Legislature(2005 - 2006)HOUSE FINANCE 519

04/01/2005 01:30 PM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Assigned to subcommittee
Moved CSSSHB 20(EDU) Out of Committee
<Bill Hearing Postponed to Thurs 4/7/05>
<Bill Hearing Postponed to Mon 4/4/05>
<Bill Hearing Postponed to Mon 4/4/05>
Bills Previously Heard/Scheduled
Moved CSHB 66(FIN) Out of Committee
Moved CSHB 67(FIN) Out of Committee
HOUSE BILL NO. 25                                                                                                             
"An Act  relating to  the sharing  of fisheries business  tax                                                                   
          revenue with municipalities; and providing for an                                                                     
          effective date."                                                                                                      
REPRESENTATIVE  PAUL SEATON,  sponsor, explained  that  HB 25                                                                   
addresses recent  changes in fisheries.  The  "Raw Fish Tax",                                                                   
or the Fisheries Business Tax  was designed so that the state                                                                   
would  share 50  percent of  fisheries  business tax  revenue                                                                   
collected   on   processed   fishery   resources   with   the                                                                   
municipality  where   the  resources  were  processed.     In                                                                   
addition,   municipalities   that   demonstrate   significant                                                                   
effects from  fisheries business  activities are  eligible to                                                                   
share in  50 percent  of the state's  fisheries business  tax                                                                   
revenue  remaining after  the  state shares  the tax  revenue                                                                   
with  those municipalities.    All  of the  fish  used to  be                                                                   
processed in Alaska,  but with the emphasis  on "higher value                                                                   
products" many  of the fish  are shipped out  unprocessed and                                                                   
none of the tax is returned to the community.                                                                                   
Representative Seaton  continued to explain that  of the fish                                                                   
that are processed outside of  any municipal boundaries, half                                                                   
of the  tax revenue  goes to the  Department of Commerce  and                                                                   
Economic  Development (DCCED)  and half  goes to the  general                                                                   
fund.   The department  distributes its  share among  fishing                                                                   
communities in  Alaska based on  pounds of fish  processed in                                                                   
14 different  Fisheries Management  Areas.  The  percent that                                                                   
goes to each  Fisheries Management Area is  split between the                                                                   
Representative Seaton  related that HB 25 provides  that when                                                                   
products  are landed in  the municipality  and then  exported                                                                   
from the state, the port of landing  would get back the share                                                                   
of the Raw Fish Tax.                                                                                                            
The new CS creates a hold-harmless  payment for cities with a                                                                   
population of 500  or less and boroughs with  a population of                                                                   
3,000 or  less.   The new CS  also has  a provision  where 40                                                                   
percent of  the tax  would continue  to be distributed  under                                                                   
the  old revenue  sharing  program; however,  when  municipal                                                                   
revenue  sharing  is  established  at the  minimal  level  of                                                                   
$20,000  per   community,  then  that  provision   no  longer                                                                   
1:53:47 PM                                                                                                                    
Co-Chair Meyer stated  the committee's intent to  hold off on                                                                   
adopting the CS today.                                                                                                          
Representative  Joule asked if  there are winners  and losers                                                                   
because  of this bill.   Representative  Seaton replied  that                                                                   
there are.   He named the  communities that generate  the tax                                                                   
and  export unprocessed  fish:  Northern Southeast,  Southern                                                                   
Southeast, Prince William Sound,  South Central Alaska, Upper                                                                   
Cook  Inlet, and  Kodiak.   The  distribution of  the tax  is                                                                   
based on poundage  of processed fish and is  found mostly out                                                                   
West because of the large Pollock  and Cod fleets.  He termed                                                                   
those  communities   "gainers".    Unalaska,   Representative                                                                   
Moses' district  would be  a "loser" in  the bill  because of                                                                   
the  large poundage  that is  processed there,  which is  the                                                                   
main factor  in the distribution  formula.  DCCED  spreads 50                                                                   
percent of the  tax based on a per share or  per municipality                                                                   
basis, and the  other 50 percent goes on a  population basis.                                                                   
It is based  on the fisheries management region  and wherever                                                                   
the large volume of product is.                                                                                                 
1:56:53 PM                                                                                                                    
Representative Joule  asked if that  is what the  fiscal note                                                                   
analysis  from   the  Department   of  Revenue  is   showing.                                                                   
Representative Seaton  said yes.   The fiscal note  shows the                                                                   
percentages  obtained  now  and   for  future  impacts.    He                                                                   
explained why he could not provide  exact figures, only broad                                                                   
area  figures.   He  gave examples  of  communities that  are                                                                   
losing revenue due to the exporting of unprocessed fish.                                                                        
2:01:16 PM                                                                                                                    
Vice-Chair Stoltze inquired if  this is model legislation for                                                                   
evaluating  other resources.    He voiced  concern about  the                                                                   
policy direction.   Representative Seaton explained  that the                                                                   
policy  has  already   been  established  in   Alaska.    The                                                                   
extracted value of  the product is taxed 3 percent.   Half of                                                                   
gross 3  percent tax is shared  back to the  communities that                                                                   
are  generating the  revenue  in order  to  help support  the                                                                   
infrastructure.    He  explained  the  problems  due  to  the                                                                   
definition  of "processed"  fish. Higher  value products  are                                                                   
encouraged,  which  leads  to  a reverse  incentive.  If  the                                                                   
product is processed, the community  gets half of the tax; if                                                                   
the  product is  shipped out  unprocessed, the  tax is  lost.                                                                   
Representative  Seaton suggested that  this tax policy  could                                                                   
apply to mining and other resources as well.                                                                                    
Vice-Chair Stoltze inquired if  this policy could be extended                                                                   
to  the infrastructure  for  the oil  industry  and in  other                                                                   
areas.   Representative  Seaton  related it  to other  taxes,                                                                   
such as oil taxes, on an offset sharing basis.                                                                                  
Co-Chair  Meyer   asked  which   areas  would  be   adversely                                                                   
affected.  Representative  Seaton repeated the  list of areas                                                                   
that would benefit and not benefit by the bill.                                                                                 
2:06:26 PM                                                                                                                    
In   response  to   a  question   by  Representative   Kelly,                                                                   
Representative  Seaton  explained  how  processing  fish  has                                                                   
changed  in  the last  five  years  toward the  higher  value                                                                   
product.  The tax structure was  based on sharing the revenue                                                                   
back  to where  the  fish was  processed.    The category  of                                                                   
exported,  unprocessed fish  has increased  and the  tax does                                                                   
not return  to the  communities because  the fish leaves  the                                                                   
state unprocessed.                                                                                                              
Representative Moses related that  with Salmon in Bristol Bay                                                                   
up to 5  percent is applied to  the value of the ticket.   He                                                                   
referred  to a list  of 28  communities that  charge a  local                                                                   
fish  tax,  in addition  to  what  the state  charges,  which                                                                   
varies from  1 to 4 percent tax.   He pointed out  that 17 of                                                                   
these communities are in his district.   He asked if it would                                                                   
be fair if the winners in this  bill implemented a local fish                                                                   
tax, rather than take away from other communities.                                                                              
2:10:45 PM                                                                                                                    
Representative Seaton replied  that many of those communities                                                                   
already have a  local fish tax.  The state tax  gives back to                                                                   
the communities  50 percent of the  raw fish tax.   Now it is                                                                   
being distributed  to other communities based  on poundage of                                                                   
fish produced there.  It is going  from a high value product,                                                                   
not getting 3  percent, and being distributed  to places that                                                                   
have  a large  volume of  low  value product.   He  explained                                                                   
again the revenue sharing process.   He related that the bill                                                                   
targets fish landed and exported  from the state unprocessed.                                                                   
Representative  Moses asked if  Homer has  a local  fish tax.                                                                   
Representative Seaton  said yes.   He inquired if  that gives                                                                   
Homer    an   unfair    advantage    in   the    marketplace.                                                                   
Representative  Seaton  replied  that is  like  saying  since                                                                   
Anchorage  does not  have a sales  tax, they  have an  unfair                                                                   
advantage in the marketplace.   He repeated an explanation of                                                                   
the  state fish  tax.   He  restated  the problems  the  bill                                                                   
2:16:28 PM                                                                                                                    
Representative  Moses maintained that  cities without  a fish                                                                   
tax have an  advantage on the market.   Representative Seaton                                                                   
spoke about  encouraging high  value fisheries products,  but                                                                   
noted that  the tax  structure has  not kept  up.  He  opined                                                                   
that  the Legislature  did not  intend  the tax  share to  be                                                                   
lost.  He repeated the intent of the bill.                                                                                      
2:18:29 PM                                                                                                                    
Representative  Weyhrauch compared  this  discussion to  past                                                                   
sales tax  discussions.  He asked  if there is a way  to deal                                                                   
with the  local sales tax  issue in the  context of  the fish                                                                   
tax issue.   Representative Seaton  replied that he  does not                                                                   
think it is quite  the same.  He explained the  raw fish tax,                                                                   
and maintained  that it is not  related to sales  or property                                                                   
tax.  He emphasized that the bill  addresses a new segment of                                                                   
fish only, and returns revenues  to the original communities.                                                                   
Representative  Weyhrauch  posed  a  scenario  where  smaller                                                                   
vessels process  roe on board, sell  it to a scow  that's not                                                                   
in a port, and  the scow processes the product.   He wondered                                                                   
if the  state receives tax  on that product.   Representative                                                                   
Seaton said the  fish tax applies to that scenario,  as well.                                                                   
The  50  percent   still  goes  through  the   Department  of                                                                   
Community  and   Economic  Development  and   is  distributed                                                                   
throughout  those regions.   This bill  does not change  that                                                                   
Co-Chair Meyer  asked why  the bill did  not go to  the House                                                                   
Resources  Committee  and  the   House  Fisheries  Committee.                                                                   
Representative Seaton  replied that it is a  tax distribution                                                                   
issue.  Co-Chair  Meyer pointed out that the bill  has a zero                                                                   
fiscal note.                                                                                                                    
2:23:35 PM                                                                                                                    
Representative Foster asked about  the affects of the bill on                                                                   
Nome  and Western  Alaska.   Representative Seaton  indicated                                                                   
that the bill would have no effect  on those areas because it                                                                   
is based on the total count of  product processed in an area.                                                                   
2:24:53 PM                                                                                                                    
BUCK   LAUKITUS,   PRESIDENT,   NORTH   PACIFIC   FISHERMAN'S                                                                   
ASSOCIATION, (via teleconference)  spoke in support of HB 25.                                                                   
He  emphasized  that  this bill  modernizes  and  corrects  a                                                                   
poorly constructed  tax statute.   He opined that Draft  C is                                                                   
the best  vehicle for  this purpose.   He  related that  if a                                                                   
community  invests  in fisheries  infrastructure,  it  should                                                                   
share  in a  direct,  proportional manner,  the  tax that  is                                                                   
generated.  He gave  examples  of how  fishers  all over  the                                                                   
state would benefit from this  bill.  He termed it a fairness                                                                   
and equity issue.                                                                                                               
2:28:19 PM                                                                                                                    
ALAN PARKS, HOMER, (via teleconference)  testified in support                                                                   
of HB  25.  He spoke  of the effects  of the Icicle  Fire and                                                                   
the reduction in city taxes.   He spoke in support of Version                                                                   
DEAN  BAUGH, FINANCE  DIRECTOR,  HOMER, (via  teleconference)                                                                   
testified  in support  of  HB 25.   He  spoke  in support  of                                                                   
Version  C. and  the  original  bill, as  well  as the  hold-                                                                   
harmless clause and the sunset provision.                                                                                       
Vice-Chair Stoltze  asked if Homer  receives any  benefits in                                                                   
the form of  fees from fishing.   Mr. Baugh noted that  a fee                                                                   
is charged for the use of the dock and cranes.                                                                                  
ERIKA TRITREMMEL,  AKUTAN, (via teleconference)  related that                                                                   
the fish  tax was established to  pay for the impacts  of the                                                                   
fishing industry  to the cities.   Akutan has  no state-owned                                                                   
infrastructure.  She spoke against HB 25.                                                                                       
GARY HENNING,  CITY MANAGER, KING COVE,  (via teleconference)                                                                   
spoke in  opposition to HB 25  due to potential  revenue loss                                                                   
of $30,000  caused by the bill.   He related that  75 percent                                                                   
of annual revenue  comes from fisheries in the  North Pacific                                                                   
and the  Bering Sea.  He  shared methods taken  when revenues                                                                   
to King  Cove decreased.   He spoke  of the disadvantages  of                                                                   
not being on a road system.                                                                                                     
2:37:50 PM                                                                                                                    
JEFF  CURRIER,  MANAGER,  LAKE   &  PENINSULA  BOROUGH,  (via                                                                   
teleconference)  agreed  with Mr.  Henning's  testimony.   He                                                                   
spoke of  the impacts from fishing  on the community  and the                                                                   
lack  of cost offset  by  the tax.   He opined  that the  tax                                                                   
would  take  away  from  some   communities.    He  suggested                                                                   
changing the definition of processed fish.                                                                                      
2:41:34 PM                                                                                                                    
DON STRAND, FINANCE DIRECTOR,  LAKE & PENINSULA BOROUGH, (via                                                                   
teleconference)  testified  in  opposition  to  HB  25.    He                                                                   
commented  that   this  is  a  processing  tax,   and  if  no                                                                   
processing is being  done, a community should  not be subject                                                                   
to the tax.   He suggested that the entire bill  has been re-                                                                   
written.  He listed various cities  that have fish taxes that                                                                   
are trying to compete with cities that have no tax.                                                                             
2:43:56 PM                                                                                                                    
AIMEE    KNIAZIOWSKI,     COMMISSIONER,    UNALASKA,     (via                                                                   
teleconference)  spoke in  opposition to  HB 25.   She  noted                                                                   
that the intent of the original  tax structure was to support                                                                   
communities  through revenue  sharing  to  help mitigate  the                                                                   
impact of  processing and  fisheries.   Unalaska does  have a                                                                   
raw fish tax.  It does experience  a tremendous impact by the                                                                   
fishing  industry.     She  spoke  in  favor   of  redefining                                                                   
2:48:18 PM                                                                                                                    
DENNIS WATSON,  MAYOR, CRAIG, (via teleconference)  testified                                                                   
in  opposition to  HB 25.   He  pointed out  that the  shared                                                                   
fisheries business  tax bill  from the 90's  was a  result of                                                                   
Craig's proposal.   He  read the  original bill analysis  and                                                                   
summarized that the  bill does not allow for  sharing the tax                                                                   
with  other communities.   He  maintained  that HB  addresses                                                                   
impact monies, not revenue sharing monies.                                                                                      
2:51:46 PM                                                                                                                    
SHIRLEY  MARQUARDT,  MAYOR,  UNALASKA,  (via  teleconference)                                                                   
agreed with  Aimee Kniaziowski's  testimony in opposition  to                                                                   
the bill.   She discussed  the volatility  of the  market and                                                                   
the  major differences  in  Alaska fishing  communities,  and                                                                   
cautioned against legislation  that attempts to "cherry pick"                                                                   
an ever-changing  area and  market.  She  asked why  the bill                                                                   
did not  pass through  the fishery  committee.  She  stressed                                                                   
that the smaller communities have to be protected.                                                                              
2:56:39 PM                                                                                                                    
VALERY  MCCANDLESS,  MAYOR,  WRANGELL,  (via  teleconference)                                                                   
requested that  committee members look through  a new "lens",                                                                   
not  that of  "winners  and losers".    She  stated that  the                                                                   
proposed bill is  a raw fish tax bill.  She  provided a brief                                                                   
history on the  process of the fish tax.  Wrangell  pays a 7%                                                                   
sales tax  and receives no money  back from the tax  on fresh                                                                   
fish  products.   She  gave an  example  of two  hypothetical                                                                   
communities, one  that receives money  from the tax,  and one                                                                   
that doesn't.   Wrangell  needs  to be able  to obtain  money                                                                   
from this  raw fish  tax, but  because of an  interpretation,                                                                   
those monies are going to those  communities that do the bulk                                                                   
of  the processing  themselves.  It  is  based on  a  formula                                                                   
regarding  poundage cost.   She mentioned  fuel taxes  in the                                                                   
context of the fish tax.  She  voiced distress that money was                                                                   
going out  to the Aleutian  Chain and  spoke in favor  of the                                                                   
JULIE   DECKER,   EXECUTIVE   DIRECTOR,   SOUTHEAST   FISHERY                                                                   
ASSOCIATION (SARDFA),  WRANGELL, (via teleconference)  voiced                                                                   
support  for the legislation.   She  questioned the  decision                                                                   
that  unprocessed   fish  is  treated  as  processed.     She                                                                   
maintained that the  original bill was clear and  plain.  She                                                                   
provided an example that occurred  in Ketchikan regarding the                                                                   
raw fish  tax.  Another  aspect is that  the market  place is                                                                   
demanding more  product.  She  feared that the  problem would                                                                   
grow.   She opined  that the money  has been "hijacked"  from                                                                   
her community.   Ms.  Decker voiced support  for a  sunset on                                                                   
the hold harmless clause.                                                                                                       
3:07:15 PM                                                                                                                    
Co-Chair Meyer  placed HB 25  into a Subcommittee  consisting                                                                   
of    members:    Representative     Hawker,    Chair,    and                                                                   
Representatives Weyhrauch and Moses.                                                                                            
Representative  Seaton responded  to the  comment about  fund                                                                   
allocation, and  repeated that the bill only  allocates funds                                                                   
generated within a municipality into that municipality.                                                                         
Representative  Kelly  noted  that the  difficulty  with  the                                                                   
legislation  is that  it  sets  up winners  and  losers.   He                                                                   
warned about  the zero  sum situation  and the hold  harmless                                                                   
concerns.   Representative  Seaton agreed.   He thought  that                                                                   
there would be more problems down  the road with the increase                                                                   
in fisheries.                                                                                                                   
HB  25   was  heard  and   HELD  in  Committee   for  further                                                                   
consideration.  A subcommittee was established.                                                                                 
AT EASE:       3:13:33 PM                                                                                                     
RECONVENE:     3:26:32 PM                                                                                                     

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