HOUSE LABOR AND COMMERCE STANDING COMMITTEE March 17, 1994 3:00 p.m. MEMBERS PRESENT Rep. Bill Hudson, Chairman Rep. Joe Green, Vice Chair Rep. Brian Porter Rep. Bill Williams Rep. Eldon Mulder Rep. Joe Sitton MEMBERS ABSENT Rep. Jerry Mackie COMMITTEE CALENDAR HB 413: "An Act increasing excise taxes on cigarettes, tobacco products, and alcoholic beverages; and providing for an effective date." HEARD AND HELD IN COMMITTEE HB 509: "An Act relating to the tax on transfers or consumption of motor fuel, and to the proceeds from the tax; and providing for an effective date." PASSED OUT OF COMMITTEE WITNESS REGISTER SHELBY STANSBY, Director Office of Management and Budget Office of the Governor P.O. Box 110020 Juneau, Alaska 99811-0020 465-3568 Position Statement: Supported HB 413 and HB 509 ELMER LINDSTROM, Special Assistant Department of Health and Social Services P.O. Box 110601 Juneau, Alaska 99811-0601 465-3030 Position Statement: Supported HB 413 RESA JERREL, Lobbyist National Federation of Independent Business 9159 Skywood Lane Juneau, Alaska 99801 789-4278 Position Statement: Opposed HB 413 and HB 509 RICK LAUBER, Lobbyist Anheuser-Busch Company, Inc. 321 Highland Drive Juneau, Alaska 99801 586-6366 Position Statement: Opposed HB 413 LENNY GORSUCH, Lobbyist Miller Brewing Company 213 3rd St., #103 Juneau, Alaska 99801 463-3531 Position Statement: Opposed HB 413 RICK URION, Lobbyist Alaska Wine & Spirits Wholesaler's Association P.O. Box 20868 Juneau, Alaska 99802 463-5088 Position Statement: Opposed HB 413 LOREN JONES, Director Division of Alcoholism and Drug Abuse Department of Health and Social Services P.O. Box 110607 Juneau, Alaska 99811-0607 465-2071 Position Statement: Supported HB 413 JOAN DIAMOND 5700 Rabbit Creek Rd. Anchorage, Alaska 99516 345-6192 Position Statement: Supported HB 413 (Spoke via teleconference) PETER MCNUMERA, Director Division of Public Health Department of Health and Social Services P.O. Box 110610 Juneau, Alaska 99811-0610 465-3090 Position Statement: Supported HB 413 JIM MURPHY American Lung Association 555 W. Northern Lights Anchorage, Alaska 99503 276-5864 Position Statement: Supported HB 413 (Spoke via teleconference) KATHLEEN DOVE P.O. Box 74048 Fairbanks, Alaska 99707 458-8000 Position Statement: Supported HB 413 (Spoke via teleconference) LYNDA ADAMS, Executive Director Alaskans for Drug Free Youth 2417 Tongass #114 Ketchikan, Alaska 99901 247-2273 Position Statement: Supported HB 413 (Spoke via teleconference) FRANCIS YOUNG 537 Tower Rd. Ketchikan, Alaska 99901 225-3528 Position Statement: Supported HB 413 (Spoke via teleconference) KATHY STAROSTKA, Executive Director Sitka Teen Resource Center P.O. Box 1034 Sitka, Alaska 99835 747-3500 Position Statement: Supported HB 413 (Spoke via teleconference) BRUCE CAMPBELL, Commissioner Department of Transportation P.O. Box 110800 Juneau, Alaska 99811-0800 465-2500 Position Statement: Supported HB 509 PAUL DICK Division of Income and Excise Audit Department of Revenue P.O. Box 110420 Juneau, Alaska 99811-0420 465-3691 Position Statement: Testified on fiscal note for HB 509 MARK HICKEY, Lobbyist Valdez Creek Mine 211 4th St. #108 Juneau, Alaska 99801 586-2263 Position Statement: Opposed HB 509 PREVIOUS ACTION BILL: HB 413 SHORT TITLE: INCREASE TOBACCO & ALCOHOL TAXES SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 01/28/94 2180 (H) READ THE FIRST TIME/REFERRAL(S) 01/28/94 2180 (H) L&C, STATE AFFAIRS, FINANCE 01/28/94 2180 (H) -ZERO FISCAL NOTE (REV) 1/28/94 01/28/94 2180 (H) GOVERNOR'S TRANSMITTAL LETTER 02/24/94 (H) L&C AT 03:00 PM CAPITOL 17 02/24/94 (H) MINUTE(L&C) 03/17/94 (H) L&C AT 03:00 PM CAPITOL 17 BILL: HB 509 SHORT TITLE: INCREASE MOTOR FUEL TAX SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 02/18/94 2458 (H) READ THE FIRST TIME/REFERRAL(S) 02/18/94 2458 (H) L&C, STATE AFFAIRS, FINANCE 02/18/94 2458 (H) -FISCAL NOTE (REV) 2/18/94 02/18/94 2458 (H) -2 ZERO FISCAL NOTES (DEC,DOT) 2/18/94 02/18/94 2458 (H) GOVERNOR'S TRANSMITTAL LETTER 03/03/94 (H) L&C AT 03:00 PM CAPITOL 124 03/17/94 (H) L&C AT 03:00 PM CAPITOL 17 ACTION NARRATIVE TAPE 94-25, SIDE A Number 001 CHAIRMAN HUDSON convened the House Labor and Commerce committee meeting at 3:13 p.m. HB 413 - INCREASE TOBACCO & ALCOHOL TAXES Number 040 SHELBY STANSBY, Director, Office of Management and Budget, Office of the Governor, reviewed HB 413 for the committee. He explained that while no one likes taxes, they are a part of the overall plan the Governor is promoting. MR. STANSBY stated that compared to the rest of the states, Alaska is near the bottom in the amount of gas taxes it levies. It is still the intention to use the money generated by the gas tax for the repair and maintenance of the roads in the State. MR. STANSBY commented that the intention behind the alcohol and tobacco tax is along the same lines. Users will pay the costs through taxes for the health and treatment programs to combat drug and alcohol abuse. MR. STANSBY noted that there is talk that raising revenues will take the pressure off reducing the budget, but the amount of revenue raised by the taxes is only about 1/8 the amount needed. He further noted that the reserves the state currently has will only last another two or three years at the current spending pattern. MR. STANSBY finished by suggesting that the committee pass the two tax bills on so that the Finance Committee can consider them in the overall financial plan. Number 200 CHAIRMAN HUDSON commented that the alcohol and tobacco tax is estimated at bringing in approximately $15 million and the motor fuel tax is estimated at raising $82 million. Number 218 REP. MULDER asked what the Governor's standpoint was on the constitutional amendment on the dedicated motor fuel tax. Number 221 MR. STANSBY responded that the Governor supports the amendment, but whether he's pushing it this year he doesn't know. He thought Commissioner Campbell could address that. He added that his intention was to use the taxes to help close the fiscal gap and use the money to fix roads. Number 226 REP. MULDER observed that his constituency is much more inclined to dedicate funds than to be taxed and have it go directly into the general fund. Number 231 MR. STANSBY stated that he agrees with that observation, but felt that the scenario has gotten a lukewarm reception by the legislature. Number 234 CHAIRMAN HUDSON noted that HB 509 is not a dedicated tax. Number 245 ELMER LINDSTROM, Special Assistant, Department of Health and Social Services, testified in support of HB 413. He stated that his agency doesn't collect the taxes nor do they have any direct revenue stream from these taxes. The department believes HB 413 can stand on its own as a public health measure and the taxes are a vehicle to provide this. MR. LINDSTROM stated that history tells us that an increase in tobacco and alcohol taxes equals a decrease in consumption, especially among the young. Number 285 CHAIRMAN HUDSON noted that the backup showed some high figures regarding state expenditures for substance abuse and asked Mr. Lindstrom what those expenditures were. Number 300 MR. LINDSTROM replied that the figures Mr. Stansby referred to were simply the funds appropriated for substance abuse treatment. The costs of the abuse of alcohol and use of tobacco show up in all levels of state government. Number 328 RESA JERREL, National Federation of Independent Business (NFIB), testified that her group opposes HB 413. She said a 1993 survey of NFIB members found overwhelming support -- 92 percent -- to reduce state government spending before increasing taxes. Number 350 REP. WILLIAMS asked Ms. Jerrel if she thought the people who abuse products should be responsible for paying for the treatment. Number 365 MS. JERREL reiterated that the NFIB members uniformly oppose any new taxes until government spending comes under control. Number 370 CHAIRMAN HUDSON commented that every time the legislature comes up with an area to cut spending, out comes advocates who consider it sacred. Chairman Hudson assumed that the NFIB is not opposed to taxes forever but not as the first thing to go to. Number 388 MS. JERREL responded that the chair was correct in his assumptions and added that the members of NFIB did have a priority listing of areas of taxation they would like to see if raising revenue through taxes is needed. Number 400 RICK LAUBER, Lobbyist, Anheuser-Busch Company, Inc., testified against HB 413. Mr. Lauber presented the following position paper: Anheuser-Busch is proud of it's leadership role in promoting responsible use of its products. Our "know when to say when" educational advertising campaign has been effective. We have been strong supporters of the designated driver campaign. We were the first major brewer to produce a nonalcoholic malt beverage, O'Douls, and spend millions on it's promotion as a nonintoxicating alternative to beer. Anheuser-Busch not only discourages abuse of its products by adults, but has initiated programs in our schools and colleges to discourage under-age consumption of all alcohol and provide alternatives to the use of intoxicating beverages. We oppose a tax increase on beer. In Alaska beer is already taxed, at a rate nearly 50% higher than the national average. As recently as 1991 the federal government increased the tax on beer drinkers by 100% from $9.00 to $18.00 per barrel. A 50% increase in the tax on beer that this legislation proposes will not translate to an increase on 50% in taxes collected. If the federal experience is an indication. Those opposed to the consumption of any beer will tell you that is a good thing. Not so. Price increases discourage the responsible drinker, mostly in the middle and lower income groups. While studies have shown that beer is not the beverage of choice of the vast majority of alcoholics, they have shown that a price increase of this magnitude is not a deterrent to their abuse. The vast majority of beer is consumed by responsible users. As more and more studies confirm the health benefits of the daily consumption of moderate amounts alcoholic beverages, it does not seem appropriate to discourage the use of moderate amounts of beer. A tax on the wholesale price of beer will be transferred to the retail purchaser. The ultimate tax payer will be the beer drinkers of Alaska. We do not object to paying taxes but feel that the current tax, already far higher than the average of the nation, combined with the recent increase in federal taxes of 100%, is a more than adequate tax on the beer drinkers of Alaska. Number 455 CHAIRMAN HUDSON asked if there was a tax on the nonalcoholic beer Anheuser-Busch promotes. Number 465 MR. LAUBER replied that there was no tax on O'Douls. Number 479 LENNY GORSUCH, Lobbyist, Miller Brewing Company, testified against HB 413. Ms. Gorsuch dittoed Mr. Lauber's testimony. Number 514 REP. WILLIAMS asked for comments on the administration's view that those who imbibe should help pay the cost to the state of alcohol abuse. Number 525 MR. LAUBER stated that if you could design a program that would make the abusers of anything pay for their own services the industry would support it. But the vast majority of users of beer do not abuse the product. Number 565 RICK URION, Lobbyist, Alaska Wine and Spirits Wholesaler's Association, testified against HB 413. Mr. Urion stated that if HB 413 passes Alaska will be the highest by far in taxing spirits. MR. URION noted that the Department of Revenue figures in projecting income from the tax increase did not include the decrease in consumption that the Department of Health and Social Services projects. Number 594 CHAIRMAN HUDSON noted that in 1991 the federal government increased the tax, which resulted in a decrease in actual revenue and asked if there was also a resulting decrease in social costs. Number 610 LOREN JONES, Director, Division of Alcohol and Drug Abuse, Department of Health and Social Services, testified in support of HB 413. Mr. Jones stated that he does not know of any studies that show a correlation between the decrease in consumption related to the economic costs of abuse. MR. JONES noted, however, that insurance companies have looked at the decrease of medical costs after a person has gone through treatment. TAPE 94-25, SIDE B Number 001 MR. JONES further stated that his office conducted an economic cost study in 1985 that looked at the costs of services directly related to alcohol abuse. These costs would include enforcement of drunk driving statutes, number of DFYS cases of child abuse and neglect by parents who abuse alcohol, small business losses, and inmates in jails who committed their offenses while under the influence of alcohol. MR. JONES stated he does not believe that the tax would be disproportionate to the social drinker as it is levied directly to the volume of alcohol you buy. Number 111 JOAN DIAMOND testified via teleconference in support of HB 413. Ms. Diamond stated that Alaska has only raised the tax once since 1960 and has never been adjusted for inflation. She added that the costs to the public are huge and any increase in the tax will not only lower consumption but lower the cost to the public as well. Number 192 PETER MCNUMERA, Director, Division of Public Health, Department of Health and Social Services, testified in support of HB 413. Mr. McNumera stated that he is very concerned about the impact of alcohol on the youth. He believes that the increase in taxes will lower the consumption among youth. Number 234 JIM MURPHY, American Lung Association, testified via teleconference in support of HB 413. Mr. Murphy stated that the legislature has an opportunity now to do two things: raise some revenue for the state and discourage tobacco use by Alaskans by passing HB 413. Number 262 KATHLEEN DOVE testified via teleconference in support of HB 413. She added that she is involved in a prevention program on alcohol and drug abuse. She stated that she supports HB 413 and its efforts to deter young people from using alcohol and tobacco. Number 287 LINDA ADAMS, Executive Director, Alaskans for Drug Free Youth; Advisory Board on Alcoholism and Drug Abuse; and Mayors Task Force on Substance Abuse in Ketchikan; testified via teleconference that all three of these groups are in support of HB 413. MS. ADAMS stated that all the studies have shown that our youth are very price sensitive and that any increase in taxes translates to a decrease in consumption among our youth. MS. ADAMS dittoed the previous supportive testimony. Number 374 FRANCIS YOUNG testified via teleconference in support of HB 413. She stated that the costs to the public is a big factor and includes the costs to educate children whose lives have been impacted by alcohol. MS. YOUNG stated that users should be willing to pay the tax which only covers about 17% of the costs incurred because of abuse. Number 395 KATHY STAROSTKA, Executive Director, Sitka Teen Resource Center, stated via teleconference that the center is overwhelmingly supportive of HB 413. Ms. Starostka stated young people have the least amount of disposable income so this increase would impact them the most. MS. STAROSTKA dittoed the previous supportive testimony. Number 405 CHAIRMAN HUDSON stated that the committee did not have a quorum at the table and would not take action at this time. HB 509 - INCREASE MOTOR FUEL TAX Number 425 BRUCE CAMPBELL, Commissioner, Department of Transportation, testified in support HB 509. He commented that Mr. Stansby's figures of $82 million as the amount of revenue generated by passage of HB 509 is different than the $109 million figure his agency shows. COMMISSIONER CAMPBELL stated that the funds generated by HB 509 are not dedicated funds. However, he was supportive of the language the administration calls "pseudo dedicated funds" that states that the proceeds of the tax shall be deposited in a special highway fuel tax account within the general fund. Commissioner Campbell stated that this type of language is found in three or four other funds he's familiar with and the legislature has only appropriated out of these accounts for the particular purpose they were set up for. COMMISSIONER CAMPBELL stated that this type of set-up would not be truly a dedicated fund in a constitutional sense; at least it would be in a practical sense. The administration felt this scenario could work and would save money by not having to get a constitutional amendment. COMMISSIONER CAMPBELL added that he believes that a major raise in the fuel tax is important because the revenue generated would nearly fund the budget of the Department of Highways. COMMISSIONER CAMPBELL explained to the committee that the State of Alaska is considered a recipient state; the state receives $600.00 for every dollar the state pays in federal fuel and excise taxes. He added that Alaska is the highest state in the union in the disproportionate ratio. The donor states are joining together to change the way the federal monies are proportioned. Alaska would lose in this scenario. Commissioner Campbell noted that one of the things he hears during meetings with other transportation and highway officials is that Alaska is the biggest recipient of federal aid and has one of the lowest gas taxes. COMMISSIONER CAMPBELL concluded by saying that this is going to be an issue our congressional delegation will have to deal with. Number 496 RESA JERREL, Lobbyist, National Federation of Independent Business, testified against HB 509. She reiterated her earlier testimony regarding HB 413 and the NFIB's position that they want the state government spending under control before any taxes are passed. Number 500 PAUL DICK, Department of Revenue, testified that the fiscal note the Department of Revenue offered was $82.2 million, using the current level of consumption. Number 521 REP. PORTER asked if the department looked back to 1983 when the last tax increase took place to see what happened. MR. DICK responded that he did not. CHAIRMAN HUDSON asked what the average Alaskan's cost increase would be if HB 509 passed. Number 545 REP. MULDER asked if Mr. Dick had any idea why there was a discrepancy between figures of the Departments of Transportation and Revenue. He also asked what the total revenue would be if the tax were doubled and not tripled. Number 550 MR. DICK replied that he had not had a chance to look at DOT's figures, but would get together with them to figure out the differences. Mr. Dick stated that doubling the current tax rate would result in revenues of approximately $40 million. Number 556 MARK HICKEY, Valdez Creek Mine, testified against HB 509. Mr. Hickey stated that the mine is located 70 miles on the Denali Highway about 70 miles east of Cantwell. He stated that four years ago they reached an agreement with the Department of Transportation to share the cost of winter maintenance of the road. MR. HICKEY stated that the mine is not opposed to a doubling of the tax, but not a triple increase. They would also like to see the tax be dedicated to highway maintenance. MR. HICKEY noted a side effect of the proposal that is troubling for the mine and that is called the off-highway tax. Currently Alaskans pay an off-highway tax of eight cents per gallon and receive a rebate of six cents. He said HB 509 eliminates the rebate and actually raises the off- highway tax to 17 cents. This would be a 3% increase in the cost of doing business for the mine. MR. HICKEY proposed a solution that would eliminate the increased tax on off-highway usage. TAPE 94-26, SIDE A Number 001 CHAIRMAN HUDSON stated that he was leaning towards supporting the increased gas tax, but not as high as the administration is asking for. He added that he liked the language in the bill that doesn't dedicate the funds but strongly favors appropriation towards highway facilities. Number 061 REP. PORTER declared a conflict of interest due to the fact that he ran a company that provided security for the mine Mr. Hickey is representing and is still a consultant for that company. CHAIRMAN HUDSON stated that the committee recognizes that and does not believe it is in conflict. CHAIRMAN HUDSON asked for comments from the committee regarding passage of HB 509. Number 075 REP. MULDER stated that his constituents want the funds to be dedicated to highway maintenance and not to go into the general fund. He added that he could live with the proposal of an increase to 17 cents as long as it was dedicated. Number 113 REP. WILLIAMS stated he didn't have any comment at this time. Number 116 REP. SITTON stated that he did not want to see any tax measures until the budget situation was figured out. Number 120 REP. PORTER stated that he thinks it's appropriated to move these bills in order to give the Finance Committee all the tools required to make their decisions. Number 138 CHAIRMAN HUDSON stated that he believes the legislature will make some significant reductions in the budget this year and he believes the tax bills should go forward to give the legislature all the tools necessary. However, he does not want to see the gas tax be tripled as this bill calls for. Number 179 REP. MULDER moved Amendment 1 to HB 509 to reflect a 17 cent increase as opposed to a 25 cent increase. No objections were heard; it was so ordered. Number 198 REP. SITTON moved Amendment 2 to HB 509 on page 2, line 21, adding a new section increasing the refund on the tax for non-highway use. Number 220 REP. PORTER moved CSHB 509(L&C) with adjusted fiscal note and individual recommendations. No objections were heard; it was so ordered. Number 230 CHAIRMAN HUDSON adjourned the meeting at 4:52 p.m.