HB 92-MUNICIPAL TAXATION OF ALCOHOL Number 0004 CO-CHAIRMAN HALCRO announced that the first order of business before the committee would be HOUSE BILL NO. 92, "An Act relating to municipal taxation of alcoholic beverages." REPRESENTATIVE DAVIS, Sponsor of HB 92, Alaska State Legislature, noted that the committee packet includes the sponsor statement and other required documents. Representative Davis explained that currently statute says if a municipality has a sales tax, the municipality can tax alcohol at the rate of that sales tax. A municipality without a sales tax cannot tax alcohol. The legislation before the committee would take that statute off the books and allow municipalities to tax alcohol at any rate, but a sales tax ordinance must be initiated in order to tax alcohol. REPRESENTATIVE DAVIS said that HB 92 came about due to the impacts of alcohol-related activity to a community. Legislation at the state level requires various programs for alcohol abuse and alcohol-related offenses which is costly, not to mention the costs incurred at hospitals, court systems, and the police departments. Municipalities should have the option to raise revenues to offset those costs which is what HB 92 achieves. Number 0329 ALICE JOHNSTONE, Legislative Chair, Advisory Board on Alcoholism & Drug Abuse, testified via teleconference from Sitka. She stated that the advisory board supports HB 92. A substantial amount of funds could be generated by allowing municipalities to place an additional tax on alcohol. During the two years that Sitka had a four percent tax on alcohol, in excess of $200,000 was collected. "Passage of this bill would allow communities, if they so choose, the option to recoup some of the tremendous costs of the numerous social, safety and health problems directly attributable to alcohol and in addition to participate in prevention and treatment of its misuse." The members of the Advisory Board on Alcoholism & Drug Abuse ask the committee to approve HB 92 without amendments. MARY ROSENZWEIG, Substance Abuse Directors Association, testified via teleconference from Anchorage. She informed the committee that the association represents approximately 50 substance abuse treatment facilities, including prevention programs, around Alaska. The association supports HB 92 and anything reducing alcohol consumption. Research has found that a 10 percent increase in the sales price of alcohol reduces alcohol consumption by approximately three to four percent. Number 0593 BRETT FRIED, Economist, Income & Excise Audit Division, Department of Revenue, stated that he was present to answer questions. CO-CHAIRMAN HALCRO pointed out that one of the fiscal notes indicates that HB 92 may cause the state to lose revenue due to a decrease in consumption of alcohol. The loss would be dependent on the communities and their adopted. MR. FRIED agreed with Co-Chairman Halcro's statement. ANNE SCHULTZ, Acting Director, Advisory Board on Alcoholism & Drug Abuse, informed the committee that after the completion of the planning process, the board determined the primary strategy to promote positive change was to support community coalitions and local partnerships. On top of the board's support for HB 92 on the basis of taxation and reduced consumption, the board views HB 92 as a way for local communities to control the responsibilities they need to apply to resolving the abuse of alcoholism in their own communities. Number 0804 JULIE KRAFFT, Director, Member Services, Alaska Municipal League, informed the committee that HB 92 is and has been important legislation for the Alaska Municipal League and the Alaska Conference of Mayors. Given the current budget situation, the legislation is more important than ever. As pressure increases on local sales and property taxes, municipalities need additional tools to pay for public services. Ms. Krafft reiterated that under statute there is a special exemption on alcohol sales which prohibits local voters from establishing a higher level sales tax on alcohol. Ms. Krafft emphasized that merely removes that restriction with the approval of local voters; this is not a new tax. Alcohol abuse is the number one health and public safety problem in Alaska and alcohol sales should not receive a special exemption. MS. KRAFFT stressed that costs to local taxpayers related to alcohol use are stunning. She cited the following areas where alcohol-related costs are incurred: police costs for alcohol- related felonies and misdemeanors, police costs to transport public inebriates, emergency medical services, hospital emergency care costs, prosecutions, direct treatment and rehabilitation of alcohol abusers, increased costs of youth and family services related to alcohol use, repaired property damage to public facilities, health insurance costs paid by local governments, and school districts to treat alcohol-related problems. Last year, the Anchorage Community Health Promotion Program reported the following: alcohol is involved in 60 percent of motor vehicle crash fatalities, 65 percent of suicide attempts, 56 percent of total assaults, 56 percent of domestic violence, 53 percent of sexual assaults, 34-50 percent of homicides, and 83 percent of child abuse. MS. KRAFFT recognized that the state may continue to reduce support for services due to revenue shortfalls, therefore as the burden increases on local taxpayers, municipalities must be given the proper tools to deal with those burdens. Passage of HB 92 will provide an option to the voters in a community who are best able to determine how to allocate local taxes to provide critical local services. Number 1028 CO-CHAIRMAN HARRIS requested Ms. Krafft explain the alcohol exemption. MS. KRAFFT explained that in 1985, Alaska considered raising the wholesale tax on alcohol which the industry did not favor. The industry agreed with the statute if the statute included language that would not allow municipalities to raise the alcohol tax individually in a community higher than the existing sales tax. She could not speak for the industry, but believed that the industry feared multiple tax rates across the state that the industry would have to fight. CO-CHAIRMAN HARRIS asked if it is legal to have a differential sales tax on different commodities. MS. KRAFFT believed that a differential sales tax is already allowed on tobacco and hotel/motel tax. CO-CHAIRMAN HALCRO noted that in some communities the liquor industry has made an effort to promote alcohol education programs such as the designated driver program. The fact remains that raising the tax does not necessarily impact consumption to those people being targeted. Co-Chairman Halcro asked if Ms. Krafft foresaw municipalities having the ability not only to recoup alcohol-related costs, but also providing the municipality with more leverage to go to the industry for more help. MS. KRAFFT believed that would be the case. If a local assembly put an increase in alcohol sales tax before the voters, the industry may come forward and offer other programs. Number 1284 VALERIE THERRIEN, Attorney Member, Advisory Board on Alcohol & Drug Abuse, testified via teleconference from Fairbanks. She informed the committee that she was testifying on behalf of the legislative committee. This legislation is one of the most important pieces of legislation the board would like passed this year. A tax on alcohol would provide municipalities a revenue source to pay for the costs of alcohol and drug abuse in the community. Ms. Therrien reiterated that Sitka collected over $200,000 over the last two years from alcoholic beverage taxes. Fairbanks does tax alcohol. Ms. Therrien stressed that the board would like the support of the legislature on HB 92. LAMAR COTTEN, Deputy Commissioner, Department of Community & Regional Affairs, supported HB 92. Mr. Cotten said that he wanted to echo Ms. Krafft's comments. As an ex-city manager, any additional tool that addresses the revenue issue and indirectly addresses alcohol use in a small community, must be given serious consideration. Number 1486 REPRESENTATIVE JOULE asked if the smaller communities and larger hub communities that have a damp status could benefit from this tax. Representative Joule supported HB 92, but understood the bill to only benefit those communities that permit the sale of alcohol. MR. COTTEN agreed that those communities that do not allow the event of the sale of alcohol would not benefit from this tax. Mr. Cotten mentioned that in the past, there had been some review of how to tax at the point of transfer or the point of delivery to a community and share that tax with the designated region. REPRESENTATIVE JOULE interpreted Mr. Cotten to mean that if a community with this tax placed a phone order and had the alcohol shipped, the tax could be imposed at the point of ordering. MR. COTTEN replied no. Mr. Cotten clarified that he was referring to one of the creative ways to address the issue to which Representative Joule seems to be speaking. The alcohol arrives at the town where it cannot be taxed, but due to the ability to import the alcohol the effects on the community remain; how can the tax be captured? Mr. Cotten reiterated that there has been review of taxing when alcohol enters a community and sharing that tax with all the areas in the region because the alcohol effects the entire region. No one has ever introduced such legislation. Number 1646 REPRESENTATIVE JOULE asked if the hub communities have the ability to create a central station for alcohol beverages coming in, damp communities in particular, and impose a tax at that point. Is that tax restricted to the amount of the local tax? MR. COTTEN did not know, but offered to provide that information. CO-CHAIRMAN HARRIS asked if HB 92 passed, would the intent of the department be to decrease funding for community jails in communities with high numbers of alcohol-related prisoners. Would there be increased pressure for such communities to increase alcohol taxes in order to pay for jail services? MR. COTTEN believed this would be reviewed on a community by community basis. The funds cannot be designated and would be placed in the city's general fund. The use of these funds would be left to the discretion of the city. Some communities will utilize the funds to attack the issue of alcohol, while other strapped communities would utilize the funds wherever needed. On the local level, the differential tax rate would be sold by convincing the public there is a need in a particular area to justify the differential rate. Number 1825 DOUG GRIFFIN, Director, Alcoholic Beverage Control Board (ABC), testified via teleconference from Anchorage. Mr. Griffin believed what Representative Joule was referring to is in Title 4 which deals with alcoholic beverages. Title 4 does allow communities to establish a community delivery site which would usually be established in damp communities. A community delivery site is one step removed from a community liquor store which is also an option for communities. The ABC Board promotes the use of community delivery sites as a manner in which to establish more local control over the amount of alcohol entering a community. The community delivery does afford the community the ability to levy existing sales tax on that product. If HB 92 is enacted, a differential tax could be levied and collected at the local level. Mr. Griffin clarified that the ABC Board does not get involved with the taxation of alcohol, but he did want to note the dove-tailing of HB 92 with the ABC Board's effort to promote community delivery sites. Currently, Bethel and Barrow are reviewing establishing a community delivery system by local ordinance. REPRESENTATIVE MURKOWSKI inquired as to the history of the current exemption. REPRESENTATIVE DAVIS said that he was not sure what prompted the legislation as it stands. In summary, Representative Davis said this is a local control issue. With regard to the impact of HB 92 on state revenues, legislation related to alcohol issues have been around forever and alcohol remains a big seller. Representative Davis believed that alcohol consumption may feel an initial hit, but would increase shortly thereafter. With regard to the question of how municipalities may spend the money, Representative Davis informed the committee that prior legislation attempted to mandate to the municipalities that any money generated from a tax under such legislation be directed to alcohol activities. After researching the issue, it was discovered that the legislature should not mandate municipalities to dedicate funds. Representative Davis did not believe the legislature had the legal authority to mandate municipalities to dedicate funds. The concerns about wet and damp communities seems to be another issue. CO-CHAIRMAN HALCRO believed that HB 92 provides municipalities the opportunity to utilize local control by going before its residents to get approval for such a tax. REPRESENTATIVE DAVIS explained that the initial impetus for HB 92 was that there are many reductions in municipal assistance and revenue sharing and the option provided in HB 92 would be another tool in the municipality's tool box that could compensate for the restrictions. Number 2244 CO-CHAIRMAN HARRIS moved to report HB 92 out of committee with individual recommendations and the three accompanying fiscal notes. There being no objection, it was so ordered.