ALASKA STATE LEGISLATURE  SENATE JUDICIARY STANDING COMMITTEE  April 3, 2019 1:33 p.m. MEMBERS PRESENT Senator Shelley Hughes, Chair Senator Peter Micciche Senator Jesse Kiehl Senator Mike Shower MEMBERS ABSENT  Senator Lora Reinbold, Vice Chair COMMITTEE CALENDAR  SENATE JOINT RESOLUTION NO. 4 Proposing amendments to the Constitution of the State of Alaska prohibiting the establishment of, or increase to, a state tax without the approval of the voters of the state; and relating to the initiative process. - HEARD & HELD SENATE JOINT RESOLUTION NO. 5 Proposing amendments to the Constitution of the State of Alaska relating to the Alaska permanent fund and the permanent fund dividend. - BILL HEARING CANCELED PREVIOUS COMMITTEE ACTION  BILL: SJR 4 SHORT TITLE: CONST. AM: STATE TAX; INTIATIVE SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR 01/30/19 (S) READ THE FIRST TIME - REFERRALS 01/30/19 (S) STA, JUD, FIN 03/26/19 (S) STA AT 1:30 PM BUTROVICH 205 03/26/19 (S) Heard & Held 03/26/19 (S) MINUTE(STA) 03/27/19 (S) STA AT 6:00 PM BUTROVICH 205 03/27/19 (S) Heard & Held 03/27/19 (S) MINUTE(STA) 03/28/19 (S) STA AT 3:30 PM BUTROVICH 205 03/28/19 (S) Moved CSSJR 4(STA) Out of Committee 03/28/19 (S) MINUTE(STA) 03/29/19 (S) STA RPT CS 5NR SAME TITLE 03/29/19 (S) NR: SHOWER, REINBOLD, MICCICHE, COGHILL, KAWASAKI 04/01/19 (S) JUD AT 1:30 PM BELTZ 105 (TSBldg) 04/01/19 (S) Scheduled but Not Heard 04/03/19 (S) JUD AT 1:30 PM BELTZ 105 (TSBldg) WITNESS REGISTER MIKE BARNHILL, Policy Director Office of Management and Budget Office of the Governor Juneau, Alaska POSITION STATEMENT: Presented SJR 4 and answered questions on behalf of the administration during the hearing on SJR 4. WILLIAM MILKS, Assistant Attorney General Civil Division Labor & State Affairs Division Department of Law Juneau, Alaska POSITION STATEMENT: Provided a sectional analysis and answered questions during the hearing on SJR 4. ACTION NARRATIVE 1:33:03 PM CHAIR SHELLEY HUGHES called the Senate Judiciary Standing Committee meeting to order at 1:33 p.m. Present at the call to order were Senators Kiehl, Shower, and Chair Hughes. Senator Micciche arrived as the meeting was in progress. SJR 4-CONST. AM: STATE TAX; INTIATIVE  1:33:41 PM CHAIR HUGHES announced that the order of business would be SENATE JOINT RESOLUTION NO. 4, Proposing amendments to the Constitution of the State of Alaska prohibiting the establishment of, or increase to, a state tax without the approval of the voters of the state; and relating to the initiative process. [Before the committee was CSSJR 4(STA), work order 31-GS1070\U, Version U.] 1:34:34 PM MIKE BARNHILL, Policy Director, Office of Management and Budget, Office of the Governor, Juneau, said that SJR 4 is a proposed constitutional amendment that would require any new tax or tax rate increase to be approved by the legislature and the public. He briefly mentioned other constitutional amendments the administration has proposed and stated that these resolutions form a foundational piece of Governor Dunleavy's plan to restore the state to fiscal stability and to restrain state spending. He said that SJR 4 would amend Article IX, Section 1, of the Constitution of the State of Alaska. He pointed out that the pieces already exist in the Constitution of the State of Alaska. If the legislature establishes a new tax by legislation or increases the tax rate, the people currently have the power through the referendum process to consider and overturn the legislature's determination. Conversely, if the people initiate a tax measure the legislature can overturn their initiative, after two years has lapsed. MR. BARNHILL characterized SJR 4 as an effort to make the process more efficient and automatic. For example, if the legislature establishes or increases a tax rate, the people automatically have the right to consider it at a statewide election without going through the process of gathering signatures to place the matter on the ballot. Conversely, the legislature could consider an initiated tax law after two years has lapsed. This would bring it closer in time, so in order for an initiated tax to take effect, the legislature would need to approve it [at the next legislative session]. He characterized it as a simpler process than the one in SJR 6, which would create a spending limit. 1:37:10 PM MR. BARNHILL provided the genesis of the policy background for SJR 4. In 1992, the State of Colorado through a ballot initiative amended its constitution to require what is popularly known as the Taxpayer Bill of Rights. It requires people to vote for the establishment any state or local taxes or for an increase to any tax rate. Three other states have adopted similar processes. Washington amended its constitution on local property taxes to require a three-fifths vote of a municipality if the proposed property tax increase was more than one percent. In 1996, California amended its constitution to require a vote for any increase to local taxes or fees. Finally, Missouri amended its constitution to require a vote of the people for any tax increase in excess of $50 million or one percent of the state revenues. Other examples of similar efforts to change the constitution exist, he said. 1:38:40 PM WILLIAM MILKS, Assistant Attorney General, Civil Division, Labor & State Affairs, Department of Law, Juneau, provided a sectional analysis for SJR 4. He reviewed Section 1. Section 1: This section would add two new subsections to the tax clause of the Alaska Constitution. Taken together, the two subsections would require that any new state tax or increase to the rate of an existing state tax be approved by both the legislature and the voters. 1:39:27 PM MR. MILKS said that Section [1, subsections (b) and (c)] encompass the key changes Mr. Barnhill has described. Subsection (b) would require any law enacted through the legislative process that would establish a new state tax or increase the rate of an existing state tax shall not take effect unless the voters approve the proposed law in the next statewide election. If the voters approve the proposed law, it would take effect 90 days after the election was certified or on a special effective date concurred in by two-thirds of the members of each house, whichever date is later. Subsection (c) would require that any law proposed for enactment through the initiative process and approved by the voters that would establish a new state tax or increase the rate of an existing state tax shall not take effect unless the legislature, by resolution, approved the initiated measure by the end of the next regular session. The legislature would have to approve it by majority vote in a joint session. If the legislature approved of the initiated measure, it would take effect 90 days after the legislature's approval. MR. MILKS turned to Section [2]: Section 2: This section would make a conforming change to the initiative process in Section 6 of Article XI, providing an exception to the effective date requirements for initiatives. MR. MILKS said that this would make a conforming change to the initiative process to provide that, except as provided in this taxation article, an initiative would become law 90 days after certification. He explained that in the taxation article the process voters can by initiative establish a tax or increase a tax subject to the legislature's consideration. Section 3: This section would require that this amendment be placed on the ballot in the 2020 general election. MR. MILKS explained Section [3] provides that the amendment would be on the ballot in the next general election. 1:41:21 PM CHAIR HUGHES said if a new tax is established it would take time for the administration to set up the tax. She said it made her wonder about the effective dates. For example, at the end of a legislative session or after a November election, the start date of an initiative process would fall at an odd time. Also, it would not give the administration any preparation time. She asked whether the administration would be amenable to change the effective date to January 1 of the following fiscal year for the initiative and the legislature process. MR. BARNHILL responded that it was an intriguing proposal that he would consult on and report back to the committee. He acknowledged that from the administration's perspective that making a new tax effective on January 1 made sense since most taxes run on a calendar year timeline. 1:42:24 PM MR. MILKS said he understood the issue raised by Chair Hughes. This proposed resolution would address the circumstance when the legislature passes a law that establishes a new tax or rate increase subsequently approved by the voters. He referred to subsection (b), which provides that the law would take effect 90 days after the election was certified or on a special effective date concurred in by the legislature. However, a similar provision is not included for the second way in which a tax could be implemented. He said that the legislature could pass a bill to change the effective date. He agreed it made more sense to implement the new tax or tax rate increase on the next fiscal year, he said. CHAIR HUGHES deferred to the administration to consider and report back to the committee. 1:43:52 PM SENATOR KIEHL turned to the effective date. He was unsure if the legislature would have another chance to vote to change the effective date when the legislature initiates the process by passing a bill, which is subsequently approved by the voters. For example, the language following a general election [in subsection (b)], reads "or an effective date provided for by concurrence of two-thirds of the membership of each house." He asked whether this vote could happen after the voter approval. MR. MILKS asked to review the language. 1:45:25 PM At-ease. 1:45:44 PM CHAIR HUGHES reconvened the meeting. 1:45:48 PM MR. MILKS answered no. He offered his belief that this language would pertain to any law passed by the legislature. SENATOR KIEHL stated that it was "not crystal clear" in SJR 4. He asked whether any provision was made for the legislature to provide an effective date during the approval process of an initiated process. Although he did not see an explicit provision, he thought it pertained to Chair Hughes' earlier question. CHAIR HUGHES asked how the effective date currently would work for an initiative process. MR. MILKS said the initiative process is covered under Article XI. The effective date provision on an initiative is in Section 6 and provides that an initiative law becomes effective 90 days after certification. 1:47:47 PM SENATOR KIEHL restated his question. He asked whether the legislature could adjust the effective date for an initiated tax in its resolution. MR. MILKS responded that if the legislature introduced a bill to implement or change taxes, it could set another effective date by a two-thirds vote. In terms of an initiative process, the tax would not take effect unless the legislature, by resolution, approved the initiative law by a majority vote in joint session before the adjournment of the next regular legislative session. If approved by the legislature the initiated law would become effective ninety days after approval [per subsection (c)]. He said that should provide clarity on the earlier question by Chair Hughes. 1:49:21 PM CHAIR HUGHES said the way this is written for an initiated law, the legislature could not change the effective date. It simply would become law ninety days after approval. MR. MILKS agreed. 1:49:44 PM SENATOR KIEHL offered his belief that Alaska's voters used the initiative process several times in the past. He asked for further clarification on what part of a proposal would go to the voters for approval if the legislature made statutory and regulatory changes related to the operation of a legal industry [such as a marijuana law], but it also included a tax. He asked whether voter approval would be limited to the tax portion or if it would apply to the entire proposal. MR. MILKS said that if the legislature sought to create or change a tax, the portion regarding the tax change would go to the voters for approval. 1:51:02 PM CHAIR HUGHES said she believes Senator Kiehl was referring to the marijuana initiative. She said a lot more was involved than just the tax piece. She asked for further clarification on how the marijuana initiative would have worked if this resolution had been in place. SENATOR KIEHL clarified that his scenario indicated that the legislature passed a law, and it was not passed by a voter initiative. MR. MILKS answered that if the legislature passed a marijuana tax, it would go to the voters for approval. He referred to language, "the law shall not take effect," which really means a portion of the law. He asked why this language was selected. In further response to Senator Kiehl, he reiterated that the voters would vote on the tax portion, and not the other issues since the legislature is a law-making body. A law that would increase or change taxes would not take effect unless the voters approved it. 1:52:57 PM SENATOR KIEHL said that the proposed language says that the law shall not take effect, what it really means is that a portion of the law shall not take effect. He asked for further clarification on the choice of this language. MR. MILKS said that the subject of this resolution is taxes so a law that would increase or change taxes shall not effect unless the voters approve it. CHAIR HUGHES referred to the marijuana initiative in which the legislature passed multiple laws, she said. She asked whether the legislature would subsequently approve only the tax provision of an initiative passed by voter approval. MR. MILKS answered yes, that is correct. 1:54:13 PM SENATOR KIEHL pointed out the voters created the cruise ship initiative, including a gambling and head tax. He asked how that would apply under SJR 4, whether the legislature would vote on those separately or together. MR. BARNHILL responded that if the resolution was phrased in terms of a bill, Senator Kiehl's concern would be well taken since a bill contains multiple laws. He said in terms of the marijuana initiative, the bill had laws pertaining to criminal provisions, tax provisions and other things. However, SJR 4 applies to the law specific to establishing or increasing a tax. He offered his belief that the language is quite clear. 1:55:47 PM CHAIR HUGHES asked whether a bill that touches on multiple things would be considered a single law or if would be considered passing a group of laws. SENATOR KIEHL directed attention to the second sentence in Article II, Section 14 of the Constitution of the State of Alaska. Section 14. Passage of Bills. The legislature shall establish the procedure for enactment of bills into law. No bill may become law unless it has passed three readings in each house on three separate days, except that any bill may be advanced from second to third reading on the same day by concurrence of three- fourths of the house considering it. No bill may become law without an affirmative vote of a majority of the membership of each house. The yeas and nays on final passage shall be entered in the journal. 1:56:26 PM MR. MILKS clarified that a bill can include many changes before it becomes law as long as it meets the same subject rule requirement. However, a constitutional amendment that refers to a law to enact a state tax or increase the tax is addressing that issue. He said that the intent is to put one subset of the various public policies on a general topic. However, only the tax change would go to the voters, which is the intent of this provision. When the Alaska Supreme Court considers constitutional amendments it uses a common, plain understanding. He clarified that this resolution is about a change in tax law. CHAIR HUGHES said when something becomes the law, it means something becomes the law of the land and is codified. A bill could contain multiple features, which is important for the record to reflect. 1:58:30 PM SENATOR KIEHL asked how the legislature would vote on an initiative that institutes multiple taxes. MR. MILKS asked if he was referring to an initiative that would enact multiple tax laws, such as the cruise ship initiative. If so, he responded that the legislature would need to approve each tax separately. The resolution refers to a state tax and if two taxes were on a ballot, the legislature would need to approve each one. SENATOR KIEHL asked who would prepare the resolution the legislature would need to create and approve. MR. MILKS answered that the legislative counsel [in Legislative Legal Services] would do so. SENATOR KIEHL asked for further clarification on the type and form of resolution, and if it would be subject to three readings, and hearings in substantive committees. He said he was unsure the role the governor envisions for the legislature. 2:01:08 PM MR. MILKS answered that it would apply the Constitution of the State of Alaska, which refers to, "shall not take effect unless the legislature by resolution approves the initiated law." He said the legislature's rules would need to comply with this, such that a resolution would be presented for the legislature to consider. He characterized the process as somewhat similar to the one used on executive orders. The governor can issue an executive order and under Article III, Section 23, "? unless disapproved by a resolution by the majority of the members meeting in joint session," the executive order would become law. He envisioned the legislative counsel would consider as a guide, but what would be intended, if approved by the voters, is that a resolution would be before the legislature to approve the action of the voters or not. 2:02:44 PM SENATOR KIEHL thought the example was good, that with an executive order, the Constitution of the State of Alaska assumes the governor has the power to use executive power and the legislature must act to stop it. He said that SJR 4 assumes that the voters don't necessarily know what they are doing when they use their power of initiative, that they need a check by the legislature. He asked whether the voters were entitled to a vote in joint session. MR. MILKS responded that the proposed language says that "the law shall not take effect unless the legislature by resolution approves the initiated law by a majority vote in joint session before the adjournment of the next regular session." He said the bill drafter's intent is that a mandatory action by the legislature would be required. 2:03:45 PM CHAIR HUGHES said it appeared it would be mandatory that a joint session's intention was to approve the people's initiative. She asked whether she was reading it correctly. MR. MILKS offered his belief that she is looking at it correctly. CHAIR HUGHES asked whether that was the administration's intent. 2:04:54 PM At-ease. 2:04:54 PM SENATOR MICCICHE joined the meeting. 2:05:56 PM CHAIR HUGHES reconvened the meeting. 2:06:04 PM MR. BARNHILL, after consultation, explained that it was the intent of the administration to allow the legislature the discretion on whether to take up a resolution in joint session to approve the voter's action. If the legislature chose not to take up the initiated law, the tax would not become effective. SENATOR KIEHL expressed concern since six senators could make the decision not to take it up. He also questioned more broadly what tax would trigger this process. MR. MILKS answered that a tax is a charge levied by the government for a public purpose to force contributions of wealth to meet the public needs of government. He said the term he used was one used when the constitutional framers passed Article VII, Section 1, whereas a user fee or a license, which is a permission to do something such as professional fees or fishing license. He said that an income tax or a sales tax would be subject to a vote of the people. 2:09:59 PM SENATOR KIEHL asked whether the Division of Motor Vehicles (DMV) constitutes a fee or a tax since it raises about two-and-a-half times more than what it costs to run the DMV. MR. MILKS said a driver's license is a fee for purpose, so it would be a user fee. SENATOR KIEHL related a scenario in which the legislature doubled its fees for the DMV, or five times what it costs to administer the program. He asked whether it would still be a fee. MR. MILKS responded that a tax is an effort to raise revenue for general government spending as opposed to a user fee to finance a particular service. He said if the question is whether a fee could be raised so high that it could be interpreted to be considered a tax, the answer is that it is conceivable it could be interpreted in that way. When the courts review constitutional amendments, it uses what would be considered "the plain understanding of the public." For example, if commercial license fees are sustaining a program, the court would not interpret the fees as constituting a tax. However, the scenario previously described in which generated revenue was used to sustain government, arguably could be considered a tax. He clarified that the intent of this resolution is to follow the traditional meaning of tax. 2:13:14 PM SENATOR SHOWER asked if the intent of SJR 4 is to cover the generic income tax or sales tax. He characterized the desired language as clear, concise, and correct. He said the goal is to be as simple and clear as possible. He asked whether it would simplify the issue to further define a tax or if it would make it more complex. MR. BARNHILL answered that the intent of the administration is "tax" be interpreted as the common people would understand to be a tax and as the Constitution of the State of Alaska uses it and not to complicate it. A potential rule of thumb is that most taxes in Alaska are placed in Title 43. 2:15:12 PM SENATOR SHOWER asked for further clarification on the definition of a tax. MR. BARNHILL said that Mr. Milks gave the definition earlier, which could be restated. CHAIR HUGHES commented that the tax is a levy collected to provide for general government services and a fee is a levy to provide a service that benefits the group of people from which the money is collected. MR. MILKS said that accurately describes the difference between a tax and a license fee. The Constitution of the State of Alaska already envisions these are different things because Article IX, Section 1 refers to tax, and Section 7 refers to tax or license. He explained that the types of taxes vary, including personal income tax, corporate income taxes, sales taxes, excise taxes, alcohol taxes. However, fees are paid for liquor licenses. Mr. Barnhill mentioned other states establish taxes. 2:17:54 PM SENATOR MICCICHE said that it is clear that if the committee wanted to limit the type of tax it should be defined in the resolution, which it has the authority to do. The resolution does not apply to fees, such as hunting and fishing fees or motor vehicle fees. This resolution applies to all taxes, including corporate taxes, fuel taxes, fish taxes, alcohol taxes, cannabis taxes, oil and gas taxes, estate taxes and other taxes. He questioned whether that is the intent of the administration, but the committee must decide if it wants SJR 4 to stay in this form. MR. BARNHILL agreed. 2:19:05 PM SENATOR KIEHL suggested that the proposed language raises dozens of questions. The committee could decide to revise the resolution to address the easy cases since the hard cases would likely end up in court. CHAIR HUGHES said at first blush that she would prefer to clear the matter. She asked whether Senator Shower would be amenable to clarifying the definition of a tax. 2:20:07 PM SENATOR SHOWER answered yes. He offered his belief that this is a necessary discussion. MR. BARNHILL acknowledged a willingness to engage in conversations with members to consider ideas. 2:20:54 PM SENATOR KIEHL asked whether the intent is for this to apply to political subdivisions in the state. MR. MILKS answered that SJR 4 refers to a state tax. MR. BARNHILL pointed out that other states have amended their constitutions to explicitly indicate if it applies at a local level or a local level and at the state level. He clarified that SJR 4 does not indicate it would apply at a local level. 2:21:42 PM SENATOR MICCICHE explained one advantage some members who serve on other committees have is that they can review bills several times and consider policy. He said he struggles with whether the current system of electing or not reelecting representatives based on their actions suffices and whether the legislature should be able to trump the voter in the initiative process. He said that the Constitution of the State of Alaska allows the public to disagree with legislative actions through the initiative or referendum process. If successful, an initiative would become law for two years before the legislature could change it. Although the people would give up substantial rights in this resolution, they gain some. However, he fundamentally believes it is the people's right to overrule the legislature. He struggles with SJR 4, because he is unsure of how it would change behaviors of legislators and the public. 2:24:01 PM CHAIR HUGHES explained that the first part of SJR 4 would give the people ability to overrule the legislature. She asked for further clarification on how it has typically worked in other jurisdictions and if the voters routinely turn down proposed local or state taxes. MR. BARNHILL answered that he cannot speak exhaustively on the experiences in other states. However, he has reviewed Colorado since it was the inspiration for SJR 4. He related his understanding that Colorado, which amended its constitution in 1992, has had a dozen new taxes or increases to taxes put to a direct vote since then, approving several. Colorado voters approved an increase to the tobacco tax in 2004, the marijuana tax in 2012, and an increase to the marijuana tax in 2014. 2:25:41 PM CHAIR HUGHES pointed out that the legislature could call a joint session, but if the legislature chose not to hold one it would be a de facto disapproval. However, in doing so, the public would not know individual sentiment. 2:26:50 PM SENATOR KIEHL asked whether changing "who or what" products would be subject to an existing tax and if that would trigger provisions in SJR 4. For example, currently a bill before the legislature would expand who must pay the other tobacco products excise tax. MR. MILKS pointed out that Senator Kiehl is describing what seems to be a change in exemption from a tax. The administration's intent is that changes to the tobacco excise tax would trigger a vote since it is an existing tax. SENATOR KIEHL said that the marijuana industry has asked to restructure the industry's tax, which should result in a net neutral tax. In addition, the legislature could alter the effective rate of a tax, such as an oil tax, through the appropriation process and while that might not nominally change the rate, he wondered if it would trigger a vote. 2:29:09 PM MR. BARNHILL reiterated Mr. Milk's testimony that the intention of SJR 4 would be to trigger a vote when the legislature creates a new tax or a statutory tax rate increase. Nothing else would trigger a vote. Further, Colorado set recent precedent when it decided that an indirect tax rate increase on a certain class of people did not trigger the provisions. SENATOR MICCICHE said he was not sure that he agreed. He offered his belief that changing exemptions could dramatically change a tax rate by including a whole new class of taxpayers. He said it would need to be on a case-by-case basis and not a boilerplate. MR. MILKS said he understood Senator Micciche's statement. He reiterated that a new tax or a change in the statutory rate would trigger the provision for a direct vote, but not a change in deductions or exemptions. Naturally, the language in SJR 4 could be modified, he said. CHAIR HUGHES wondered whether the administration would be open to amending SJR 4 to include something that would effectively impact the tax rate, such as changing deductions. She asked whether SJR 4 needed to be fixed. MR. BARNHILL expressed a willingness to discuss it. He explained that the administration was trying to strike a balance between specificity and generality that works constitutionally. Loading up the constitution with a lot of detail would make it more like a statute. He clarified that he and Mr. Milks were present to explain what the drafters intended. He acknowledged the anxiety about lack of precision in constitutional terms. 2:32:39 PM SENATOR SHOWER agreed that the Constitution of the State of Alaska provides more of a 60,000-foot view while the statutory language provides considerably more detail. He characterized the constitution as more of an idea document and laws provide the specificity. He affirmed the goal is to protect the rights and power of the people. 2:34:52 PM MR. BARNHILL said that members' comments were fair comments. 2:35:11 PM SENATOR MICCICHE said that currently people have the right to strike anything the legislature does except for appropriations through a referendum process. He clarified that SJR 4 would make that process automatic. He further clarified that Alaskans have a right through an initiative process to pass a law that the legislature cannot strike. This resolution would allow the legislature to strike a law by the people. He characterized the overall change would be for people to lose a significant right. Although it sounds fair because it allows people to collect signatures and put it on the ballot, it is not. Essentially six senators could prevent an initiated law from occurring, he said. He maintained that the people would be giving up a pretty substantial right under SJR 4. [SJR 4 was held in committee.] 2:38:00 PM CHAIR HUGHES reviewed upcoming committee announcements. 2:38:14 PM There being no further business to come before the committee, Chair Hughes adjourned the Senate Judiciary Standing Committee meeting at 2:38 p.m.