SENATE COMMUNITY & REGIONAL AFFAIRS COMMITTEE February 5, 1997 1:35 p.m. MEMBERS PRESENT Senator Jerry Mackie, Chairman Senator Gary Wilken, Vice Chairman Senator Dave Donley Senator Randy Phillips Senator Lyman Hoffman MEMBERS ABSENT All members present COMMITTEE CALENDAR SENATE BILL NO. 23 "An Act levying and providing for the collection and administration of excise taxes on the rental or furnishing of transient lodging, and authorizing disposition of estimated receipts from that tax; and providing for an effective date." - CSSB 23(CRA) ADOPTED & MOVED OUT OF COMMITTEE SENATE BILL NO. 50 "An Act relating to administrative penalties for violation of public water supply system requirements; amending Alaska Rule of Civil Procedure 82 regarding attorney's fees; and providing for an effective date." - HEARD AND HELD PREVIOUS SENATE COMMITTEE ACTION SB 23 - Community & Regional Affairs minutes dated 1/22/97. SB 50 - No previous action to record. WITNESS REGISTER Senator Bert Sharp State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Prime Sponsor of SB 23 Ms. Sheila Romero, Executive Director Fairbanks Convention & Visitors Bureau 550 First Ave. Fairbanks, AK 99701 POSITION STATEMENT: Testified in opposition to SB 23 Bill Elander Alaska Tourism & Marketing Council 526 W. 4th Ave. Anchorage, AK 99501 POSITION STATEMENT: Testified in opposition to SB 23 Ms. Susan Bell, President Juneau Convention & Visitors Bureau 379 S. Franklin St. Juneau, AK 99801 POSITION STATEMENT: Testified in opposition to SB 23 Ms. Diane Mayer-Pearson 4541 Sawa Circle Juneau, AK 99801 POSITION STATEMENT: Does not support SB 23 Phil & Karen Greeney Juneau, AK POSITION STATEMENT: Opposed to SB 23 Ms. Judith Wood Gustavus Visitor Association Gustavus, AK POSITION STATEMENT: Supports broad based tax Gerd Krause, General Manager Baranof Hotel 127 N. Franklin St. Juneau, AK 99801 POSITION STATEMENT: Testified in opposition to SB 23 Ms. Janice Adair, Director Division of Environmental Health Department of Environmental Conservation 555 Cordova St. Anchorage, AK 99501 POSITION STATEMENT: Offered information on SB 50 Keith Kelton, Director Division of Facility Construction & Operation Department of Environmental Conservation 410 Willoughby Ave., Suite 105 Juneau, AK 99801-1795 POSITION STATEMENT: Offered additional information on SB 50 Breck Tostevin, Assistant Attorney General Environmental Section Department of Law 1031 W. 4th Ave., Suite 200 Anchorage, AK 99501-1994 POSITION STATEMENT: Answered questions on SB 50 ACTION NARRATIVE TAPE 97-5, SIDE A Number 001 CHAIRMAN MACKIE called the Senate Community & Regional Affairs Committee meeting to order at 1:35 p.m. All members of the committee were present. SB 23 EXCISE TAXES ON TRANSIENT LODGING  CHAIRMAN MACKIE brought SB 23 before the committee and directed attention to a C&RA committee substitute which incorporates an amendment adopted at the committee's January 22 meeting. SENATOR WILKEN moved the adoption of CSSB 23(CRA). Hearing no objection, it was so ordered. Number 020 SENATOR BERT SHARP , prime sponsor of SB 23, related he met with Mr. Elander of the Anchorage Convention & Visitors bureau following the previous meeting on SB 23, where they discussed the need to come to the table and jointly work on some kind of long range funding plan to finance the state participation in the marketing of tourism for the state of Alaska. However, after that meeting, Mr. Elander sent out a member's alert letter in which he made some statements that Senator Sharp found distressing. Mr. Elander said that most legislators know that representatives of the tourism industry are willing to work towards a broad based taxation policy that will be acceptable; however, Senator Sharp said he doesn't know of the industry coming forward with their recommendations, and he has been involved with that discussion for over nine years. Mr. Elander also made reference to a dedicated fund, but Senator Sharp stressed that there is not going to be a dedicated fund just to fund tourism marketing in this state. Number 080 SHEILA ROMERO , Executive Director, Fairbanks Convention & Visitors Bureau, stated the bureau, its board of directors and 400 members encourage the committee to kill SB 23. If passed, the bill would have far reaching effects on Alaska's entire visitor industry. For instance, Fairbanks area hotels, lodges and bed and breakfasts would collect this tax in addition to the City of Fairbanks and Fairbanks North Star Borough's current 8 percent bed tax. Ms. Romero said this proposed tax puts the Alaskan tourism and hospitality industry in a competitive disadvantage and will likely diminish the contribution to the communities, to the cities and to the state economy that is currently derived from the visitor industry. If it costs more in taxes for the visitors to experience Alaska, they spend less on the goods and services that the statewide businesses provide to them, or they don't come at all. In closing, Ms. Romero urged defeat of the legislation. Number 110 SENATOR PHILLIPS asked Ms. Romero what the industry is doing in the Fairbanks area as far as trying to come up with some alternatives. MS. ROMERO said she believes the industry statewide is ready and willing to work on this issue. She also pointed out the tourism industry right now is contributing about $124 million to local and state government through taxes and other fees that they pay. Number 183 CHAIRMAN MACKIE commented that the idea of the state wanting the industry to step up to the plate a little bit more is not a new idea; it is something that has been around for a long time. He said he thinks the state will be best served if everyone works together to find that comfort zone so that adequate marketing for Alaska as a destination can still be provided. He asked Ms. Romero if she had any ideas as to how to increase the involvement from the industry so that there can be that partnership. MS. ROMERO replied that the Fairbanks Convention & Visitors Bureau's main concerns with the bill is that it is not a broad based tax and there is no assurance that this money will be used for tourism marketing. CHAIRMAN MACKIE reminded her there is a prohibition in the Alaska Constitution against dedicated funds, and he suggested that coming to the table and working with Senator Sharp and the committees is probably the best way to work through the different philosophies on this issue. Number 240 BILL ELANDER , a member of the Board of Directors of the Alaska Tourism and Marketing Council, said from the point of view of those in marketing, he thinks all would agree that public funding is not appropriate for tourism marketing, but the government role is to in some way level the playing field between the competition of this state. Unfortunately, the legislatures and the governing bodies of this state's competition don't feel that way, and they put tremendous amounts of public dollars to draw Alaska's visitors to their destinations. Mr. Elander noted a comment was made during the previous hearing on SB 23 that the state is carrying most of the marketing dollars, but he pointed out $42 million was marketed for Alaska last year. He said the tourism marketing dollars for the generic part of Alaska to get that word out for these small emerging businesses to enable them to grow and develop is a worthy cause. He stressed it is not a whole a lot of money that is needed, and the beauty of Alaska is that a modest budget is all that is needed to get its image out there, but he cautioned that Alaska has got to get its message out there because it is getting buried by the competition. Mr. Elander suggested, as a possible alternative to SB 23, perhaps a tax with a sunset date to see if enough dollars are generated and to see if the dollars are committed to satisfy both sides on the issue. He added that he doesn't know if something like that will work, but sitting down and discussing those types of ideas will work better than bringing forth a bill that targets one segment of the industry. SENATOR WILKEN asked Mr. Elander to expand on his comment that the government's role in tourism marketing is to level the playing field. MR. ELANDER explained that, if another state government was using their taxes and revenues to compete against one of our major industries, he thinks it would be incumbent on our state government to sit down with its industries and see how it can help mitigate the situation. He said the industry is asking for the state's help, and he reiterated that it is the generic part of this marketing program that is so important to them. Number 352 SUSAN BELL , President, Juneau Convention and Visitors Bureau, said the businesses that are members of the JCVB and SATC could not begin to compete with the heavy marketing dollars that are available with some of the larger companies. She has worked for three visitor bureaus and each of those bureaus has relied very heavily on leveraging the state's program, as does SATC. She pointed out that Juneau gets over a $100 million economic impact from the visitor industry, and when looking at the state, something that develops healthy municipalities is going to make sure that each of our communities needs less municipal assistance at the state level. She stated the visitor industry is a very competitive marketplace that is very cost sensitive, and we have to be aware of how we fall in on a world competitive scale. CHAIRMAN MACKIE said he knows from being part of the industry himself that there is a strong desire for additional state contribution to marketing at a time when our budgets are dwindling, and this is one way to generate many millions of dollars which actually could help the industry. He asked if anybody has ever stopped to take a look at that angle versus the attitude that the tax will destroy the industry. MS. BELL replied that AVA and others have voiced support for a broad base tax, and the major stumbling blocks over SB 23 is that it is not broad based enough. Number 406 DIANE MAYER-PEARSON , owner of Pearson's Pond Luxury Inn & Travel in Juneau, testifying in opposition to SB 23, said the majority of potential travelers list price as one of the things that makes them reject Alaska as a visitor destination and passage of this legislation would mean visitors to the Juneau area would be paying a total of 14 percent in taxes. She advised that as the owner of small business, she relies very heavily on the image campaign through the Alaska Tourism and Marketing Council to help promote Alaska. Number 431 PHIL GREENEY , who along with his wife owns a bed and breakfast in Juneau, also voiced concern about 14 percent in taxes on their particular service. He said he doesn't know of any other service in Alaska that pays that kind of rate. He suggested a much more broad based way to generate more funds would be a much more desirable way to go, and it would be much easier for the people in the small business community to bear. KAREN GREENEY of Juneau, said when we market Alaska, we are marketing entry to Alaska to everyone. If there needs to be a tax to supplement or to help the state finance tourism marketing, it needs to be broad based, one where everyone, no matter how they enter the state, will be paying their fair share of that tax. Number 494 JUDITH WOOD, a member of the Gustavus Visitor Association and owner of a fishing lodge in Gustavus, said that area is proposing incorporation and that incorporation petition includes a three percent bed tax, which has mixed feelings among the lodge owners in Gustavus, and she thinks adding an additional two percent tax would meet with opposition from lodge owners and bed and breakfast owners. She supports more marketing of Alaska and a broader based tax. Number 523 GERD KRAUSE , General Manager of the Baranof Hotel in Juneau, said not only is the bed tax used for marketing tourism, but it is used in communities to help build convention centers and to bring more business into the communities. An added two percent tax would diminish these communities' chances of attracting conventions, especially when competing for out-of-state conventions. Number 542 SENATOR SHARP expressed his appreciation for all the input from the various industry people. He said there are some innovative ways possibly that a revenue bill could be structured to give assurance that the revenue would be spent on marketing tourism. He pledged his willingness to work with all concerned to find a way to fund tourism marketing on a state basis and to spread the cost to all of those that are benefiting from it. There being no further testimony on SB 23, CHAIRMAN MACKIE stated it was his intention to move SB 23 out of committee, as well as stating that as a lodge owner himself and part of the visitor industry he would be not be voting on whether to move the bill from committee. Number 574 SENATOR WILKEN moved CSSB 23(CRA) and the attached fiscal notes be passed out of committee with individual recommendations. Hearing no objection, it was so ordered. Number 578 SB 50 PUBLIC WATER SUPPLY VIOL: ADMIN PENALTIES  CHAIRMAN MACKIE brought SB 50 before the committee as the next order of business. TAPE 97-5, SIDE B Number 001 JANICE ADAIR , Director, Division of Environmental Health, Department of Environmental Conservation, explained Congress reauthorized the Safe Drinking Water Act (SDWA) in 1996 and added a new requirement for primacy of the drinking water program. Another change was requiring primacy for continued access to federal construction funds for drinking water systems. Ms. Adair pointed out that the state of Alaska has primacy for the drinking water program at this time as does all other states except for Wyoming. Primacy means that the state manages and enforces the terms of the SDWA in lieu of the federal government. It affords the state several benefits, including the ability to waive certain monitoring requirements for specific water systems. She related these waivers have saved almost $1.5 million in laboratory costs for systems that are located in the districts of committee members. Primacy also allows the department to work one-on-one with systems on solving their problems, and that helps ensure the delivery of safe water to the communities served. SB 50 will provide DEC the authority to establish a program for administrative penalties. It sets an amount of $1,000 per day per violation for systems that serve more than 10,000 people, and for all other systems, the penalty may not exceed $750 per day. On page 2, beginning with line 10 and ending on page 3, line 4, it outlines the factors the department thought were important to be considered when establishing an amount of a penalty. Ms. Adair pointed out that Section 7 of the bill delays the actual effective date of the penalty authority until the EPA tells the state it must have administrative penalty authority to retain primacy for the drinking water program. Number 035 CHAIRMAN MACKIE referred to the title of the bill and asked for an explanation of change to the Alaska Rules of Civil Procedure. MS. ADAIR explained that the administrative penalty for a violation is a federal mandate. The Civil Procedure Rule change is not a requirement of federal law, but where there is a water system that refuses to pay a penalty and it necessitates taking them to court in order to get them to do what needs to be done and to pay the penalty, then that change would allow the state to recover those attorney fees. Number 050 SENATOR HOFFMAN referred to subsection (d) on page 3, line 8, which provides a 30-day period in which a person can file an appeal after receiving an assessment notice on a penalty, and suggested it was too short a tim period and that it should be changed to 45 days. MS. ADAIR stated the department would not have a problem with his suggested change. SENATOR HOFFMAN then referred to page 3, line 19, which provides that the person who receives an administrative penalty can file a notice of appeal in the superior court. He pointed out that people in the smaller communities would have to fly in to file an appeal, and he questioned why that couldn't be done in a district court because there aren't that many superior courts in the state. BRECK TOSTEVIN , Assistant Attorney General, Department of Law, responded that traditionally administrative appeals from an agency action go to superior court and a superior court acts as an appellate court and reviews the agency action as opposed to the district court, so that's why those provisions were drafted that way. SENATOR HOFFMAN referred back to subsection (d) and said it provides that the department may extend the time periods in the subsection for good cause. He then asked if there was a definition of "good cause." MS. ADAIR answered that she did not know, but it would be something that the department would want to address the regulatory development process as they put the program together. Number 105 SENATOR WILKEN referred to the sectional analysis and asked if this issue only deals with Anchorage, Juneau, Fairbanks, one air force base and two army bases. MS. ADAIR said those six systems are the ones that serve more than 10,000 people so those would be the systems that would be subject to the $1,000 per day per violation penalty. For all other systems in the state with less 10,000 people are subject to a $750 per day per violation penalty. SENATOR WILKEN inquired when the last time there was an issue that required the filing of a lawsuit in a matter such as drinking water. MS. ADAIR thought it was in the very early 1990's, it was a system in Southeast Alaska, and it was a criminal issue. SENATOR WILKEN voiced his concern that as a society we need to talk about administrative penalties and, particularly, allowing DEC to impose them unilaterally. He said this is probably an excellent example of the heavy handed way that government controls what we do, both state and federal. He suggested there needs to be a better way to do this and not to just give carte blanche approval to DEC to sanction something as simple as providing good drinking water. CHAIRMAN MACKIE asked Ms. Adair what would happen if this legislation did not pass. MS. ADAIR replied that at some point in time, the EPA would begin the process to withdraw primacy for a drinking water program, and if primacy was withdrawn, the program would become an enforcement only program. She related that 85 percent of the state's drinking water program is funded by EPA, which amounts to approximately $1 million. The 1996 amendments to SDWA added construction funds for drinking water systems, and in FY 98 that is expected to be about $28 million to the state. Number 180 In a brief discussion on why the appeals have to go a superior court instead of a district court, it was concluded that it is a standard that is set out in the Administrative Procedures Act. SENATOR DONLEY suggested that could be amended if Senator Hoffman thought his constituents would be better served by access to district court. Number 215 SENATOR HOFFMAN stated he agrees with Senator Wilken's statement about the heavy hammer that this legislation is giving DEC, but because it is required in order for the state to comply with the changes in SDWA and to continue to receive funds, he suggested working on it to make sure that the department does not have so much discretion on the use of that heavy hammer. KEITH KELTON , Director, Division of Facility Construction & Operation, Department of Environmental Conservation, said what Congress is attempting to do with the changes in SDWA is respond to an unfunded mandate complaint. They are putting a carrot in this Safe Drinking Water Act reauthorization that says they will fund a low interest loan program with state participation. The initial funding, starting in FY 96, was $27 million and the state has to put in a match of $5 million, so the there will be a total of $32 million for low interest loans for solving community infrastructure problems. The stick they are throwing in is the administrative penalty, and if the state doesn't do the administrative penalty, it loses primacy and the funding that goes with it, he said. Number 365 SENATOR WILKEN commented that on the campaign trail he heard a lot of good things about what the Legislature had been doing in the rural areas in regard to sewer and water, and his comments, by no means, should be taken that he doesn't support that. He just wants to make sure that the process isn't slowed down by having someone or some group get out of control and forget where the power really lies, and that's why he speaks against the ability to just simply write an order that stops the process. MR. KELTON related that probably the primary recipients of these loan funds are the larger urban communities, but any municipal government can apply. For instance, Anchorage has received well over $30 million in the waste water program. The smaller communities normally rely on a grants program rather than the loan program. CHAIRMAN MACKIE requested that Senator Hoffman and Senator Wilken take a further look at this issue, both from an urban and rural perspective, and work with the people at DEC to see if some of these problems can be worked out before another hearing is scheduled on the legislation. There being no further business to come before the committee, the meeting was adjourned at 2:48 p.m.