Legislature(2023 - 2024)BELTZ 105 (TSBldg)
05/01/2023 03:30 PM Senate EDUCATION
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| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing(s) | |
| SB132 | |
| SB56 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 132 | TELECONFERENCED | |
| += | SB 56 | TELECONFERENCED | |
SB 132-EMPLOYMENT TAX FOR EDUCATION FACILITIES
3:43:54 PM
CHAIR TOBIN reconvened the meeting and announced the
consideration of SENATE BILL NO. 132 "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."
3:44:16 PM
CLICK BISHOP, Senate District R, Alaska State Legislature,
Juneau, Alaska, sponsor of SB 132, introduced the bill speaking
to the following 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 When it was repealed in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 $38.80 today. This bill proposes a
$30 tax.
Senate Bill 132 proposes to revive the repealed head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 were approximately
390,465 employed individuals in Alaska in 2021.
Roughly 20% of those workers who earn their living in
Alaska do not reside here resulting in $2.7 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 north of
$10 million each year. The revenue collected would be
deposited into the state's general fund and accounted
for separately and intended to pay for the growing
maintenance and construction needs of Alaska's
schools.
3:50:59 PM
SENATOR GRAY-JACKSON expressed her pleasure that he reintroduced
the bill this year.
CHAIR TOBIN asked Mr. Grussendorf to present the sectional
analysis.
3:51:31 PM
CODY GRUSSENDORF, Staff, Senator Click Bishop, Alaska State
Legislature, Juneau, Alaska, offered the following sectional
analysis for SB 132:
Section 1 amends AS 23.05.060 relating to the powers
of the Department of Labor and Workforce Development
by adding a new subsection allowing the department to
collect the tax if requested to do so by the
Department of Revenue.
Section 2 adds a new chapter to AS 43 creating the
Education Facilities Maintenance and Construction Tax.
• Sec. 43.45.011 authorizes the Department of
Revenue to levy a tax of $30 on wages and net
earnings from self-employment on all individuals,
both resident and nonresident, with income from a
source in Alaska.
• Sec. 43.45.021 requires employers to withhold the
tax from an employee's first paycheck of the
calendar year. Failure to submit the tax may
result in a civil penalty imposed on the employer
in an amount up to five times the tax due. The
Department of Revenue shall adopt regulations
regarding the payment and maintenance of tax
records. Finally, the Department of Revenue shall
coordinate with the Department of Labor and
Workforce Development to collect and report the
tax in a manner similar to employment security
contributions if it will result in cost savings
for the state.
• Sec. 43.45.031 requires self-employed individuals
to remit the tax due in accordance with
regulations adopted by the Department of Revenue.
• Sec. 43.45.041 outlines the process for the
refund of overpayments.
• Sec. 43.45.051 requires a person to report to the
Department of Revenue any payments to a self-
employed individual if the same is required by
the Internal Revenue Service.
• Sec. 43.45.061 establishes the education
facilities maintenance and construction fund as a
separate account in the general fund.
• Sec. 43.45.099 establishes the definitions for
key terms.
Section 3 is uncodified law pertaining to the adoption
and implementation of regulations by the Department of
Revenue.
Section 4 provides an immediate effective date for
section 3, the adoption of regulations.
Section 5 provides an effective date of January 1,
2024 for all other sections of the bill.
3:53:53 PM
CHAIR TOBIN asked Mr. Spanos or Ms. Glover to review the fiscal
note for SB 132.
3:54:30 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue (DOR), Anchorage, Alaska, reviewed the analysis of the
fiscal note OMB 2476 for SB 132 that read as follows:
Analysis
Background
This bill would enact a tax on both wage and
self-employment income. The tax would be payable by
residents on income, wherever earned, and by
nonresidents on income earned in Alaska. The amount of
the tax is a flat $30 per person each year. The bill
would require employers to withhold $30 from an
employee's first paycheck of the year, in most cases,
and remit the tax to the state. An employer would be
liable for the tax, and a penalty, if it failed to
withhold and remit the tax.
This bill would require self-employed individuals to
file and pay the tax with the Department of Revenue
(DOR) in accordance with regulations adopted by the
DOR. Resident individuals with wage income entirely
from sources outside the state would also be required
to file and pay the tax.
There would likely not be a need for the majority of
taxpayers to file a return since the tax is a very
simple, flat rate with a one-time withholding in most
cases. Wage earners in Alaska would simply have their
$30 withheld from their first paycheck of the year and
would not need to file anything with the DOR unless
they had multiple jobs and had the $30 withheld more
than once. In that case, the taxpayer would need to
file for a refund claim. Self-employed individuals and
residents with income from sources entirely outside
the state would need to file and pay taxes with the
DOR. The bill allows for the Department of Labor and
Workforce Development (DOLWD) to collect or coordinate
collection and reporting of the tax. However, since
not all taxpayers interface with DOLWD (e.g.,
residents who earn all their wages outside the state)
the DOR believes it is better suited to collect the
tax.
This bill would tax only wages and self-employment
income. Dividends, capital gains, pensions, and other
forms of income would not be taxed. Revenue Impact Our
estimate is based on solid wage earner data and on
less solid self-employment data. As the taxpayer base,
we estimate about 414,050 resident wage earners and
resident self-employed individuals and about 62,100
nonresident wage earners and nonresident self-employed
individuals.
The bill would take effect on January 1, 2024, meaning
that FY24 revenue would be for only the second half of
the fiscal year. However, since the tax is a flat
amount withheld from the first paycheck of the
calendar year, we are estimating FY24 revenue at 75%
of the amount that would be collected in a full year.
Implementation Cost
The $10 [$11] million supplemental request reflects an
estimate for our contract with FAST Enterprises to
develop a new module for this tax type in our Tax
Revenue Management System (TRMS). The breakdown of
that cost is an estimated $8 million for development,
and an extra $2 million for an expedited rollout
because of such a short timeline for programming and
implementation before the effective date. This is also
the reason for a supplemental request as opposed to
our usual capital request--the need to expedite the
development. In addition to the tax return filing and
examination functions, the contractor will need to
provide for the associated databases, forms,
communications, and integration with our existing
imaging, accounting, and collections modules. There
would also be an online component to allow taxpayers
to file, pay and request refunds electronically.
Services would increase in FY2026 and forward as it is
the first year of additional maintenance and support
of the new TRMS modules after rollout, which would be
approximately $1.0 million per year.
Currently, the DOLWD administers the Employment
Security Tax, which establishes a relationship for
data and tax collection with most employers in Alaska.
It is possible that some efficiencies could be
achieved by linking these databases. However, the
proposed legislation adds at least two major functions
that do not exist within the Employment Security Tax.
These are: (1) receiving and processing individual
(rather than employer aggregated) tax returns as well
as direct payments from self-employed individuals, and
(2) providing refunds in the event of overpayment.
Even though this bill would create a very large tax
base, the tax is simple and could be administered by a
relatively small group. Our initial analysis is that
we would need to add 8 new employees to implement this
tax.
Additional travel is largely for public education
efforts, as well as the need to train new staff on the
tax management system. Cost for services reflects
primarily internal core services paid to other state
agencies, due to additional staff within the Tax
Division.
4:01:48 PM
SENATOR KIEHL noted that a self-employed person who also has
waged employment could show they already paid the tax so the
employer would not withhold the tax. He asked about that process
and why it wasn't available to a person who works for more than
one employer.
MR. SPANOS offered his understanding that the bill allows anyone
to show that they'd already paid the tax, but the burden is on
the employee to show that payment. The software is capable of
allowing employers to log into the system to verify that an
employee had paid the tax but that would need to be added to the
bill.
SENATOR KIEHL said he'd like to ask the sponsor whether that was
the intention before the committee makes that technical
adjustment.
4:03:25 PM
SENATOR STEVENS questioned adding eight employees at a cost of
$500,000 to collect $10 million when it seems that the employer
is doing all the work.
MR. SPANOS responded that fielding a large number of taxpayer
phone calls and refunding the overpayments accounts for a lot of
the staff time.
CHAIR TOBIN asked Mr. Grussendorf whether the fiscal notes for
SB 132 were similar to other iterations of the legislation.
MR. GRUSSENDORF replied that the fiscal note is very similar to
the 2019 legislation, but the services costs have risen a
little.
4:05:12 PM
CHAIR TOBIN asked Mr. Spanos to speak to the reason for the
increase in the services costs between the 2019 and 2023
legislation.
MR. SPANOS said he didn't have the 2019 fiscal note in front of
him but his recollection was that the software costs increased.
There is also an additional $2 million in the current fiscal
note to accommodate the expedited timeline.
4:06:06 PM
CHAIR TOBIN said she assumes that the increase in the services
line from $1.138 million in FY 2027 to $7.138 million for FY
2028 is a misprint.
MR. SPANOS replied that is not a misprint. It's related to the
upgrade the entire system receives every several years because
that function is not built into the budget.
4:07:04 PM
MR. GRUSSENDORF asked whether the additional $6 million in
services is specific to SB 132 or Alaska's tax system as a
whole.
4:07:25 PM
CHAIR TOBIN commented that she had the same question.
MR. SPANOS replied it's not specifically SB 132; it's probably
generic for the entire system.
CHAIR TOBIN asked why the sponsor chose $30 for the employment
head tax.
MR. GRUSSENDORF replied that $30 is consistent with the amount
in the 2019 legislation, adjusted for inflation. He added that
the tax was $10 when it was repealed in 1980, and the equivalent
value today is $38.80.
4:08:35 PM
At ease.
4:09:40 PM
CHAIR TOBIN reconvened the meeting and asked James Harvey to
review the fiscal note from the Department of Labor and
Workforce Development (DOLWD).
4:10:07 PM
JAMES HARVEY, Director, Division of Employment & Training
Services, Department of Labor and Workforce Development (DOLWD),
Juneau, Alaska, offered an overview of fiscal note OMB 2276 for
SB 132. He stated that DOR's fiscal note encapsulates the entire
cost to implement and collect the Educational Tax. DOLWD's zero
fiscal note assumes that DOR will collect all the taxes related
to this legislation.
CHAIR TOBIN found no questions.
4:11:15 PM
CHAIR TOBIN segued to invited testimony on SB 132.
4:11:35 PM
TOM KLAAMEYER, President, NEA-Alaska, Anchorage, Alaska,
expressed support for SB 132 on behalf of the more than 10,000
members of NEA-Alaska. He described the bill as a
straightforward way for all wage earners in Alaska to support
public education and its aging infrastructure, which requires
repair to ensure basic safety for students and education
employees. He acknowledged the fiscal crisis that is forcing
hard decisions about how best to use limited resources and
stated that NEA-Alaska supports proposals to increase the base
student allocation (BSA) and views SB 132 as another vehicle
that will make additional revenue available for school
facilities. The bill provides a creative solution that will make
a lasting difference for public education.
4:13:52 PM
LISA PARADY, Ph.D., Executive Director, Alaska Council of School
Administrators (ACSA), Juneau, Alaska, testified by invitation,
delivering the PowerPoint, "SB 132: Employment Tax for Education
Facilities." She stated that ACSA was established in 1973 to
serve as the umbrella for the Alaska Superintendents
Association, elementary and secondary principals, Alaska school
business officials, and school administrators throughout the
state. Each year ACSA develops joint position statements and
this year determined that school safety was one of its highest
priorities.
DR. PARADY advanced to slide 5, "ACSA Joint Position Statements
- Major Maintenance," and spoke to the following:
ACSA supports funding through the Department of
Education and Early Development's (DEED) school
construction process for capital projects and major
maintenance to existing school district facilities in
order to provide students a safe and healthy learning
environment.
4:15:24 PM
DR. PARADY advanced to slides 6 and 7 to discuss the following
data from the November 2022 Department of Education and Early
Development (DEED) school maintenance report.
• Alaska has 452 school facilities and 55 percent are more
than 40 years old.
• The average school building is 42 years old and 66
buildings are more than 60 years old.
• 97 projects DEED has on its waiting list are estimated to
cost $280 million.
DR. PARADY highlighted that a 2022 survey of ACSA members about
unmet needs revealed that many districts don't try to get their
maintenance projects on the list because the process is
cumbersome and expensive. Thus, ACSA is supportive of SB 132 and
urges the committee to take favorable action.
CHAIR TOBIN thanked her for the emphasis on safety and security
and articulated concern about the average age of Alaska's school
facilities.
4:17:46 PM
NILS ANDREASSEN, Executive Director, Alaska Municipal League,
Juneau, Alaska, testified by invitation in support of SB 132. He
stated that school construction and major maintenance has been a
priority for local governments for years because they manage and
own a majority of schools in Alaska. He reported the following:
• Of the 1,008 school facilities in Alaska, municipalities
own and maintain 757.
• In 2021, 429 of those schools were older than 40 years old,
which is the average age that schools need major
maintenance or replacement.
• These schools represent 23 million square feet and the
replacement cost is $274.23 per square foot.
• It would cost $6.3 billion to replace the 429 schools,
75 percent of which are local government facilities.
• In the last five years, DEED increased the amount school
districts might request for major maintenance from $25,000
to $50,000, but the state has funded few of the requested
projects.
• AML's review of the grant program from FY11 through FY19
indicated that only 11 percent of projects were funded,
despite it being the state's responsibility and
constitutional obligation.
• The request this year through the School Construction and
Major Maintenance Program was just over $600 million.
• The trend since FY11 has been for school districts not
to submit projects to the School Construction and
Major Maintenance Program.
• School districts' six-year capital plan for maintenance is
also a good indication of how they are approaching the lack
of funding at the state level.
• Fewer districts are contributing projects because the
return on their investment is so small.
4:22:04 PM
MR. ANDREASSEN stated that SB 132 is a tool in the toolbox and a
step in the right direction, but there is still a long way to go
to adequately or equitably address the needs that school
districts are facing in school construction and major
maintenance. Without the School Bond Debt Reimbursement Program,
more of those needs are crashing into the grant program that
this bill hopes to alleviate.
MR. ANDREASSEN concluded his comments stating that when the
state doesn't fund school district priorities, it affects
desired educational attainment, teacher recruitment and
retention, and the sustainability of communities. Local
governments continue to emphasize the importance of this issue
and SB 132 will make strides toward alleviating some of the
challenges Alaska communities are facing.
4:23:32 PM
CHAIR TOBIN opened public testimony on SB 132; finding none, she
closed public testimony. She asked Mr. Grussendorf if he had any
closing comments.
4:23:57 PM
MR. GRUSSENDORF restated that SB 132 is a step in the right
direction. He noted that the fiscal note suggests anticipated
revenue of $10-$14 million and that is the cost of the top 2 of
97 projects on the major maintenance list. Certainly there is no
intention for this to be the sole source of funding for the
major maintenance program; it is a new revenue stream to
supplement that program.
4:24:39 PM
SENATOR KIEHL commented that two of the four school districts in
his district put money from sales and property taxes into school
maintenance but the Regional Education Attendance Area (REAA) in
his district does not have that option, so this bill is
essential.
4:25:20 PM
CHAIR TOBIN held SB 132 in committee.