Legislature(1997 - 1998)
01/28/1998 01:05 PM House JUD
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* first hearing in first committee of referral
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+ teleconferenced
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HJR 7 - VOTER APPROVAL FOR NEW TAXES Number 0025 CHAIRMAN GREEN announced the first order of business to be a revisit of 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." He asked Representative Martin, sponsor, to present the resolution. REPRESENTATIVE TERRY MARTIN, sponsor of HJR 7, stated that he appreciated the committee revisiting this issue. He pointed out that the amendments made last year pertain to some of the questions that were brought up, especially regarding ad valorem. He said, "I do not mind that as a committee substitute." He continued that the question arose last year of what would be done in case of a crisis of depleting oil and gas revenues. He noted that things have changed since then, as oil companies have been saying that there will not be a decline after 1999. He stated that this will protect the revenue. He asserted that he would put more emphasis on the Constitutional Budget Reserve(CBR), which is the rainy day account, a cushion of currently $4 billion that receives approximately $400 million a year. He stated that the simple solution is to tax the public. REPRESENTATIVE MARTIN declared that the legislature is seeing, through permanent funds, that the public will buy the kind of government that they want. Today the legislature receives more revenues in permits and fees for various government programs and services than it ever received in income tax. He explained that the legislature needs to calculate that by the "all budget category" which is now approaching $900 million. He said, "So the people aren't paying for the services -- it's a matter that-- I believe in going back to basics, especially when it comes to the income of the voting people. Let them decide." He continued that many states during the reparations in the 1910s and 1920s decided to have a referendum and the initiative program. He said, "Now we see in many state legislatures, that NCSL [National Conference of State Legislatures], could provide the information for you where a majority, a super majority, of the legislature are required before any taxes are increased or proposed new taxes, which is good." He stated that in most cases the people get the final say and do approve the taxation when they are aware of what it is for. For example, if they believe in education, they might not want an endowment, but they would allow taxing for education. Representative Martin stated that he had a lot of faith in the public voting for taxes when they know what they are buying. He continued that it is important to let the public decide on income tax. Number 0351 REPRESENTATIVE BRIAN PORTER asked if it would be a fair statement to say that because of the constitutional prohibition against dedicated funds that the legislature would not be able to notify the public precisely on what is being bought with the tax. Number 0370 REPRESENTATIVE MARTIN replied that it would not be true because HJR 7 is a constitutional amendment. He stated that the public's ability to vote on a tax would come after the freedom of voting on a particular tax. REPRESENTATIVE PORTER asked if HJR 7 changed the constitutional prohibition against dedicated funds. REPRESENTATIVE MARTIN replied that it did not, except that it would dedicate funds similar to what was done with the permanent fund and the CBR, as those were constitutionally established dedicated funds. Number 0445 REPRESENTATIVE PORTER stated that then each subsequent proposal would require a constitutional amendment. REPRESENTATIVE MARTIN replied that it would not, because it is being allowed by the constitution to approve that. Number 0458 REPRESENTATIVE PORTER responded that he did not think they were communicating. He referred to Representative Martin's statement that the public can be trusted because they will know what it is that they are going to be taxed on. Representative Porter suggested that unless each proposal that is put before the public was a constitutional amendment or if this proposal amended the constitution's prohibition against dedicated funds, the legislature would not be able to notify the public as to what the tax is going to do. Number 0498 REPRESENTATIVE MARTIN said, "I don't see where any difference comes from there from, then, what we did with the constitutional amendment for the permanent fund, which said that 25 percent will be royalties and severance. We did say that we're dedicating these monies for the CBR to 'X purpose CBR'." He asserted that there are four dedicated categories in the constitution that the public voted on. He clarified that HJR 7 is allowing the legislature to tell the public through the constitution that it is not just general funds but general funds that we will allow for education or roads, et cetera. Number 0556 REPRESENTATIVE PORTER asked whether each one of those votes would then be a constitutional amendment on a tax proposal. REPRESENTATIVE MARTIN responded, "We have already approved it, I think sir, by saying yes, we approved education funds." REPRESENTATIVE PORTER stated that he disagreed. REPRESENTATIVE MARTIN stated that the public would not have to vote on it again. Number 0576 CHAIRMAN GREEN stated that he thought Representative Porter was saying "that all this would do is require that any future tax increase would be required a vote of the public and that vote would have to come up as a constitutional amendment now to change to allow a tax for a specific or all of those. I mean, you would have to come back and reiterate like you were referring to the permanent fund, there was a specific issue where money would go right there and we are amending our constitution to provide for that." He said that Representative Porter is saying that if this passes and in the year 2004 an income tax needs to be established, it would have to be on the ballot in order to adjust the constitution to provide for that or else it would go to the permanent fund. He asked if that was Representative Martin's understanding. Number 0645 REPRESENTATIVE MARTIN responded that it was not his understanding. He said, "The people voting on this tax here for education, we agree that we are in the -- a real restraint here and the legislature is going to put forth to the people a need for education money. So we are going to tax ourselves and we ask the people to join in this willingness to tax ourselves for education. So then we would bring it before them." He continued that it could be made a constitutional amendment if it was so desired but then it would take two-thirds of the legislative body to do so each time. Number 0692 REPRESENTATIVE ERIC CROFT stated that if the legislature wanted to make the tax dedicated to education, there would have to be a constitutional amendment to do so, because the tax could not be dedicated to education any other way. Number 0701 REPRESENTATIVE MARTIN responded that could be an interpretation. He said, "Personally I would love it. If you passed this here and then no other fund can go forward to the people like you are saying, a super majority, that would end up with the super majority before it goes to the people because that is what a constitutional amendment is." He declared that most states have a super majority before the vote goes to the public. Number 0725 REPRESENTATIVE CROFT asked if it is true that over 25 of the states require voter approval. REPRESENTATIVE MARTIN responded yes and that information could be obtained from NCSL. REPRESENTATIVE CROFT asked if it is in the committee packet. REPRESENTATIVE MARTIN responded that he could get the latest information from the NCSL. Number 0751 REPRESENTATIVE CROFT suggested that the process he was discussing with Representative Porter seems like it leads to a number of different dedicated taxes for different worthy goals. He explained that it is his understanding, as he has been re-reading the minutes of the constitutional convention, that the main reason for the dedicated funds prohibition in the constitution was because we had seen the history of many states having road funds that were rich while the state was going bankrupt. He pointed out that by having so many separate "pots," the legislature could not respond to any eventuality. He asked Representative Martin if that is a risk that he would forsee with HJR 7. Number 0815 REPRESENTATIVE MARTIN replied that is very much a risk. He said, "It is one of the things that I have been crying about, where we have taken so much money out of the general funds now and make them dedicated solutions. That is the reason why we end up today with -- we say that we cut the budget, Democrats and Republicans, we cut the budget, we cut the budget. And then we put it over here in that separate category as dedicated." He stated that there is a list of activities that were done that he believes were unconstitutional under the scenario that Representatives Croft and Porter pointed out. He reiterated that it has been done without letting the public speak about it, under the guise of cutting the budget and putting the funds in other categories. Number 0877 REPRESENTATIVE CON BUNDE stated that he appreciated the fervor of this philosophy but as one who represents an area victimized by the tyranny of the majority in voting the rights of the minority away, specifically the hillside police issue. He wondered if there has been consideration as to what it would be like if this were to occur and there were a tyranny of the minority especially if some of the issues such as subsistence were to come to pass where the majority and urban areas would refuse to vote a tax that would be beneficial to rural areas. Number 0927 REPRESENTATIVE MARTIN responded that there is always that problem all over the nation, and it basically comes down to faith in people. He stated that there are certain school districts throughout the nation that have been hurt by the disparity in tax dollars. He said, "Our court system helped that to a degree where there would be equality, but then the people eventually voted on it so that there would be equality within the tax structure of all educating districts." He reiterated that it is a matter of having faith in the people and letting them see what is happening. Number 0960 REPRESENTATIVE BUNDE asked if it was Representative Martin's view that the initiative process could be not re-used to appropriate money. REPRESENTATIVE MARTIN responded that is correct. REPRESENTATIVE BUNDE asked if this would be an initiative process, allowing a tax which is basically appropriating money. Number 0975 REPRESENTATIVE MARTIN responded that it is approving an legislative issue; we are depending on the legislature to solve the problem. The legislature would present to the public the areas where the tax is needed and then ask if the public would approve that tax in exchange for the best roads in the nation. He offered that there is evidence that the public would do that. He reiterated that it boils down to having faith in the people. He questioned how there could be so many dedicated funds already in existence without a vote of people. Number 1017 REPRESENTATIVE PORTER stated that he still did not get an answer to his question as to whether having the public vote and approve a tax is de facto appropriating of funds. This would be prohibited by another constitutional provision. CHAIRMAN GREEN asked, "I suppose that would be how it was crafted from ...?" Number 1049 REPRESENTATIVE MARTIN replied that it could be. He stated that he believed that taxes are the most important issue that the public should be controlling. He pointed out that what is being said is it will need to have two-thirds of the majority of both houses in order to approve a tax measure, if this is going to be a constitutional amendment. Number 1077 REPRESENTATIVE PORTER stated that what they are trying to say is that there would need to be a two-thirds' majority vote, and consequently a constitutional amendment, if the legislature wants to tell the public that this tax will go a specific area as dedicated funds. He continued that if that is not a consideration, there would be no need to have the two-thirds' majority vote, just a vote of the people on the tax, but then it could not be dedicated. He asserted that if he was voting on a tax, he would question whether the tax would go towards education if there was not a requirement that it would. Number 1126 REPRESENTATIVE MARTIN responded that is exactly it. He stated that in the past a simple majority of the legislature who did not represent the majority of the people would easily tax the majority of the people. It is not as bad now as it was ten years ago. Number 1162 REPRESENTATIVE ETHAN BERKOWITZ stated that he is not sure if he follows the thread of this conversation. He stated that he wished Representative Bunde would allow the legislature to try the tyranny of the minority. He asked Representative Martin if he was saying that the budget cuts have been illusory and not factual. Number 1194 REPRESENTATIVE MARTIN responded that he was; both Democratic and Republican legislatures and administrations have done that. He asked how many categories there are of dedicated funds. Number 1220 CHAIRMAN GREEN referred to a comment by Representative Martin that user fees now represent $900 million. REPRESENTATIVE MARTIN stated that it is close to $900 million. It stems from hunting fees, (indiscernible -- coughing) fees, business fees, university fees, et cetera. Number 1247 REPRESENTATIVE PORTER stated that he understood what he was saying but the choice of the term "dedicated funds" is misleading. He explained that those are program receipts that have to be appropriated every year by the legislature into those categories. He asked if that was correct. Number 1255 REPRESENTATIVE MARTIN stated that it was correct. It is a play on words, as they used to always have to be in the general fund. For example, student fees would first be put into the Department of Public Safety, then into the Alaska Marine Highway and then into the university. Number 1275 REPRESENTATIVE PORTER stated that he understood what he was saying but is opposed to the requirement to put oil to gas settlements into the CBR; there is no choice, as that is where they go. However, program receipts are off budget and it is very deceiving as to where they go. But if the legislature wanted to, it could be dumped into the general fund and not into those individual accounts. REPRESENTATIVE MARTIN clarified that they are called dedicated funds. CHAIRMAN GREEN stated that they are not. AN UNIDENTIFIED MALE SPEAKER stated that they are designated funds. Number 1310 REPRESENTATIVE MARTIN stated, "Same way, if a mayor owned 25 percent of royalties, 25 percent [where] constitutionally done but we changed the law ourselves and put another 25 percent into the permanent fund. That wasn't of the people's will, so you might say that was unconstitutional. We didn't have the right to do that." He added that it is a good thing we do that because the funds are building up. Number 1332 REPRESENTATIVE BERKOWITZ stated that he wanted to be clear that Representative Martin considers user fees and surcharges to be a form of tax. Number 1346 REPRESENTATIVE MARTIN responded that it is a voluntary form of tax. He stated that as former Governor Hammond said, the reason for the permanent fund is so people will be able to buy the services that they need. For example, in 1985 there were $15 million coming in as student fees, and even though the 15 percent forgiveness was stopped, it is now $58 million that comes in as student fees. However, the student fees do not go through the general fund, they go straight to the university. Number 1378 REPRESENTATIVE CROFT asked which version of the resolution the committee is on. He questioned if if is version A because he has a note from the prior session that the ad valorem tax on real property had been a subject of discussion. He asked if that was in or out, at this point. CHAIRMAN GREEN responded that the committee did pass that but unfortunately there is not the committee substitute to include that. That section is out by an amendment that was approved last year. Number 1402 REPRESENTATIVE BUNDE asked if the committee is into debate yet on HJR 7. CHAIRMAN GREEN replied that is correct. Number 1407 REPRESENTATIVE BUNDE stated that he agreed that we should let the public buy the government that they need; however, they are buying the government that they want. If it was a need-based government, state workers could probably be reduced by a least half. He stated that he did not plan to support this measure for the previously mentioned concerns as well as for the reason that he has a great deal of faith in the people and until it is in the form of initiative he will wait for the people to speak. Number 1459 REPRESENTATIVE NORMAN ROKEBERG stated that he wanted to clarify a couple of things. He asked Representative Martin whether, under his intent and interpretation of the language of this constitutional amendment, if there was a state income tax which was based on 16 percent of the federal tax and the legislature wanted to change it to 18 percent, it would require a vote of the people. Number 1499 REPRESENTATIVE MARTIN stated that is correct. Anytime time there is an adjustment, it will have to go to the voters. Number 1510 REPRESENTATIVE ROKEBERG asked: If the legislature wanted to repeal a tax, would the legislature still have its power? REPRESENTATIVE MARTIN responded that he thought so and hoped that was the case. Number 1525 REPRESENTATIVE ROKEBERG stated that it seems like that might be the case, but he is concerned that he is suggesting if the voters, under this amendment, approve the tax, then anytime it would be adjusted upwards, it would have to be by a vote of the people. He asked if that was correct. Number 1534 REPRESENTATIVE MARTIN stated that it is correct in regards to an increase or a new tax. Right now Alaska does not need new sources of revenue, and even if it did, he would still pursue HJR 7 because he likes the idea of people having freedom and control of the purse strings. Number 1569 REPRESENTATIVE ROKEBERG stated that he is not so sure that HJR 7 is doing that. He suggested that the possibility of a ways and means committee, for example, as part of the House Labor and Commerce Standing Committee, which deals with the tax code of the state of Alaska. Many times adjustments are made through the codes for various reasons. He asked if Representative Martin was suggesting that if there was something in place, they then could not take action on codification on a particular de minimis tax regulation without a vote of the people. Number 1604 REPRESENTATIVE MARTIN replied, "You are talking about regulation but I am talking about any ...." Number 1612 REPRESENTATIVE ROKEBERG stated that even a minor increase in some part of the tax code would have the effect of raising taxes. He suggested that every time there was a positive fiscal note, then there would have to be a vote of the people. REPRESENTATIVE MARTIN replied that was correct. He said, "What you call minor, 1 percent or half percent, a lot of areas allow that to the public, half-percent increase because we -- environment. The people in Colorado did that, [there] was less than 1 percent, and it's helping environmental issues tremendously." Number 1634 REPRESENTATIVE ROKEBERG referred to the ad valorem tax and asked what occurred. CHAIRMAN GREEN replied that it was passed. It was deleted. He stated to Representative Martin that he is concerned that he may be referring to other states where there is a projectable shortfall, that something needs to be done about a certain tax. He stated that his concern is that Alaska's economy is so linked to the price of oil, as well as the amount of oil, that if there was a down turn on oil in July, the legislature would not be able to increase the tax for two years. He asked if that was a risk that Representative Martin would fore see. Number 1688 REPRESENTATIVE MARTIN responded that it is a legitimate concern and that is the reason why (he referred to a chart) this shows were they would expect a decrease. He explained that they can tell, if everything is the same and there are no new discoveries or incentives, then there is no decrease. Since that time, the rainy day account has been increased, which is going very well, receiving $400 million a year. He stated that there is also the possibility that people may agree to cap the permanent fund dividends. He stated that his constituents had wholeheartedly supported his efforts to cap the permanent fund at $1,000. He asserted that there is going to be a limit on the amount of money that is given away, as the dividends are going to either be taxed or capped. He stated that the problem is that those people who work and have good pensions are going to taxed, while other people will be demanding more and more dividends. Number 1760 CHAIRMAN GREEN stated that he certainly supports the concept of getting the feel from the public on whether the state government expenditures justify spending their own money, as opposed to the fact that "a free ride exists." He stated that his concern is that the legislature would have to go to the CBR, which has to be repaid out of the following year's receipts. He stated that since 1994 on, there has been the attitude of capping the expenditures and reducing the need for a tax. He asked if that would suffice to do the same thing HJR 7 is trying to do. He asked: The people elect those who allocate the spending, so then wouldn't that be accomplishing the same thing? Number 1811 REPRESENTATIVE MARTIN replied that it depends on one's philosophy. It goes back to basics and who controls the purse strings. He stated that the people may elect you to do the reapportioning of the districts; the majority of elected people do not represent the majority of the citizens. The majority of the citizens who earn the money must protect themselves even against representative government. He continued, saying that is the balance of HJR 7; more than the simple majority of the legislators first must pass any increase of taxes, and then a vote of the people is required, equaling a real control over the purse strings. Number 1875 REPRESENTATIVE CROFT asked how HJR 7 is different from the (indisc.) referendum power that they would have anyway. He questioned if this is just switching who starts it. Number 1884 REPRESENTATIVE MARTIN said that is a good point. He explained that is one of the things in this state that disappoints him in reading the history of the constitution. He stated that it is called a model constitution because it was developed by the American Municipal League out of Chicago, and was just meant to be a skeleton way of approaching the constitution. He said, "It was called a model even before the delegation chose it and so we misuse that word." He stated that a major aspect left out was the initiative by the people and anything pertaining to appropriations and referendums. Referendums were a very strong vehicle that the people had over the legislature if they appropriated money for something that they did not want. This is not allowed in Alaska. He asserted that a signed referendum in Alaska is absolutely worthless because of the time restraints in which the people must gather signatures, introduce the bill and have it certified. Number 1944 REPRESENTATIVE CROFT stated the he did not know if referendums were absolutely worthless; there could be disagreement on the practicalities of them, but under the constitution if the tax was passed the public could get signatures to put a repeal of that tax on the ballot. Number 1956 REPRESENTATIVE MARTIN stated that they could, and the constitution may be changed to reflect that, but as it now stands, the public is denied that right. Alaska is one of the few states in which the public does not have any appropriation of taxes. Number 1974 REPRESENTATIVE BERKOWITZ recalled that last year it was decided to not move HJR 7 out of committee. He asked what status it now has. CHAIRMAN GREEN responded that it stays in committee unless there is a .... REPRESENTATIVE BERKOWITZ asked if the committee could vote on it without any impediment. CHAIRMAN GREEN stated that the committee could vote on it, if there is a motion to move it. REPRESENTATIVE ROKEBERG asked if the chairman has any particular notion on how he wants to handle the bill. Number 2009 REPRESENTATIVE BUNDE said, "I would move that this bill pass from the judiciary committee." CHAIRMAN GREEN said, "There has been a motion, I presume with accompanying fiscal note and individual recommendations." He asked if there was an objection. Number 2019 REPRESENTATIVE ROKEBERG said he had an objection. He stated that a constitutional amendment should be looked at as infinite law. He said he is not sure he agrees with the resolution in its present form. He commented that fundamentally the power to tax is the principal element of government and one of the most important constitutional rights that this legislature and this state have. He continued that under Alaska's constitutional system, the legislature is relatively weak vis- -vis the executive branch of government. He expressed reluctance to give this power to the people. Alaska has a unique situation, as there are enormous amounts of funds that are saved. He stated that he favors the proposition that is put forward in HJR 7, as it will minimize the effect on taxes. REPRESENTATIVE ROKEBERG said he would like to offer an amendment to the resolution, and he asked whether that would be out of order. CHAIRMAN GREEN asked whether Representative Bunde would withdraw his motion. REPRESENTATIVE BUNDE replied, "There is no amendment that will make this turkey fly." CHAIRMAN GREEN said that Representative Rokeberg would be out of order. Number 2121 REPRESENTATIVE PORTER said he could not support the resolution. He stated that he appreciated Representative Martin's feelings for the resolution but he still must disagree. He said he is concerned about the responsiveness in a time of emergency and believes it is the legislators' responsibility and the reason for being elected. Number 2162 CHAIRMAN GREEN agreed they are elected to do the public's bidding, although there are times when he does not like what has gone through. He stated that there has been a "silent bleeding" federally of the ability to control personal finances. He said, "You see the reaction when it goes far enough; we are a rather slow, methodical machine, but when it goes to the point that the people object, then you get these things like flat tax, and sales tax nationally and other alternatives to this bleeding." He continued that that is the way the public gets their say without constantly changing the constitution. Number 2189 REPRESENTATIVE ROKEBERG said he understands the rules of the chair, but he is finding himself in the position where he would normally support this but cannot because it does not meet the requirements without an amendment. CHAIRMAN GREEN suggested that an at-ease could be called and Representative Rokeberg and Representative Bunde could talk about it. Number 2229 REPRESENTATIVE BUNDE stated that he respects the philosophy of the intent of the resolution. CHAIRMAN GREEN requested a roll call vote. Voting against moving HJR 7 from committee were Representatives Bunde, Berkowitz and Porter. Representative Croft voted in favor of it; and Representatives Rokeberg and Green voted in favor, indicating the desire to amend it. Representative James was absent. Therefore, HJR 7 failed to move out of the House Judiciary Standing Committee by a vote of 3-3. REPRESENTATIVE MARTIN stated that he appreciated the discussion.
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