Legislature(1997 - 1998)
04/16/1997 01:10 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HJR 7 - VOTER APPROVAL FOR NEW TAXES CHAIRMAN GREEN announced that the committee would first consider HJR 7, proposing an amendment to the Constitution of the State of Alaska prohibiting the imposition of state personal income taxation, state ad valorem taxation on real property, or state retail sales taxation without the approval of the voters of the state. Number 045 REPRESENTATIVE TERRY MARTIN, Prime Sponsor of HJR 7, advised members that over the years, people of East Anchorage, which was his district, as well as people all over the state were concerned about taxation since it was repealed. Representative Martin pointed out that Alaska was one of the states where a simple majority was needed in order to impose a personal tax, of one nature or another, on the people. He did not believe that technique provided the people any voice at all in the matter of taxation. Representative Martin noted that most states required a two-thirds majority vote, and one state required a four-fifths majority vote by both houses in order to approve the imposition of a personal tax prior to it going to the people. REPRESENTATIVE MARTIN thought that it was either 21 or 24 states that required final approval of a tax be by the people. He noted that oddly enough, people were very considerate of what type of tax was brought before them and they would approve or not approve. Representative Martin believed the voice of the people was the most important things that helped develop the country. REPRESENTATIVE MARTIN pointed out that the resolution had been considered by the previous legislature and it was passed on to the floor where they were four votes short of reaching a two-thirds majority vote. He advised members that the Constitution was supposed to be the voice of the people and taxation should be a part of that voice. Number 245 REPRESENTATIVE JEANNETTE JAMES referred to a backup document contained in member's bill files titled 1995 State Tax Revenues, Source: U.S. Bureau of the Census and Bureau of Economic Analysis, and asked Representative Martin if he knew how they arrived at those numbers. She pointed out that it stated that the per capita dollars of state tax revenues was $3,185 in Alaska, which was 13.6 percent of personal income, and ranked one in percentage of personal income. Representative James stated that she assumed they were talking about all taxes, including severance taxes, but probably not royalties because those were not necessarily taxes. REPRESENTATIVE MARTIN advised members that his office had talked to the Census Bureau and the Bureau of Economics on two occasions after the national reports had been published and asked what criteria they were using. He stated that basically, it showed the total amount of revenues that came into a state through taxing, and they did not break it down much as to whether it was personal tax, corporation tax, severance tax, or what. They just note that a state received perhaps $3 billion in taxes, and they then break it down per capita. REPRESENTATIVE JAMES advised members that one of the things that distressed her was that everyone liked to make a comparison between the state of Alaska and the rest of the world, and they usually did it on a per capita basis, or possibly per 100,000 people. She expressed that Alaska was unique compared to other states because of its size and much of the state being unorganized. Representative James pointed out that if oil taxes and severance taxes were included in the data it would reflect Alaska differently because those funds go into the state's coffer, whereas in the other states most of those monies go into private pockets. She advised members that she did not have much faith in the data provided by the Census Bureau or Bureau of Economic Analysis. REPRESENTATIVE MARTIN advised members that John Manley, his legislative assistant, had written to the National Conference of State Legislatures (NCSL), and provided special information as to how Alaska taxes were broken down. He noted also that the NEA Magazine broke down what Alaska paid out towards education and made the state look very bad as to not supporting education. Representative Martin advised members that Mr. Manley compiled a lot of information from the University and from kindergarten through high school and sent it to the University of Illinois. He noted that they finally received a response which acknowledged good points had been displayed. Representative Martin pointed out that they had stated that Alaska was one of the cheapest in the nation in providing support to the University. He stated that after sending back an extensive amount of information, their response was that they would make an honest effort in providing more realistic information in their next annual report. REPRESENTATIVE JAMES advised members that she would like to see a comparison between Alaska and the rest of the states and she believed it would show that Alaska was paying less than the other states if they only counted the taxes paid out of pocket. She stated that she would also like to have a comparison on the amount of federal taxes the state of Alaska paid. Representative James expressed that if Alaska could get the federal government to give Alaska a tax break, the state could afford to pay some of its own, although she felt that would be pretty hard to do. REPRESENTATIVE MARTIN felt it was necessary that Alaska work as a team with NCSL who administered those reports. Number 560 CHAIRMAN GREEN stated if the resolution were to pass, because of all the various programs the state of Alaska had compared to many of the other states, of providing money to the public, would it be less likely that when taxes were needed there would be less likelihood for the proletariat to vote in favor of a tax, simply because there were still sources of revenue coming into the state. REPRESENTATIVE MARTIN stated that from what he had been observing, and yesterday in Anchorage when there was a vote taken on the bond issue, that there was overwhelming support because they saw the need and did not mind the increase in property taxes on the bonding. He stated that if the legislature, or the governing body, present a picture to the people and the people realized they were in charge of the purse string, they would support it. REPRESENTATIVE PORTER stated that if the bill were law and the people voted in favor of a state sales tax and the legislature wanted to change the rate of that sales tax, if that require voter approval. REPRESENTATIVE MARTIN stated that it would go before the people for approval. REPRESENTATIVE PORTER pointed out that the wording said; a law establishing a sales tax on personal income tax would have to be approved. It did not say amending an existing tax, it just spoke to "establishing". REPRESENTATIVE MARTIN thought it spoke to an increase in a personal tax of one nature or another also. He stated that members could add the word "increase". REPRESENTATIVE NORMAN ROKEBERG advised members it was his understanding a State ad valorem tax on real property currently existed. REPRESENTATIVE MARTIN agreed, and again that would come into effect with an increase in that tax; however, it appeared the word "increased" had been dropped from the bill. REPRESENTATIVE ROKEBERG advised members he was concerned about that and as a member of the House Special Committee on Oil and Gas they had the opportunity to hear reports as to the development of a trans-Alaska gas pipeline. A recommendation brought forward in that committee was the need to reform the state's tax regime in order to create an incentive for investment in the state of Alaska. Representative Rokeberg advised members that among those mentioned was the ability to lower, particularly, the ad valorem taxes on capital equipment and materials used for the construction of a gas pipeline. He stated that, keeping that in mind, to make that work so eventually the municipalities and the state of Alaska would be kept whole, there would be a lowering of taxes, or potentially an abatement of those taxes for a period of time, and after the pipeline reached a level of profitability under contractual, long term obligations, those taxes could be increased. Representative Rokeberg felt the ad valorem taxes would be one of the primary methods of being able to create a sliding scale type of taxation on those kinds of assets. He stated that an amendment such as HJR 7 would absolutely bar any kind of negotiations like that. REPRESENTATIVE MARTIN advised members that as used in the resolution, ad valorem was meant to be the real property of an individual, not as an ad valorem tax on the property of corporations, unless they would assume a corporation was a person. CHAIRMAN GREEN did not see the resolution drafted that way. REPRESENTATIVE ROKEBERG agreed with Chairman Green REPRESENTATIVE ERIC CROFT asked if it was the sponsor's intent to get voter approval for a decrease in taxes. Number 966 REPRESENTATIVE MARTIN stated that he was addressing the imposition of a new tax, or increase in personal taxes, or personal real property. He stated that a decrease in taxes would not need voter approval. BRAD PIERCE, Senior Policy Analyst, Office of Management and Budget, Office of the Governor, advised members the administration did not have a firm position on the resolution. He pointed out that changing the Constitution that would result in the legislature losing one of its powers was fairly serious business. Mr. Pierce advised members that the administration saw the resolution as a basic difference between the Governor's pledge not to use permanent fund earnings without a vote of the people. He noted that the permanent fund was established after statehood by a vote of the people. Mr. Pierce stated that, clearly, when the framers of the state's Constitution wrote the provision which stated that the power of taxation shall never be surrendered, it was felt that the legislature should not give that power away to municipalities, or to others. Mr. Pierce advised members that those were the fundamental concerns of the resolution. MR. PIERCE stated that it was also the administration's feeling that giving up the responsibility to tax would make closing the fiscal gap much harder because it foreclosed the legislature's option to act. He noted that there was also the law of unintended consequences that the state could end up with a very strange tax structure if HJR 7 were to be in place. Mr. Pierce advised members that Washington state, because they had never wanted an income tax had ended up taxing everything that moved, which resulted in a very regressive tax structure. He pointed out that Alaska already had a fairly strange tax structure with 80 percent of the state's general fund coming from oil revenues. Number 1215 REPRESENTATIVE ETHAN BERKOWITZ asked how problematic it could be if the state could not respond quickly to a change in circumstances. He noted that Representative Rokeberg brought up the instance of changing the state's tax structure in order to develop a gas pipeline, and asked if there were any other projects that would be affected by the state's inability to change the tax structure quickly. MR. PIERCE did not believe so; however, the idea was that it would limit the state's options to deal with the state's fiscal situation. REPRESENTATIVE BERKOWITZ stated that in other jurisdictions tax inducements had been offered for corporations to relocate, and asked if the implementation of HJR 7 would impede the state's ability to do that. MR. PIERCE stated that if Representative Berkowitz was speaking to an offer of credits, he was not sure, but felt someone from the Department of Law could respond to that question. REPRESENTATIVE ROKEBERG pointed out that the Governor had introduced a bill where corporations hiring welfare recipients would receive a $1000 tax credit. He advised members he was also introducing a bill, along those same lines, about Alaskan residents, and HJR 7 would tie his hands, the governor's hands, as well as the legislature's. Representative Rokeberg expressed that if the price of oil went to $8 per barrel it would be necessary to look at existing taxes in the state, and do some restructuring of them. CHAIRMAN GREEN pointed out that many members would recall when the price of oil did decrease to nearly $8 per barrel a number of years ago. REPRESENTATIVE JEANNETTE JAMES did not see the same fear of not being able to move quickly and pointed out that the state was not poor, and if there was an emergency, there were reserves available to use. She stated that she, as a State Representative, was willing to impose state taxes on the public when the public was willing and ready, but not before. Representative James felt that HJR 7 could be used in that manner as to how the people felt about an increase in taxes. She asked if Mr. Pierce could think of any specific circumstance, other than a drastic drop in oil prices, that would cause the legislature to act faster than having to wait for a vote of the people. MR. PIERCE advised members that he could not think about anything off the top of his head; however, pointed out that they were talking about a constitutional amendment, and to change the State's Constitution it would be necessary to wait for another general election. REPRESENTATIVE JAMES advised members that she had a real problem with a state ad valorem tax on real property, and did not know how that could be defined to mean personal property, as opposed to other than personal property because she felt the ownership of property was varied in so many ways. Representative James stated that if the issue would be put to the public she would like that language removed, and only pose the question as to state tax on personal income and state retail sales tax, which were the only two broad based taxes that were of great concern. Number 1463 REPRESENTATIVE ROKEBERG pointed out the mention of the Governor's desire to have some type of voting mechanism for the appropriation of permanent fund earnings, and asked if that legislation had been introduced to that effect. MR. PIERCE stated that there was no pending legislation at the present time. REPRESENTATIVE CROFT asked if a retail sales tax would be imposed on all products and if alcohol, tobacco and gas taxes would go to the vote of the people as well. REPRESENTATIVE JAMES stated that those would be whole sale taxes. REPRESENTATIVE CROFT advised members that when discussing the bill which would allow alcohol to be taxed at a higher rate that North Pole implemented a bed tax that allowed them to tax alcohol. He pointed out that he had not thought of a bed tax as a sales tax prior to that; however, felt in that case, it was an innovative approach that got him thinking that maybe sales tax was a lot more broad than he thought it was. REPRESENTATIVE MARTIN stated that in local government, the public had the opportunity to vote on ship taxes and bed taxes and stated that he had no problem in doing that at the state level if the public wanted to vote on an alcohol tax or cigarette tax. CHAIRMAN GREEN advised members that he supported the thought that an increase in taxes or imposition of new taxes should be the will of the people, as was stated by Representative James, and thought most members felt that way. He noted that the legislature was in the mode of trying to reduce the cost of government to the point that the people would say, that is enough, and now we're going to have to find other sources of revenue. Chairman Green advised members that in order to get at the intent of the proposed legislation, which would be the undeniable will of the people by some sort of an advisory vote or polling type mechanism, that there was a concern as to how often, and under what circumstances, the legislature should approach the people for voter approval. Chairman Green pointed out that if that was done very often, to him that would be an abrogation of the responsibility of the legislature. Number 1630 REPRESENTATIVE MARTIN pointed out that during the Cowper Administration the advisory vote relating to education endowment was not approved by the people, and now the Lt. Governor had just approved an advisory vote on education. He stated that by giving the people the power, as in HJR 7, it would be the final voice of the people. REPRESENTATIVE JAMES pointed out that other states required a two thirds majority vote, and sometimes even a three quarter majority vote, which was not the case in the state of Alaska, and she asked why that would not be a better way to go. REPRESENTATIVE MARTIN advised members that his personal desire was to get a final voice of the people. He noted that in the past even the founding fathers wanted to require a super majority, under certain elections, and it had always failed because when it came to the people they wanted true democracy of a simple majority. REPRESENTATIVE JAMES advised members that in Fairbanks, a sales tax had been presented on the ballot seven times and sometimes the voters said no, and she pointed out also the situation with the school bonding issue of being put to the people three different times. REPRESENTATIVE MARTIN stated that Anchorage had turned down some of the bonding packages in the past as well. CHAIRMAN GREEN advised members that there was an issue brought up in the House State Affairs Committee the previous year regarding requiring a varying degree of public percentage with a simple majority and a two thirds majority, and there had been quite a bit of discussion that a specific percentage might not be gotten. He noted that Representative Martin had indicated that other states required an 80 percent voter approval and asked if such a high percentage had ever been reached. REPRESENTATIVE MARTIN advised members that he was speaking to a percentage of the voters, that that would always be a simple majority. REPRESENTATIVE CROFT advised members that he was interested in the idea of a referendum where the people had the ability to cancel out any law enacted by referendum during the next election, and he thought that was phrasing HJR 7 in the negative, where the legislature passed a tax and the people come back at the next election and said no. He asked why that process would not be a better approach, or a statute that stated that any tax put on the books shall automatically be placed before the public for a referendum vote. REPRESENTATIVE MARTIN advised members that was how some other states operated; however, Alaska's Constitution stated that the power of taxation should never be surrendered, and the people could not address a tax either through an initiative or a referendum. He stated that in the state of Alaska the referendum was almost worthless because the time restraints for the people to get the necessary signatures was almost impossible. Number 1989 REPRESENTATIVE CROFT asked if that was a judicial decision or an attorney general opinion. REPRESENTATIVE MARTIN advised members that the Constitution made it very clear that the people not have control of the state's purse strings. REPRESENTATIVE ROKEBERG advised members that he agreed with Representative Martin's concept in terms of making sure that the public had an opportunity to be known and heard when it came to tax policies. He stated that any change that the legislature might consider on that issue in the future was a huge state change of public policy. Representative Rokeberg stated that having voter input and the people having that ability he felt was very important; however, HJR 7 was abrogating the legislature's entire constitutional responsibility, and he was very concerned about that and felt it was the wrong approach, although he agreed with the concept. Representative Rokeberg advised members he was also concerned about the testimony members had heard regarding the Governor's opinion about the earnings reserve fund, which he felt was really extraordinary, adding that that would be a usurpation of legislative power. Number 2015 REPRESENTATIVE PORTER pointed out that the issue before the committee had been discussed in previous legislatures and he respected the sponsor's position and feelings on that particular area of the law. Representative Porter advised members that he had a different foundation of thought in that area and did not think it was appropriate in a state that had the usual tax structure that Alaska had that could be impacted by a single factor. He stated that to put into place an absolute bar that could occur for up to two years to be able to respond to that kind of emergency, to him was irresponsible and he could not support it. REPRESENTATIVE JAMES moved to amend HJR 7, on line 9, after "income," delete [a State ad valorem tax on real property]. There being no objection, Amendment 1, HJR 7 was adopted. REPRESENTATIVE ROKEBERG expressed that he was distressed because he had told the people in his district that he wanted to make sure they had an ability to vote on the imposition of taxes; however, he did not believe that was what HJR 7 did. He stated that the shift of power, as in HJR 7, went well beyond what he thought should be granted. Representative Rokeberg pointed out that there had been discussion as to whether the state should go to a statewide sales tax, versus an income tax, and he felt the only way to get a gauge on that issue was to have an advisory vote, if needed. REPRESENTATIVE JAMES agreed with the statements of Representative Rokeberg and was not afraid of putting the proposed resolution on the floor for a vote, and because of that moved to report CSHJR 7(JUD) out of committee with individual recommendations and attached fiscal note. Representative Porter objected. CHAIRMAN GREEN requested a roll call vote. In favor: Representative James. Opposed: Representative Porter, Rokeberg, Croft, Berkowitz and Chairman Green. Representative Bunde was absent. CSHJR 7(JUD) failed to move out of committee by a vote of 5 to 1.
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