HOUSE FINANCE COMMITTEE February 25, 1998 1:40 P.M. TAPE HFC 98 - 41, Side 1. TAPE HFC 98 - 41, Side 2. TAPE HFC 98 - 42, Side 1. TAPE HFC 98 - 42, Side 2. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:40 P.M. PRESENT Co-Chair Therriault Representative Kelly Representative Grussendorf Representative Mulder Representative J. Davies Representative Martin Representative G. Davis Representative Moses Representative Foster Representatives Hanley and Kohring were not present for the meeting. ALSO PRESENT Mike Tibbles, Staff, Representative Gene Therriault; Barbara Cotting, Staff, Representative Jeannette James; Janice Adair, (Testified via Teleconference), Director, Division of Environmental Health, Department of Environmental Conservation, Anchorage; Steve Borell, (Testified via Teleconference), Executive Director, Alaska Miners Association, Anchorage; Jerry Reinwand, Representative for the Chemical Specialty Manufacturers Association, Juneau; Mike Conway, Director, Air/Water Quality Division, Department of Environmental Conservation; Bob Bartholomew, Deputy Director, Income and Excise Tax Division, Department of Revenue; Mark Hickey, Representing the Petro Marine Services, Juneau; Paul Fuhs, Court Consultant, City of Nome; Keith Laufer, Manager, Financial and Legal Affairs, Alaska Industrial Development and Export Authority (AIDEA), Anchorage; Randy Simmons, Executive Director, Alaska Industrial Development and Export Authority (AIDEA), Anchorage. SUMMARY HB 144 An Act authorizing the Department of Environmental Conservation to charge certain fees relating to registration of pesticides and broadcast chemicals; and providing for an effective date. HB 144 was held in Committee for further consideration. HB 239 An Act relating to the liability of motor fuel dealers for payment of tax imposed on certain credit transactions involving motor fuel sales or transfers that become worthless debts or on sales or transfers to persons who declare bankruptcy; and providing for an effective date. HB 239 was HELD in Committee for further consideration. HB 386 An Act relating to the financing authority, programs, operations, and projects of the Alaska Industrial Development and Export Authority; and providing for an effective date. HB 386 was HELD in Committee for further consideration. HOUSE BILL NO. 144 "An Act authorizing the Department of Environmental Conservation to charge certain fees relating to registration of pesticides and broadcast chemicals; and providing for an effective date." BARBARA COTTING, STAFF, REPRESENTATIVE JEANNETTE JAMES, explained that HB 144 had been submitted at the request of the Alaska Department of Environmental Conservation (DEC), Division of Environmental Health. She advised that DEC oversees the use of pesticides in Alaska, a service which consists of applicator training and certifications, issuing permits for public use projects, and ensuring pesticides are used correctly, which includes that manufacturers register their products with the State. Ms. Cotting noted that the program would be partially funded by the federal government with a State match. Each state pays for its share of the pesticide program through a registration fee levied ON chemical manufacturers. DEC would like to implement this in Alaska, but statutory authority would be required. At this time, no Alaskan would be required to pay the fee since there are no chemical manufacturers in the State. DEC initially proposed to charge $100 fee per label. Ms. Adair thought that rate would not impact the large manufacturers' bottom line, but would instead have a positive impact on the general fund providing a projected annual savings of $56,600 dollars to be replaced by program receipts. MIKE TIBBLES, STAFF, REPRESENTATIVE GENE THERRIAULT, provided a sectional analysis of the proposed legislation, work draft #0-LS0573\B, Lauterbach, 2/24/98. He pointed out that Section #1 would provide language from the original bill indicating that the Department would have the authority to collect fees for the registration of pesticides and broadcast chemicals. It would also eliminate the Department's authority to charge fees for "other services provided by the Department". Section #2 would establish a new subsection (e), which would permit the Department to collect fees relating to water and wastewater operator training. That item would be singled out into its own subsection because it no longer would appropriately fit under the direct costs of permitting. Mr. Tibbles continued, Section #2 would also establish a new subsection (f) which would divide pesticides and broadcast chemicals into two classifications; one being restricted use chemicals under federal regulation, and the second, all other pesticides (targeting household chemicals such as bleach, disinfectants and insect repellents). The fee for restricted use chemicals has been established at a higher rate to account for the greater administrative costs associated with those chemicals. Additionally, Section #2 would establish a new subsection (g) which would prohibit the Department from charging an hourly fee under (a) of that section. Co-Chair Therriault spoke to the fiscal impact relating to the committee substitute. If some of the program receipt authority was removed for something that already had a fee, the Department would no longer then have that authority. The Department would need to be backed by general funds which should be reflected in the fiscal note. JANICE ADAIR, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, commented to the concerns presented by the proposed committee substitute. Currently, there is an hourly fee charged for solid waste, requested by municipalities that did not want to subsidize other communities. She agreed that it would be easier for the Department not to have an hourly fee, but that it had been initiated at the communities request. Last year, industrial solid waste was reflected in a separate component. The Department was given authority to cover all costs and travel through the fees. Ms. Adair continued, the Department recently completed a public notice regarding the hourly fee rates. She advised that the Department does not know how to implement such a procedure without an hourly fee assessment unless the client pays more. Ms. Adair spoke to an additional concern for the Department to provide site-specific determination for wastewater permits. She recommended that Mike Conway address that concern for Committee members. Ms. Adair spoke to the deletion of "other surfaces provided" and how that would affect communities need for compliance with the certification process. The Department is also responsible for providing sanitary surveys for public water systems and a variety of functions, which are not associated with the permit or plan aspect and in which a fee is associated. Co-Chair Therriault asked if the service would be discontinued without the specific fee. Ms. Adair replied that it would depend on the amount of general funds allocated. She pointed out that the benefit about implementing the fee is that those that use the service are the ones who pay. General funds would not have that same correlation. STEVE BORELL, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE DIRECTOR, ALASKA MINERS ASSOCIATION, INC., ANCHORAGE, pointed out that concern regarding user fees has surfaced as State revenues have decreased. He questioned how much of the DEC budget should be generated from user fees versus how much should come from the general fund. Mr. Borell stated that the Alaska Miners Association has been working in collaboration with DEC, discussing changes to user fee collection. He thought that HB 144 had originally been written to address fees associated with pesticides. Mr. Borell spoke to the work draft. In Section #1, the first item clarifies that the intent of existing statute AS 44.46.025(a) is to allow user fees for "the applicable direct costs" for items listed, including certification of federal water discharge permits and processing water discharge permits. By the change proposed in removing the language "and other services provided by the Department" would clarify the intent and limit user fees applicable to direct costs. He believed that DEC would then still be able to charge user fees but that they would be limited to direct costs. Mr. Borell continued, Section #2, Line 26, the change would prohibit DEC from charging hourly fees for the items listed. He stated that this action would benefit DEC, as well as private industry. He stressed that the difficulty and cost to administer an hourly fees program is significant. Mr. Borell added that Alaska Miners Association has not had the opportunity to determine if the changes in the "B" version would affect DEC's ability to enter into reimbursement agreements. He believed that it is important for DEC to be able to enter into such agreements for large projects. The agreements are negotiated between the company and the State and would define work objectives, the work to be done, the final products, and the time schedule for completion. Major companies are generally not opposed to such agreements if they provide increased certainty and predictability of the total cost. Co-Chair Therriault noted that the Committee could provide the Alaska Miners Association clarification for the reimbursable agreements. He asked if DEC was planning to provide a fee packet of regulations for the storm water run off. MIKE CONWAY, DIRECTOR, AIR/WATER QUALITY DIVISION, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, replied to date, there is not a package for those services and there is no plan to create such a package. Currently, the Division has the authority to charge a fee for that service. Co-Chair Therriault asked if the language were changed to "other direct services" as suggested by Representative J. Davies, would that address the concern of the Alaska Miners Association. Ms. Adair replied that the problem continues to be solid waste. The Department would need to address the decision made last year by the Legislature to have industrial solid waste fully supported by fees. Co-Chair Therriault questioned concerns regarding pesticides contained in the legislation. Ms. Adair responded that the Department is trying to cover $55,500 dollars, the federal grant match received for pesticide management in Alaska. She discussed the distinction between restricted use pesticides which are more regulated and those that cause problems because of their high toxic levels. Representative J. Davies asked the amount, which could be considered problematic. Ms. Adair responded that it would be important to determine how many pesticides would be considered restricted use. The registration program is only a few months old. Originally, the Division requested that a temporary registration fee of $100 dollars be in place until a regulatory limit had been established. After the market survey had been completed, the Division realized that $100 dollars was too high and decided that $50 dollars should be the cap. Representative J. Davies asked if a general fee would be in place until regulations had been adopted. Ms. Adair noted that it would. She had envisioned doing it in a regulatory process, which would provide an opportunity to work with those affected by the change. Representative J. Davies asked if there would be any impact on the reimbursement agreements. Ms. Adair stated that there would not, although, she asked if a prohibition on hourly fees would be placed in statute for DEC regulations. She questioned if that would be interpreted as a prohibition on the hourly fees and reimbursable services agreement. JERRY REINWAND, REPRESENTING THE CHEMICAL SPECIALITY MANUFACTURERS ASSOCIATION, JUNEAU, noted that the groups which he represents had provided a survey of the average number of products per state, which amounted to approximately 8800. A $100 dollar fee could create a hardship. He noted that the Association would be more comfortable with a statuary procedure in place and that a system be established to create a reasonable number. He believed that if the Department was delegated the authority, they would be receiving taxation authority, which is a concern for the private industry. Mr. Reinwand added that the Association is also concerned with the differentiation used between household products and products used for commercial and industrial purposes. Co-Chair Therriault inquired if there was information available from other states regarding the more restrictive amount. Mr. Reinwand replied that the consumer household breakdown amounted to approximately 65% of the national registration. Mr. Reinwand reiterated that by providing the agency with the discretion could create a tax situation and he felt that authority should be more appropriately decided by the Legislature. He urged that a cap be established. Representative J. Davies pointed out that there is not a good way to measure the number. He believed that Alaska would have a lower amount than the national average. Representative G. Davis voiced his concern with the section of the bill which establishes the fees. He acknowledged that many of the complaints received by the Department are in regard to high fees. Co-Chair Therriault noted that HB 144 would be HELD in Committee for further discussion. HOUSE BILL NO. 239 "An Act relating to the liability of motor fuel dealers for payment of tax imposed on certain credit transactions involving motor fuel sales or transfers that become worthless debts or on sales or transfers to persons who declare bankruptcy; and providing for an effective date." REPREESNTATIVE GARY DAVIS explained that the Alaska motor fuel tax is an excise tax designed to be paid by the consumer or user of the fuel. For administrative reasons, state law requires the tax to be collected and paid by the motor fuel wholesaler at the time the fuel is sold or transferred. As a practical matter, the transaction often occurs at the wholesale level with businesses that subsequently resell the fuel to the consumer or user of the fuel. Representative G. Davis continued, in commercial transactions of this nature, it is customary to extend reasonable credit terms that may result in a deferral or delay in the collection of both the debt and the motor fuel tax by the dealer. In some cases, the debt may become wholly or partially worthless because of a bankruptcy filing. HB 239 would allow motor fuel dealers in these cases to receive a nonrefundable credit in an amount equal to the tax previously remitted to the State. The credit would only be applied against subsequent tax liabilities, and could only be taken for sales with a total tax liability of $500 or more. The language specifies that dealers may only apply for a bad debt credit by filing written proof of the bankruptcy petition, or after reporting the debt as worthless on the dealer's federal income tax return. Representative Gary Davis summarized that HB 239 would include a provision requiring repayment of the tax if the account or debt was subsequently repaid, with partial payments to be handled on a proportional or pro rata basis. Co-Chair Therriault questioned the need for the "findings" section. Representative G. Davis replied that section indicates the process that the State must go through to put the situation in place. He agreed that section could be deleted. Representative J. Davies recommended that the effective date of the legislation must be changed. Representative G. Davis agreed. Co-Chair Therriault noted that would occur in the new committee substitute. Representative Grussendorf emphasized the need of establishing "other" revenue streams if the State continues to give "breaks" to industry. Representative G. Davis believed that $500 dollars tax owed, at eight cents a gallon would be an equitable threshold. Co-Chair Therriault pointed out that the tax would be written off and that the refiner would take the "big hit". BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE TAX DIVISION, DEPARTMENT OF REVENUE, spoke to the Department of Revenues (DOR) considerations with the proposed legislation. Last year, when the Department went through the process to change the motor fuel forms to increase the compliance effort of the State, the forms were changed and additional information was collected from the industry. At that time, the industry brought up issues that they had with businesses not paying their debts. DOR agreed to look into it, and then discuss it internally as a policy issue. At that time, other states were contacted regarding the manner in which they addressed this concern. The Commissioner believed that this was a reasonable tax from an equity standpoint. Mr. Bartholomew advised that the Division had established "guardrails" as to who would have the authority, which then lead to focusing on several sections of the bill: ? 1st - Going into bankruptcy and meeting the court test for not having the financial assets to meet the debts; ? 2nd - Meeting the IRS guidelines for writing off a worthless debt. He continued, one of those criteria must be met to be eligible for the credit. The Division also has asked for a bottom threshold. Other states recommended that there be language to keep the small transactions out, consequently, a limit was established. Mr. Bartholomew continued, no cash refund would be given. If a credit were claimed, it would come from a future tax liability. The fiscal note is based on 1/10th of 1% of the total sales or revenue coming into the State. The State currently collects about $40 million dollars a year in motor fuel revenues. Representative Grussendorf asked if when the dealer buys the gasoline in bulk, if he would have to pay the federal tax on it. Mr. Bartholomew understood that the federal tax was collected "further upstream" and that the manufacturer or the distributor would have paid it. Co-Chair Therriault questioned if motor fuel tax would include marine fuel and highway fuel. Mr. Bartholomew stated it would and applied to all motor fuel taxes under Title 43, aviation, marine and highway. Representative G. Davis pointed out that other states have this in place, although, it is not used often. He reminded members that other states do not have the seasonal industry that Alaska does, which would make this legislation more advantageous here. Co-Chair Therriault referenced language proposed in the amendment, which considers the total transaction. Mr. Bartholomew understood that a typical tanker load would be limited to one transaction and subject to the $500 dollar limit. He acknowledged that it would be a rare occasion when a customer with one shipment payment late would be cut off. Usually the second or third shipment is where the line would be drawn. Limiting it to single transaction would not help. He believed that the transaction could work given the other stipulations contained in the bill. Co-Chair Therriault reiterated that no transaction would be allowed once it was known that the business was bankrupt or unwilling to pay the debt. Co-Chair Therriault suggested that if a company was going bankrupt, it would be prudent for the distributor to get a letter of credit, rather than continue building that potential debt. Mr. Bartholomew commented, some business would attempt to get some type of security. If there was a recovery by the company, they would then have to reimburse the State for a portion of the credit, and that would be prorated. Representative Grussendorf asked if the company applying for the credit would have to submit their IRS statements to the State. Mr. Bartholomew replied that the Division would require documentation of the bankruptcy files as a part of the credit support. MARK HICKEY, REPRESENTING - PETRO MARINE SERVICES, JUNEAU, spoke in support of HB 239. He stated that the bill would allow fuel dealers to receive a nonrefundable credit for fuel taxes paid to the State for fuel sold on credit, but not paid by purchasers, who had declared bankruptcy or rendered their debt worthless. The bill would allow motor fuel dealers to receive a nonrefundable credit in an amount equal to the tax previously remitted to the State. The credit would be applied against subsequent tax liabilities only, and could be taken for sales with a total tax liability of $500 dollars or more. The legislation specified that dealers may only apply for a bad debt credit by filing written proof of the bankruptcy petition or reporting on the dealer's federal income tax return that debts are worthless. Mr. Hickey commented that Alaska Petro Marine Services believes that HB 239 would provide a more fair and equitable adjustment to current law. The company supports the amendment. Mr. Hickey pointed out the technical problem on Page 3, Section (f), regarding protection. Current language could be interpreted that this not apply to the transaction. He recommended that Line 22 be worded: "This section does not apply to a credit transaction by" and keeping the remaining language. He suggested, on Line 27 to insert "a" and delete "the". Co-Chair Therriault spoke to Section (e), Page 3, Line 19, in reference to the three-year period. Mr. Hickey understood that language clarified that once a company has a credit with an individual customer, they would not be able to again apply when they ceased to pay the debt. HB 239 was HELD in Committee for further consideration. (Tape Change HFC 98- 42, Side 1). HOUSE BILL NO. 386 "An Act relating to the financing authority, programs, operations, and projects of the Alaska Industrial Development and Export Authority; and providing for an effective date." RANDY SIMMONS, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA), ANCHORAGE, spoke in support of HB 386 which would continue AIDEA's bonding authority powers and which would provide new tools to meet the mission purpose to facilitate job creation, retention, and helping diversify the economy. Mr. Simmons noted that a sectional analysis had been distributed identifying four major areas of change. He spoke to bonding authorization, export guarantees, business assistance changes, confidentiality provisions and loan participation changes. Mr. Simmons commented that any bonds over $10 million dollars would come to the Legislature for authorization. HB 386 would reauthorize general bonding authority for AIDEA for certain types of bonds. The legislation would also allow for the Authority to bond for projects such as Ft. Knox at $71 million conduit dollars, Goat Lake at $23 million dollars and Craig Port (False Island Marine Facility). Representative J. Davies asked what a conduit bond was. Mr. Simmons explained that a conduit bond was a bond issued in AIDEA's name but which does not put the credit of the Authority or the State at risk. The credit risk would instead go with the owner of the facility or the person actually financially responsible. Co-Chair Therriault interjected that it would act as a conduit to enhance our tax-free status. Mr. Simmons continued, the State of Alaska is eligible to receive only $150 million dollars a year in volume, which is the ability to issue private activity bonds tax-exempt. In the last four or five years, that was not important for the State, as volume caps were not used much. He pointed out that in the next three or four years, that will not be the case. AIDEA now will be working with the State's bonding committee in order to decide which projects should be brought forward to use the volume cap for private activity bonds. The one change the Authority is requesting would be to eliminate the sunset. The sunset was important when development finance bonding was new, but now the Authority has a very good track record. AIDEA will still come before the Legislature for authorization of anything over $10 million dollars. Under the Loan Participation Program, the Authority can obligate $10 million dollars cash. Representative J. Davies asked if the annual business plan had been subject to the Executive Budget Act. Mr. Simmons replied that the operating budget was included in that consideration. Mr. Simmons pointed out that in the sectional analysis, the Export Guarantee Program was the most confusing to understand. The intent is to modify the program and merge it into the already existing Business Assistance Program. That program allows the Authority to guarantee 80% of a loan up to $1 million dollars. The program has not been used in the ten years it has been available. Following a study provided by an outside consultant, it was determined that the program was not applicable for the State's needs. It had been designed from other state programs appealing to a strong manufacturing base, which Alaska does not have. The program was also transactional based and required 25% value added, which eliminated opportunities for Alaskan distributors and transshipments. It also required that there was export credit insurance on every transaction. The proposed change incorporates the data recommended in the study. The program will be modified so that it will reflect the cost of goods and services, the 25% value added will be removed and it will be established that the business must be Alaskan. Insurance will be left at the discretion of the Authority in each transaction. The two programs would be merged and called the Export Guarantee and Business Assistance Program. Representative J. Davies believed that State policy should be to keep documents open to the public and that they be kept confidential only upon request of the applicant. Mr. Simmons assured Representative Davies that confidentiality is requested every time there is an application. He stressed that the Authority is a part of the public records balancing act. The banks are required to keep the information confidential. He noted that he would support language proposed in Amendment #D. KEITH LAUFER, MANAGER OF FINANCIAL AND LEGAL AFFAIRS, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA), ANCHORAGE, commented on Amendment #D. He noted that deleting "or complied by" as recommended by Representative Davies would be detrimental as the Authority receives many documents which need to be compiled into some form before they are taken to the internal credit committee. Representative J. Davies asked if a credit-reporting agency would require that the information be kept confidential. Mr. Laufer agreed that there would be a need to insure that the information came from a source and was confidential when received. "Compiled" versus "submitted" would be of maximum concern to the Authority. The identity of the applicant is a public item. That information should be kept confidential. The information becomes public when there is a formal application before the Authority. Mr. Simmons spoke to the technical changes to the loan participation program. The release of interest rates would be in reference to the interest rates charged by the Authority and not those charged by the bank. Representative Martin voiced concern that the State could become a loosing partner when making these types of arrangements. Co-Chair Therriault distributed the current confidentiality statute proposed for deletion. [Copy on file]. Mr. Simmons explained that language was used specifically in addressing the export program only. The new confidentiality provision applies to all of AIDEA's programs. Mr. Simmons spoke to Amendment #B. [Copy on file]. The proposed project would create a new entrance channel to the inner port in Nome. The project also would include construction of a new 28-foot breakwater that would be built parallel to the existing causeway. The new entrance channel would improve navigational safety and reliability, and the breakwater would create a protected turning basin. Part of the existing channel would be filled to provide a new access road to the sand spit, which will be protected by a rip rap seawall connecting to the existing wall in front of town. The cost would be $30 million dollars. PAUL FUHS, COURT CONSULTANT, CITY OF NOME, noted that the City of Nome has already paid $550 thousand dollars for studies accompanying the proposal. The Army Corps of Engineers has indicated through the cost benefit analysis justification of a $40 million dollar project. Their estimate for the project is $26 million dollars. The City of Nome has paid for all the bills associated with the project to date. Federal procurement takes a long time to put projects out to bid. If the State put it out to bid and managed all concerns associated with that, the Corps would then pay 80% of the project costs in the first year. Of the $26 million dollars, AIDEA would be repaid $21 million. Mr. Simmons pointed out that AIDEA has not yet worked out the feasibility of the proposed project. Because of timing concerns, the construction would be started late in the fall, which would not give AIDEA the opportunity to come back to the Legislature. To date, a finding has not been initiated. As part of the enabling legislation, all the approval must be accomplished before the project is considered. He noted that AIDEA does support the authorization of this project. Representative Martin pointed out that $25 million dollars had already been invested into this project. He understood that there is a problem that the Corps had not dredged deep enough to maximize for bigger ships entering the port. Mr. Fuhs responded that the proposed port is the only port available from Dutch Harbor upward. It is a regional port serving that entire region, with the potential to serve Russian fishing vessels. Representative Martin reiterated concern that the port was not deep enough. Mr. Fuhs replied that it could be dug deeper. Because of the currents, it has been maintained at 21' for the past eight years. Mr. Simmons stated that Nome's port has the second largest volume of incoming cargo in the State. At present, it has limited access, safety issues, and situation problems which significantly burden the port. If a conduit bond were used, ownership would change. If development finance authority were used, AIDEA would have to own the facility. If AIDEA determines that conduit revenue financing will work, the Authority would not own it, but would give the City of Nome the credit risk for the facility. Mr. Simmons guaranteed that the proposed wording would not cut off the Authority's bonding ability. If conduit bonding was successful, the proposed language would not be used. (Tape Change HFC 98- 42, Side 2). Mr. Simmons spoke to the proposed Red Dog project. The project would extend the existing dock by approximately 2,500 feet and a 50 foot shipping channel would be excavated, allowing ships to directly load the concentrates. The project would eliminate barge traffic and expedite the loading process. Mr. Simmons informed Committee members of the benefits of the proposed project. It would allow shipping season to be extended to December and would eliminate the twice handling of concentrates by eliminating barge relay. The proposal would lower vessel loading time in half and would reduce down time caused by poor weather conditions. Mr. Simmons concluded that in economic terms, the project would extend most seasonal jobs at the port and would lower the cost of shipping concentrates. Additionally, the regional port at Red Dog would no longer be used at 100% capacity, opening up shipping opportunities for other potential users. HB 386 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 3:50 P.M. H.F.C. 16 2/25/98