01/28/2020 01:30 PM Senate LABOR & COMMERCE

         SB 50-EMPLOYMENT TAX FOR EDUCATION FACILITIES                                                                      
                                                                                                                                
1:32:20 PM                                                                                                                    
CHAIR BISHOP announced  the consideration of SENATE  BILL NO. 50,                                                               
"An  Act imposing  an annual  educational facilities  maintenance                                                               
and  construction tax  on net  earnings from  self-employment and                                                               
wages;  relating to  the administration  and  enforcement of  the                                                               
educational  facilities  maintenance  and construction  tax;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
CHAIR BISHOP  noted that the bill  was heard last year  and there                                                               
was a new committee substitute.                                                                                                 
                                                                                                                                
1:32:31 PM                                                                                                                    
SENATOR  STEVENS   moved  to  adopt  the   work  draft  committee                                                               
substitute  (CS)  for  SB  50, work  order  31-LS0383\S,  as  the                                                               
working document.                                                                                                               
                                                                                                                                
CHAIR BISHOP objected for discussion purposes.                                                                                  
                                                                                                                                
1:33:33 PM                                                                                                                    
DARWIN  PETERSON,  Staff,  Senator  Click  Bishop,  Alaska  State                                                               
Legislature, Juneau, Alaska, introduced himself.                                                                                
                                                                                                                                
CHAIR  BISHOP,  speaking as  sponsor,  provided  context for  the                                                               
bill. He  related that this  was the third  time he tried  to get                                                               
the  bill  passed, after  many  others  worked to  reinstate  the                                                               
school head tax. He reviewed the  history of the school head tax,                                                               
which was in effect from territorial  days until 1980 when it was                                                               
repealed.  Initially  the head  tax  was  $10, and  adjusted  for                                                               
inflation it would  be $30 today, which would  generate about $13                                                               
million   per  year.   He  reviewed   the  backlog   in  deferred                                                               
maintenance  for facilities  and  reported  that maintenance  and                                                               
capital maintenance  costs have risen  to $149 million,  and $142                                                               
million, respectively,  for facilities  throughout the  state. He                                                               
offered  his  belief  that  it   was  time  to  address  deferred                                                               
maintenance in schools.                                                                                                         
                                                                                                                                
MR. PETERSON  stated that the  only change  in Version S  was the                                                               
new effective date, which is now January 1, 2021.                                                                               
                                                                                                                                
1:36:26 PM                                                                                                                    
CHAIR BISHOP found  no objection and Version S  was adopted. [The                                                               
Chair treated it as though he had removed his objection.]                                                                       
                                                                                                                                
MR. PETERSON paraphrased from the sponsor statement:                                                                            
                                                                                                                                
     From 1919-1980,  Alaska had  an annual  employment head                                                                    
     tax  for the  purpose  of collecting  revenues to  fund                                                                    
     schools.    The     tax    went     through    numerous                                                                    
     transformations, but it always  charged an equal amount                                                                    
     to each  employed individual. When  it was  repealed in                                                                    
     1980,  the  tax  was  $10  per  person  which  has  the                                                                    
     equivalent value of $30 today.                                                                                             
                                                                                                                                
     SB  50 proposes  to  revive the  repealed  head tax  on                                                                    
     employed  individuals, both  resident and  nonresident,                                                                    
     with  income  from  a source  in  Alaska.  The  "Alaska                                                                    
     Education  Facilities,  Maintenance,  and  Construction                                                                    
     Tax"  would collect  $30 from  each person  employed in                                                                    
     the  state.   The  tax  would   be  withheld   from  an                                                                    
     employee's  first   paycheck  each  year   while  self-                                                                    
     employed  individuals   would  be  required   to  remit                                                                    
     payment to  the Alaska  Department of Revenue.  The tax                                                                    
     would be  deductible on an individual's  federal income                                                                    
     tax return.                                                                                                                
                                                                                                                                
     According  to  the  most  recent  statistics  from  the                                                                    
     Alaska  Department of  Labor and  Workforce Development                                                                    
     and  the U.S.  Census Bureau,  there are  approximately                                                                    
     441,596  employed  individuals  in Alaska.  Roughly  20                                                                    
     [percent]  of those  workers who  earn their  living in                                                                    
     Alaska do not reside here  resulting in $2.5 billion in                                                                    
     nonresident  income that  leaves Alaska's  economy each                                                                    
     year and, in most cases,  gets taxed by a nonresident's                                                                    
     home state.                                                                                                                
                                                                                                                                
     It  is  estimated  that this  tax  would  generate  $13                                                                    
     million  each  year.  The revenue  collected  would  be                                                                    
     deposited into  the state's general fund  and accounted                                                                    
     for separately  to pay for the  growing maintenance and                                                                    
     construction needs of Alaska's schools.                                                                                    
                                                                                                                                
MR. PETERSON  added that self-employed individuals  would have to                                                               
self-report.  Of the  441,596 individuals  affected  by the  tax,                                                               
407,255  are firm  figures, including  85,000 non-residents.  The                                                               
number  of   self-employed  individuals  is  more   difficult  to                                                               
determine,  he  said.  The fiscal  note  estimated  28,000  self-                                                               
employed  individuals.  The  most   recent  U.S.  Census  Bureau,                                                               
American  Community   Survey  data  shows   34,314  self-employed                                                               
workers in 2017. If so, this  would add an additional $190,000 in                                                               
additional revenues.  The fiscal  note reflects over  $13 million                                                               
per  year in  revenue that  would be  deposited into  the general                                                               
fund,  accounted   for  separately,   to  pay  for   the  growing                                                               
maintenance   and  construction   needs   in  Alaska's   schools.                                                               
According to  the Department of  Education and  Early Development                                                               
(DEED),  the  state's   share  for  the  FY   2021  major  school                                                               
maintenance  list totals  $149  million and  the  FY 2021  school                                                               
construction totals  $142 million  for an  overall total  of just                                                               
under  $300  million. He  listed  the  supporting resolutions  in                                                               
members'  packets from  the  Yukon-Koyukuk  School District,  the                                                               
Denali  Borough, the  Denali Borough  School District,  Southeast                                                               
Island School District, Fairbanks  North Star Borough, the Alaska                                                               
Board of  Education, the  City of  Fairbanks, Tanana  City School                                                               
District, the Nenana City School  District, and the Iditarod Area                                                               
School  District.  He  reported   letters  of  support  from  the                                                               
National   Education   Association    of   Alaska,   the   Alaska                                                               
Superintendents Association,  and the Alaska Municipal  League in                                                               
members' packets.                                                                                                               
                                                                                                                                
1:40:07 PM                                                                                                                    
SENATOR  GRAY-JACKSON asked  why  there wasn't  support from  the                                                               
Anchorage School District (ASD).                                                                                                
                                                                                                                                
MR. PETERSON answered that he didn't know.                                                                                      
                                                                                                                                
SENATOR GRAY-JACKSON said she would follow  up and make a call to                                                               
the ASD.                                                                                                                        
                                                                                                                                
SENATOR STEVENS stated support for receiving help from out-of-                                                                  
state  workers.  He  noted  this  means  that  nonresident  self-                                                               
employed fishermen will pay this tax.  He asked how it would work                                                               
since these individuals do not receive a salary.                                                                                
                                                                                                                                
MR. PETERSON replied the  bill requires self-employed individuals                                                               
who are  nonresidents who  earn income  in Alaska  to self-report                                                               
the $30 per year.                                                                                                               
                                                                                                                                
SENATOR  STEVENS  asked  for   confirmation  that  fishermen  are                                                               
included  in the  $190,000  as  well as  North  Slope workers  or                                                               
anyone who works in the state.                                                                                                  
                                                                                                                                
MR.  PETERSON answered  yes.  He added  that  residents who  earn                                                               
income in  Alaska or outside of  Alaska would be required  to pay                                                               
the $30 head tax.                                                                                                               
                                                                                                                                
1:42:03 PM                                                                                                                    
SENATOR COSTELLO asked how the maintenance list is prioritized.                                                                 
                                                                                                                                
MR. PETERSON  replied DEED prepares  the list  annually according                                                               
to  specific  criteria.  He  referred to  the  list  in  members'                                                               
packets  for FY  2021, which  was just  released yesterday.  Each                                                               
project is  ranked, but the  list is typically fairly  static. It                                                               
has not changed much from last year.                                                                                            
                                                                                                                                
SENATOR  COSTELLO asked  if there  is accommodation  for regional                                                               
equity.                                                                                                                         
                                                                                                                                
MR. PETERSON asked  if her question related to how  the funds are                                                               
spent.                                                                                                                          
                                                                                                                                
SENATOR COSTELLO  said her question relates  to which communities                                                               
receive the funds.                                                                                                              
                                                                                                                                
MR.   PETERSON  replied   nothing  in   the  bill   provides  for                                                               
disbursement. The legislature will decide on appropriations.                                                                    
                                                                                                                                
1:43:28 PM                                                                                                                    
SENATOR  STEVENS  noted  that  first  on  the  [FY  2021  Capital                                                               
Improvement Projects  (CIP)] list  is a  $10 million  request [by                                                               
the Southeast  Island School District] for  "Hollis, [K-12 School                                                               
Replacement."] The  second request  [is from the  Lower Kuskokwim                                                               
School District] for $60 million  [for the "Anna Tobeluk Memorial                                                               
K-12 School."]  He commented  that putting  $13 million  in won't                                                               
solve the problem but it will help.                                                                                             
                                                                                                                                
1:43:52 PM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
1:44:10 PM                                                                                                                    
CHAIR BISHOP  reconvened the meeting and  opened public testimony                                                               
on SB 50.                                                                                                                       
                                                                                                                                
1:44:25 PM                                                                                                                    
TOM  KLAAMEYER,   President,  Anchorage   Education  Association,                                                               
Anchorage, Alaska, stated that he  was asked to testify on behalf                                                               
of the  13,000 members in support  of SB 50. He  related that the                                                               
National Education Association (NEA)  president, Tim Parker, also                                                               
sends regrets  that he was not  able to attend today  to speak in                                                               
support of SB 50.                                                                                                               
                                                                                                                                
MR.  KLAAMEYER said  investing this  revenue  in maintenance  and                                                               
construction for  public education facilities is  a practical way                                                               
of  supporting education  while maintaining  structures. Hundreds                                                               
of public school facilities were built  prior to 1980 and many of                                                               
them need  maintenance and repairs  to address public  health and                                                               
life  safety  issues. He  concluded  that  the state  faces  many                                                               
budget  and   fiscal  challenges,   but  SB   50  is   a  simple,                                                               
straightforward,  and  modest way  to  engage  Alaskans and  non-                                                               
Alaskans who earn  their living in the state to  support a system                                                               
of high quality public schools.                                                                                                 
                                                                                                                                
1:46:16 PM                                                                                                                    
WILLIAM HARRINGTON,  representing self, Anchorage,  Alaska, spoke                                                               
in opposition to SB 50  because it will disproportionately affect                                                               
those in  the lower  income class. He  suggested a  sliding scale                                                               
that would  charge higher  income wage  earners three  times more                                                               
than low-income individuals. He  further suggested exemptions for                                                               
seniors and the poor be included.                                                                                               
                                                                                                                                
SENATOR  STEVENS asked  staff to  respond to  the question  about                                                               
whether retirees would pay.                                                                                                     
                                                                                                                                
MR. PETERSON said  no; it would just apply to  net income for the                                                               
self-employed or those earning wages and salaries.                                                                              
                                                                                                                                
1:48:51 PM                                                                                                                    
BETH  SHORT-RHOADS, representing  self, Sitka,  Alaska, spoke  in                                                               
support of  SB 50  saying this  is a  modest amount  for employed                                                               
people to pay.                                                                                                                  
                                                                                                                                
1:49:30 PM                                                                                                                    
SCOTT MACMANUS,  Superintendent, Alaska Gateway  School District,                                                               
Tok, Alaska, spoke in support of  SB 50. He noted that the school                                                               
board passed a supporting resolution, which he read:                                                                            
                                                                                                                                
     WHEREAS,  the current  budget deficit  of the  State of                                                                    
     Alaska  constrains  the   state's  ability  to  address                                                                    
     deferred  maintenance  and school  construction  needs;                                                                    
     and                                                                                                                        
                                                                                                                                
     WHEREAS, from 1919 to 1980,  Alaska, as a Territory and                                                                    
     a State, imposed an annual  employment head tax for the                                                                    
     purpose of funding schools; and                                                                                            
                                                                                                                                
     WHEREAS, when  repealed in  1980, the  tax was  $10 per                                                                    
     person, which  has the equivalent  value of  $30 today,                                                                    
     when adjusted; and                                                                                                         
                                                                                                                                
     WHEREAS,  SB 50,  support  proposed  by Senator  Bishop                                                                    
     revives  the  employment  head   tax  imposed  on  both                                                                    
     residents and nonresidents; and                                                                                            
     WHEREAS,  this tax  is expected  to  raise $13  million                                                                    
     annually; and                                                                                                              
                                                                                                                                
     WHEREAS,  these   new  funds  will  be   accounted  for                                                                    
     separately   and   used   to  pay   for   the   growing                                                                    
      maintenance, construction, and deferred maintenance                                                                       
     needs of Alaska's schools.                                                                                                 
                                                                                                                                
     THEREFORE, BE IT RESOLVED that  the Board of the Alaska                                                                    
     Gateway  School  District   strongly  supports  Senator                                                                    
     Bishop's  efforts in  promoting  SB 50  to address  the                                                                    
     capital needs  of Alaska's  schools and  encourages the                                                                    
     legislature as a whole to also support SB 50.                                                                              
                                                                                                                                
The resolution was signed by board president Peter Talus                                                                        
and copies were in the bill packets.                                                                                            
                                                                                                                                
MR. MCMANUS said he personally supports the legislation.                                                                        
                                                                                                                                
1:51:46 PM                                                                                                                    
LISA  PARADY,  Executive  Director,   Alaska  Council  of  School                                                               
Administrators  (ACSA), Juneau,  Alaska, spoke  in support  of SB
.  She  explained that  ACSA  members  work annually  on  joint                                                               
position   statements  that   prioritize  important   educational                                                               
issues. One  consistent issue is  the critical importance  of the                                                               
state  developing  a long-term  sustainable  fiscal  plan with  a                                                               
diversified  revenue  stream.  The   ACSA  is  pleased  that  the                                                               
proposed head  tax would increase  revenue by about  $13 million.                                                               
Importantly, it  would capture a  portion of the $2.5  billion of                                                               
nonresident income  that currently leaves  the state from  the 20                                                               
percent of  workers who work here,  but do not reside  in Alaska.                                                               
She echoed the previous comments  about aging infrastructure. The                                                               
ACSA is working  in partnership with the  Alaska Municipal League                                                               
to quantify the  overarching needs and work  with the legislature                                                               
to prioritize  how to address  the state's  aging infrastructure,                                                               
she said.                                                                                                                       
                                                                                                                                
1:55:10 PM                                                                                                                    
CLAY WALKER,  Mayor, Denali Borough,  Healy, Alaska,  thanked the                                                               
chair for  his leadership in  addressing this  critical statewide                                                               
issue.  He said  the Denali  Borough has  three schools  that are                                                               
over 40 years old with  aging infrastructure and increasing major                                                               
maintenance needs.  He noted that  the district works  to address                                                               
its needs, but the state is  needed to partner with the district.                                                               
He  referred to  supporting resolutions  from the  Denali Borough                                                               
Assembly,  Resolution 1908  and  from the  Denali Borough  School                                                               
District  in  the  packets.  He urged  members  to  address  this                                                               
statewide need.                                                                                                                 
                                                                                                                                
CHAIR BISHOP noted that Senator Reinbold had joined the meeting.                                                                
                                                                                                                                
1:56:33 PM                                                                                                                    
NILS  ANDREASSEN,  Executive  Director, Alaska  Municipal  League                                                               
(AML), Juneau, Alaska, spoke in  support of SB 50. He highlighted                                                               
that in  November the AML members  voted in support of  SB 50 and                                                               
anything that  will address infrastructure needs,  especially for                                                               
school facilities  statewide. Since 2001,  the state has  paid an                                                               
average  of 16  percent  of  the $4  billion  deficit for  school                                                               
construction  and major  maintenance grant  funding, he  said. He                                                               
directed  attention  to  DEED's  six-year plan.  He  offered  his                                                               
belief that the $1.6 billion  deficit shown is probably closer to                                                               
$2.3  billion. Further,  the  FY 2021  proposed  budget does  not                                                               
provide any funding  for the $400 million  in projects identified                                                               
by DEED.                                                                                                                        
                                                                                                                                
1:58:21 PM                                                                                                                    
CHAIR BISHOP closed public testimony on SB 50.                                                                                  
                                                                                                                                
SENATOR COSTELLO referred  to page 4, line 21, and  asked for the                                                               
definition of "employee" since it  reflects federal statutes. She                                                               
also asked how part-time employees are affected.                                                                                
                                                                                                                                
1:59:20 PM                                                                                                                    
MR. PETERSON responded that the  legislation references 26 U.S.C.                                                               
3401 and the definition of "employee" reads:                                                                                    
                                                                                                                                
     The  term employee  includes an  officer, employee,  or                                                                    
     elected official of the United  States, a state, or any                                                                    
     political  subdivision  thereof,  or  the  District  of                                                                    
     Columbia or  any agency or  instrumentality of  any one                                                                    
     or  more  of  the  foregoing. The  term  employee  also                                                                    
     includes an officer of a corporation.                                                                                      
                                                                                                                                
He added  that part-time  employees also have  the $30  tax taken                                                               
from their first paycheck.                                                                                                      
                                                                                                                                
SENATOR STEVENS said  he would like an explanation  of the fiscal                                                               
note from  the Department of Revenue  regarding projected revenue                                                               
and costs  because the  Department of  Labor said  collecting the                                                               
taxes would be expensive.                                                                                                       
                                                                                                                                
CHAIR BISHOP  said he would  have someone from the  Department of                                                               
Revenue available at the next meeting.                                                                                          
                                                                                                                                
2:01:46 PM                                                                                                                    
CHAIR  BISHOP  found  no  further  question and  held  SB  50  in                                                               
committee.