DR. KNAPP raised the question of how much is needed to reduce the deficit. He said they didn't study that important question. He noted the answer depends in part on what you assume about future oil revenues and how much Alaska is willing to draw down its savings. 2:53:43 PM He highlighted Alaska Department of Revenue projections for general fund unrestricted revenues. He noted that this year general fund spending is $5.2 billion. He showed projections of forecasts for various years at various oil prices. At $30/barrel there would be a $4 billion deficit. 2:54:39 PM He stated that Alaska can't sustain general fund spending over time that is more than its unrestricted general fund revenues. This year (FY16) spending is $5.2 billion for government. Over the next 10 years, the general fund revenues from current sources will probably be about $1.5 - $2.5 billion. It will be necessary to reduce the difference between general fund spending and general fund revenues by between $2.7 and $3.7 billion. How much and how fast the reductions need to be depends on future revenues and the willingness to draw down savings. 2:56:07 PM He continued to say the state has lost billions of dollars of oil revenues - slide 51. There will be significant economic impacts of adjusting to lower oil revenues. •Impacts of spending cuts we've already made: -Impacts of capital budget cuts on construction industry -Delayed because capital projects take several years -Actual capital spending will decline as money from past large capital budgets runs out •Impacts of future adjustments we will have to make -Spending cuts -Taxes -Dividend cuts 2:57:16 PM CHAIR COSTELLO noted that Representative Ortiz joined the committee some time ago. DR. KNAPP addressed how fast the state needs to reduce the deficit - slides 52 and 53. He highlighted that closing the deficit in this year could have a significant impact on an already weakened economy. On the other hand, not making significant progress would also have significant impact on the economy, such as having increased business and household uncertainty about the future. It could affect future investment and downgrade the state's credit rating. He opined there will be a smoother transition if there is a plan toward a sustainable path and building confidence in the state's future - slide 54. If the state substantially reduces the deficit this year and clearly demonstrates to Alaskans, businesses, and investors that it can, and will, finish closing the deficit there will be a smoother transition. The plan must build confidence in Alaska's fiscal future. 2:59:46 PM DR. KNAPP noted many other potential economic impacts of fiscal options - slide 56. Their studies are only a start in understanding potential economic impacts. He addressed potential economic impacts of spending cuts listed on slide 57: •Impacts of reductions in state services? •Impacts on economic development and future revenues? •Impacts on future state costs and spending? •Impacts of cost shifting to local governments and service users? •Impacts on federal matching funding? •Impacts on public employee work force? 3:00:39 PM He listed on slide 58 other potential economic impacts of taxes: •Some level of taxes is a "necessary evil," but: -What level is necessary? -What kinds are "least evil?" •Shifting of purchases to non-Alaska retailers? •Reduced incentives to invest in Alaska? •Reduced competitiveness of Alaska resource industries? •Higher labor costs? •Administration and enforcement costs? •Public "skin in the game" and more attention to state spending? •Fixing the "Alaska disconnect" so that growth pays for itself? He concluded that not all impacts are bad. They may bring more attention to state spending and may fix the "Alaska disconnect" so that growth pays for itself. DR. KNAPP listed other potential economic impacts of dividend cuts on slide 59: •Ability of lower-income Alaskans to live in high-cost rural areas? •Ability of Alaskans to accumulate wealth for "big-ticket" investments such as homes and college •Impacts on Alaska wage rates? •Impacts on how many and what kind of people move to or from Alaska? •Impacts on extent to which Alaskans feel they have a stake in the Permanent Fund and are committed to growing and protecting it? He suggested thinking about the long-term impacts of these potential changes. DR. KNAPP summarized that Alaska's fiscal choices will significantly affect Alaska's future economy and society. He urged thinking not only about short-term economic impacts, but also about longer-term economic and social impacts. 3:02:27 PM SENATOR MEYER said he didn't see any analysis of tobacco, alcohol, or motor fuel taxes. DR. KNAPP said his colleague looked at those and considered how regressive they would be. The data shows that higher income Alaskans pay more for alcohol, whereas tobacco taxes take more money from low income people. There is similar income data for motor fuel taxes. SENATOR MEYER said DOR admitted that Alaska already has the highest alcohol tax in the nation and he opined that doubling it will affect small businesses. He asked if that data is in the analysis. DR. KNAPP said that is a relevant point and the comparative tax burden question really matters. SENATOR MEYER asked about slide 35. He questioned whether the job impacts consisting of a spending cut in pay and a sales tax with exclusions would have the least impact. DR. KNAPP said yes. He added that it is related to income distribution. He provided an example of a cut in pay for government workers having less impact due to higher-than-average wages and their tendency to save more. SENATOR MEYER suggested that a sales tax protects those with lower incomes. DR. KNAPP said that is probably related to the amount paid by non-residents. 3:06:58 PM SENATOR GIESSEL said she is struggling with her take away and the utility of the study. The last slide in particular is what has been known for several years. She asked what her concrete takeaway should be. DR. KNAPP responded that "all these things would affect the economy." He stressed that income distribution effects are definitely relevant regarding cuts and taxes, and decisions about that ought to reflect consideration of this factor. He stated that it took writing this report to realize what is in the last slide. There is a lot more that is relevant than previously thought. These results don't tell you the right thing to do, so reasonable people will come to different conclusions. 3:11:44 PM SENATOR GIESSEL commented that Dr. Knapp has described the difficulty of the work he has done and she appreciates that for the public's information. She concluded that it will take patience, discipline, and vision to get to the right answer. SENATOR STEVENS said a strong takeaway is having "skin in the game." He said perhaps we're in the fix we're in because people have not had to pay in the past. DR. KNAPP agreed it is a reasonable hypothesis. He cited local spending decisions regarding capital projects in Anchorage and opined that there hasn't been that level of scrutiny at the state level. CHAIR COSTELLO thanked Dr. Knapp. 3:15:16 PM There being no further business to come before the committee, Chair Costello adjourned the Senate Labor and Commerce Standing Committee meeting at 3:15 p.m.

Document Name Date/Time Subjects
CS SB 111 Ver. P.pdf SL&C 3/15/2016 1:30:00 PM
SB 111
SB 111 - Sponsor Answers to Questions.pdf SL&C 3/15/2016 1:30:00 PM
SB 111
2016.02.23 - SB 111- Opposition Follow-up ACC.pdf SL&C 3/15/2016 1:30:00 PM
SB 111
2016.03.14 - ISER - Economic Impacts of Alaska Fiscal Options-Draft Report.pdf SL&C 3/15/2016 1:30:00 PM
ISER Alaska Fiscal Options Draft Report
2016.03.15 - Sen. L&C - ISER Economic Impacts of Alaska Fiscal Options.pdf SL&C 3/15/2016 1:30:00 PM