MINUTES SENATE FINANCE COMMITTEE March 11, 1999 9:08 AM TAPES SFC-99 # 52, Side A & Side B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 9:08 AM. PRESENT Senator John Torgerson, Senator Sean Parnell, Senator Randy Phillips, Senator Al Adams, Senator Pete Kelly and Senator Lyda Green. Also Attending: JUANITA HANSLEY, Administrator, Division of Motor Vehicles, Department of Administration; BRUCE JOHNSON, Director, Division of Teaching and Learning Support, Department of Education; NICO BUS, Administrative Services Manager, Division of Support Services, Department of Natural Resources; FRANK DILLION, Executive Vice President, Alaska Trucking Association; BARBARA HUFF, Teamsters Local 959; PAUL FUAS, Lobbyist representing Sealand/Tote; Attending via Teleconference: From Anchorage: CHUCK HOSACK, Deputy Director, Division of Motor Vehicles, Department of Administration; PETER BLANAS, Member, Teamsters Local 959 and Owner/Operator; CHARLES MCKEE; From Kodiak: PAT CARLSON, Assessor, Kodiak Island Borough; From Eagle River: HAROLD EBERSOLE, Alaska Independent Truckers Association; LOREN RIPPLE, Owner, R.K.O. Services. SUMMARY INFORMATION HB 73-MOTOR VEHICLE REGISTRATION FEES SB 64-MOTOR VEHICLE REGISTRATION FEES The committee took public testimony and moved the bill from committee. SJR 11-EDUCATION BLOCK GRANTS The committee heard testimony from the Department of Education, adopted a committee substitute and moved it from committee. Senator Al Adams introduced two students from Juneau- Douglas High School participating in a Job Shadow Program, Chris Carpeneti and Myer Hutchinson. CS FOR HOUSE BILL NO. 73(FIN) "An Act relating to commercial vehicle registration fees and taxes; relating to determining the taxable location of a vehicle for purposes of municipal registration taxes; and providing for an effective date." CS FOR SENATE BILL NO. 64(TRA) "An Act relating to commercial vehicle registration fees and taxes; and providing for an effective date." TED DEATS, committee aid for Representative Beverly Masek, testified to the House bill. HB 73 was introduced to fix an unresolved problem that came up with the adoption of HB 404 the prior year. HB 404 eliminated the requirement of annual registration of commercial trailers with the Division of Motor Vehicles. It was a revenue neutral bill. The house version raised registration fees on commercial vehicles to offset the revenue lost to the state for not registering commercial trailers. However, in the final days of the bill, critics noted that some municipalities lost tax revenues by no longer registering the commercial trailers. The Senate version then included an exemption to the registration of the trailer portion to include a sunset date of March 30, 1999. This was to allow the trucking industry, municipalities and DMV an opportunity to come up with an agreement to replace the lost municipal tax revenue. HB 73 met these agreements and made permanent the new registration fees for commercial vehicles and the registration of commercial trailers. It also raised the rate for trucks over 12,000 lbs. by $75 per year and restored revenue to the affected municipalities. JUANITA HENSLEY, Administrator, Division of Motor Vehicles, Department of Administration testified. She repeated that this was an effort worked out during the interim by the Alaska Trucking Association, the Alaska Municipal League and several boroughs and municipalities to address the situation of loss of tax revenues that was a result of HB 404. The department urged the committee's support. Co-Chair John Torgerson noted that the division's fiscal note indicated this was revenue neutral but did not supply information on how that was accomplished. He wanted assurance that it would be revenue neutral. Juanita Hensley replied that was one of the concerns of the boroughs and they calculated the amount necessary to be held harmless. The amount was $75 dollars per unit. It was not the intention to reduce state revenue and the division worked with the parties to ensure that. It would not change anything for the division except they would hold the municipalities harmless. Co-Chair John Torgerson asked how much money would be shifted from trailers to trucks. Hensley answered that the tax loss to municipalities from the previous bill would be $248,000 if trailers were not registered. The industry supports this because they felt it was efficient for them since they had to trace the trailers across the country and Canada each year. Senator Al Adams asked if the shift of $248,000 would be from one class of trailer registration fees over to the commercial vehicle fee. Juanita Hensley responded that it was simply tax revenue that was shifted. She explained that the DMV collected municipal property taxes on motor vehicles and for thirteen communities across the state. She listed those municipalities. Co-Chair John Torgerson referred to page 4 the addition of the tax status dictating where the vehicle could be operated. A municipality could make a claim, "if its usually normally regularly or used during the registration period in that area," and wanted to know if the division anticipated increased municipality claims for construction workers or other seasonal activities. Juanita Hensley did not. She explained that this would clean up existing language. She detailed troubles in Unalaska with trucks permanently stationed in Unalaska for trucking companies was based out of Anchorage with the vehicle registrations filed in Anchorage. The current statutes resulted in a loss of tax revenues to Unalaska. Co-Chair John Torgerson said this happened across the state but was only more noticeable since it was Unalaska. He noted the difference between the language "or" versus "and" in the language stating, "kept or used during the registration period." Juanita Hensley responded that the division collected money and passed the revenues along to the municipality but did not get involved in the dispute. She stated that the division had no opinion one way or another. Co-Chair John Torgerson didn't understand how Unalaska would make a tax claim on vehicles that were registered in Anchorage. He wanted to know how the disputes were settled to ensure that a vehicle was not double taxed. Juanita Hensley said she was unfamiliar with the tax laws and offered Kevin Ritchie from the Municipal League to address the matter. Co-Chair John Torgerson said the Unalaska situation was clear cut, but the problem was realized around the state. He asked if there was any way to prevent those problems. Juanita Hensley repeated that the state did not get involved in the municipalities' disputes. She noted that there was a chance of loss of revenues to the state. Co-Chair John Torgerson spoke of leasing a vehicle for commercial purposes and paying the higher commercial rate, even though the vehicle may only be used for personal purposes. He asked if there was any way to correct that. Juanita Hensley responded that it was strictly a contract between the two companies, the leasor and the lessee, but the commercial company still owned the vehicle and it was their responsibility to register the vehicle. In the contract, the lessor required the lessee to pay the fee. However, the division still recognized the vehicle as commercial. She offered that the statutes could be changed. Co-Chair John Torgerson said he was not interested in doing that with the fiscal notes as large as they were. There was further discussion between Co-Chair John Torgerson and Juanita Hensley on the matter. FRANK DILLION, Executive Vice President, Alaska Trucking Association, testified in support of CS HB 73 (FIN). He said it was a clean-up bill for HB 404. Most of the fees listed in the current bill were simply restated from the earlier bill and had been in effect since the first of the year. He had done some research and noted that there had been no complaints logged with the DMV. The bill worked out a way for municipalities to recover money collected in the past on trailers. The burden had been shifted to larger weight vehicles and automobiles were not affected. The benefit to the state and municipalities would be substantial in the elimination of approximately 20,000 transactions. It would benefit the trucking and the construction industry as well. He said that during the process of drafting this bill, inequities were found in the way the taxes were collected. Most companies did not realize they were paying a local municipal tax. They paid their fee to the DMV and thought all the revenue went to the state. He said some would cheat and register their vehicles in a tax-free community but operate the vehicle in another area. The association felt there should be language in the law to force a user to locate equipment where it was actually used. He was unsure how to deal with the matter of seasonal construction vehicles that are used a small part of the year in other municipalities. He also noted that some tote trailers were registered in Anchorage but only spent a few days a year in Anchorage and the remainder of the time on a ship. He anticipated that the impact of the bill would be to provide greater efficiencies in the overall transportation system. He noted the short time period before the current fee schedule sunsets. The association appreciated the negotiation process in getting to this bill. While they didn't want to pay the higher registration fee, the municipalities convinced them that this was the amount needed to be held harmless. It was their hope that this would be a revenue neutral item. BARBARA HUFF, representing Teamsters Local 959, testified in support of the bill. She referred to written testimony provided to the committee. She said the union also supported last year's HB 404 but agreed it needed this bill to correct the oversight. She felt that HB 404 addressed important safety issues. She spoke of negotiations held during the process of the earlier bill in which the tax rate was set. This bill was not intended to decrease revenue to the state. CHUCK HOSACK, Deputy Director, Division of Motor Vehicles, Department of Administration, testified via teleconference from Anchorage in support of HB 73. He added to Juanita Hensley's comments in stressing the sunset date of March 31, 1999. The division already collected the higher registration fees. The only change this bill would have to the division is it would also collect the higher municipal tax. He said he wished to continue the program, which benefit DMV and the trucking industry. PETER BLANAS, Member of Teamsters 959, and owner operator of one power unit, testified via teleconference from Anchorage in support of HB 73. This would benefit the transportation sector in many ways, he commented. Owners would be spared the effort to track down trailers across the country to place decals on them. He said it also represented a cost cutting measure for the DMV. While he wasn't anxious to pay the increased fees, this would not significantly affect his bottom line. CHARLES MCKEE testified via teleconference from Anchorage. He relayed an experience with DMV where information was placed on his record that pertained to someone else in a domestic violence case. His license was suspended for ten years so he didn't notice the mistake. Senator Randy Phillips asked if he was for or against this bill. Charles McKee responded that he was more concerned with his own situation. He read the identification numbers listed on his license. He had no comment on the bill. HAROLD EBERSOLE, representing the Alaska Independent Truckers Association, testified via teleconference from Eagle River in opposition of the bill. He said the only business that would benefit from the bill would be Sealand, Carlyle and others that had 500 or more trailers. They would get a tax break and place the burden on the owner/operator of the trucks. He argued that the owner's claims that it would be difficult to find the trailers to place the stickers on them were not valid since they could find the trailers to load and use. There was no reason the individual should pay the corporation's taxes. He stated that this bill went against the small business owner trying to make a living. Senator Randy Phillips laid out a scenario and asked if that was the actual situation. If Sealand contracted for Harold Ebersole's services, the tax increase would be passed along to him. Harold Ebersole explained that the trailer registration fees were divided up between the power units across the state. Senator Randy Phillips said he would have questions for the Division of Motor Vehicles after public testimony. PAT CARLSON, Assessor for the Kodiak Island Borough, testified via teleconference from Kodiak. He shared Mr. Ebersole's concerns. He noted that while there were only four or five truck units but the ratio of TKU's which were only frames in which containers were mounted, were about fifty to one. The effect of the bill would delete any local taxes imposed on the many TKU's and place the fees onto the trailer. This would result in significant loss of revenue. He asked, if those frame vehicles were held exempt from state registration, how would that affect the taxability of the TKU's at the local level. He then noted that the current collection fee retained by the state was eight percent. He compared that to the 3.5% collection component for his entire budget. He suggested the eight- percent collection rate be lowered. He supported simplicity in tracking the vehicles, but he had concerns. Co-Chair John Torgerson asked if he had figured out what his loss would be under this bill. Carlson answered he would lose about $5,000 to $8,000 and detailed the taxing calculation. His concerns were more with the loss of equity. It would distort the financial advantage companies in the marine transportation industry would have over those in the long-haul business, in his opinion. Co-Chair John Torgerson assumed the state collected the tax currently. Pat Carlson affirmed. Co-Chair John Torgerson was unsure if the committee could answer Pat Carlson's questions, but said the department would be called upon to address them. LOREN RIPPLE, owner of R.O.K. Services, testified via teleconference from Eagle River in opposition of the bill. He said the proposed system would cost him about $500 to $1000 more per year to operate his five dump trucks and five accompanying trailers. He also opposed HB 404 from the previous year. He complained that the five larger trucking companies were able to hire a lobbyist to work on this effort to exempt them from the fees that his company would have to make up. He estimated the larger companies would receive a $1.2 million tax break. He noted other business that owned no trailers, but still were charged the higher vehicle fees to make up for the loss of trailer revenues. He hoped the provisions of HB 404 would sunset. Senator Randy Phillips read a comment in a letter from the Alaska Independent Truckers Association asking why the state would forfeit several hundred thousand dollars in revenue just to save approximately $100,000. He asked for the division's response. Juanita Hensley was surprised at the comment and countered that the division did not lose any revenues last year under this provision. She detailed the changes to statute contained in HB 404. The division hoped to realize an efficiency measure with the reduction of 18,000 to 20,000 transactions. Senator Randy Phillips then asked for a response to the testimony from Pat Carlson. Juanita Hensley was surprised at his comments also. She responded that the Kodiak Island Borough would not lose any revenue under this bill because all the vehicles would be registered in the boundary of the Kodiak Island Borough. The rise in fees on the vehicle registration would make up for the loss in the trailer registration revenues. The division looked at the municipalities and made sure they wouldn't lose revenues and would be held harmless. Co-Chair John Torgerson surmised that there was nothing in the bill to stop a municipality from taxing trailers separately. Juanita agreed and said if they did want to impose a separate tax, the division would collect and disperse those funds. Senator Randy Phillips referred back to Mr. Ebersole's letter, which in addition to criticizing the bill gave an alternative of imposing a one-time $10 registration fee for trailers. The letter gave examples of other states dealings with the matter of trailer registration and also suggested the option of registration fees for "forty-foot doubles." Juanita Hensley responded that the National Governor's Association contracted to do a study to see if it was feasible for Alaska to join the International Registration Plan. Under that plan, vehicles would be charged a fee based on the number of miles driven through a particular jurisdiction. That study found that Alaska's commercial vehicle registration fee was only one-fifth of normal charges for the rest of the United States. Therefore, she said they were offering industry a break. She was unfamiliar with the fee structures and types of fees charged in other states. Tape: SFC - 99 #52, Side B 9:55 AM Senator Sean Parnell offered a motion to move CS HB 73 (FIN) from committee with individual recommendations. Harold Ebersole added further comments saying that the annual permit fee for an oversized load was $432 and that was the amount charged for all double vehicles. He felt that fee should continue to be applied. Senator Sean Parnell renewed his motion. Senator Randy Phillips objected saying he did not have all the facts. Senator Al Adams asked what was the committee policy as it pertained to an objection raised by a majority member. Recess 9:59 AM / 10:02 AM Co-Chair John Torgerson informed the committee that as long as there was a quorum it would take the majority of those present to move a bill from committee. The motion passed 5-1-3. Senator Randy Phillips cast the nay vote. Senator Dave Donley, Senator Loren Leman and Senator Gary Wilken were absent. SENATE JOINT RESOLUTION NO. 11 Urging the Congress of the United States to provide federal education funds as a block grant to the state. The Senate Finance Committee sponsored this resolution and earlier discussions were on record relating to the drafting of the language and its content. BRUCE JOHNSON, Director Teaching and Learning Support, Department of Education, testified that the department generally supported block grant funding, which gave the state and local districts the greatest flexibility in program development and delivery. However, he urged the Legislature to maintain vigilance as the federal block funding was finalized in the US Congress when assessing the long-term benefits to Alaskan students and school districts. The department encouraged the oversight for two reasons. First, Alaska was a small state in terms of overall state population and school enrollment. Since many allocations from the federal level were based on student population, it could be that future allocations could be diminished as a result of formula revisions based solely on student populations. Secondly, as federal dollars become tighter in future years, the tendency could be to reduce overall funding for block grants than money allocated on a categorical basis, which generally had a strong and vocal constituency. Co-Chair John Torgerson asked if he was in favor of the resolution and if he believed block grants should be requested. Bruce said he supported both but encouraged oversight, as there were some potential shortcomings with block grant funding. He felt that the Legislature should maintain vigilance and support for Alaska's fair share. Senator Al Adams asked for the status of the pending federal bill. Bruce Johnson said it had passed the House and was currently in the Senate. Senator Al Adams wanted to know, if the law was in effect and the state was to receive a block grant, how would the selection process be made as to who got the money. Bruce Johnson said that wasn't known precisely. The general procedure with block grants was that local communities had the power to set its priorities in terms of expenditure. They would have flexibility if there were no state regulations governing a particular group of students. If so, civil rights laws would need to be followed to make sure no population was short-changed. Co-Chair John Torgerson referred to the block grant system for welfare funding and said because of problems encountered in drafting that legislation, a certain "whereas" was inserted into this resolution. Senator Al Adams asked if the Legislature was placing the cart before the horse by sending this before Congress had passed the bill. Bruce Johnson didn't have any direct knowledge of what was occurring with the federal bill except that there was negotiation ongoing. The concerns seemed to be with some proposed amendments rather than with the block grant concept. Co-Chair John Torgerson noted a proposed CS that referenced the federal bills on line 11. The CS would apply the resolution to the current federal bills. Senator Randy Phillips moved for adoption of the CS Version "I". Senator Al Adams asked if the aforementioned change was the only difference from the original resolution. Co- Chair John Torgerson affirmed and pointed out that this was a time sensitive item to send to Congress. The CS was adopted without objection. Senator Sean Parnell offered a motion to move CS SJR 11(FIN) from committee. Without objection, it was so ordered. ADJOURNED Senator Torgerson adjourned the meeting at 10:15 AM. SFC-99 (11) 3/11/99