Legislature(2005 - 2006)SENATE FINANCE 532
04/13/2005 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SJR14 | |
| SB 158 | |
| SB 147 | |
| SB158 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 16 | TELECONFERENCED | |
| + | SJR 14 | TELECONFERENCED | |
| + | SB 158 | TELECONFERENCED | |
| + | SB 147 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 70 | ||
MINUTES
SENATE FINANCE COMMITTEE
April 13, 2005
9:06 a.m.
CALL TO ORDER
Co-Chair Green convened the meeting at approximately 9:06:37 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice-Chair
Senator Fred Dyson
Senator Bert Stedman
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: SENATOR CHARLIE HUGGINS; SENATOR RALPH SEEKINS;
DEBBIE GRUNDMANN, Staff to Senator Charlie Huggins; STEVE BOYD,
Alaska Chapter of National Electrical Contractors Association; ROB
BENTZ, Deputy Director, Division of Sport Fish, Department of Fish
and Game; GORDON GARCIA, Department of Fish and Game; DOUG VINCENT-
LANG, Assistant Director, Division of Sport Fish, Department of
Fish and Game;
Attending via Teleconference: From an offnet location: MIKE
WILLIAMS, Auditor, Tax Division, Department of Revenue; From
Fairbanks: BUKI WRIGHT, General Manager, Aurora Energy
SUMMARY INFORMATION
SJR 14-REPEAL FEDERAL ESTATE TAX
The Committee heard from the sponsor, the Department of Revenue and
a union representative. The resolution was reported from Committee.
SB 147-SPORT FISHING FACILITY REVENUE BONDS
The Committee heard from the sponsor, the Department of Fish and
Game and a power producing company. The bill was held in Committee.
SB 158-MUNI TAX ON STATE CONSTRUCTION CONTRACTS
The Committee heard from the sponsor, the City of Nome, a
subcontractor and a union representative. The bill was held in
Committee.
SB 16-POWERS/DUTIES DOTPF/TRANSPORTATION PLAN
This bill was scheduled but not heard.
SB 70-CRIMES INVOLVING CONTROLLED SUBSTANCES
This bill was scheduled but not heard.
9:07:16 AM
SENATE JOINT RESOLUTION NO. 14
Urging the United States Congress to amend the tax code to
permanently repeal the federal estate and generation-skipping
transfer tax.
This was the first hearing for this resolution in the Senate
Finance Committee.
DEBBIE GRUNDMANN, Staff for Senator Charlie Huggins, read testimony
into the record as follows.
Before you is Senate Joint Resolution 14 - Urging the United
States Congress to amend the tax code to permanently repeal
the federal estate and generation-skipping transfer tax.
The estate of a deceased individual is required to pay a tax
to the federal government commonly known as the death tax.
This tax is on assets that have been previously taxed and then
requiring the survivors to pay taxes on those assets again
through an inheritance tax. In 2005 the top tax is 47% with a
1.5 million dollar exclusion.
This is a tax that is
1. Bad on economic growth - disincentive to start small
or family owned businesses, build a family farm or ranch
with the goal of passing it on to your children.
2. May give little incentive to save and invest
3. This tax hurts families at a very fragile time.
In 2001 Congress enacted bipartisan legislation to phase out
and eventually repeal the death tax until 2010. Therefore in
2010 the estate tax is repealed; however, it springs back to
life in 2011 at its old rate of up to 55 percent and at an
exemption level of only $1 million.
President Bush has included the permanent repeal of the estate
tax in his Fiscal Year 2006 budget proposal. Legislation has
also been introduced this year in the US Senate and US House
to permanently repeal the estate tax. The US House is
scheduled to vote on permanent repeal of the estate tax
legislation this week.
With passage of this resolution we will offer our support to
Congress to act this year ending this tax on work, savings,
job creation and the American dream. I encourage your support
of this legislation.
9:09:22 AM
SENATOR CHARILE HUGGINS remarked this resolution "falls into the
'right thing to do' category."
9:10:14 AM
Senator Stedman supported this resolution, although an estate tax
should be levied on multi-million dollar estates to "slow down the
concentration of wealth". He reminded of the situation of the late
1800s and early 1900s when a few families owned a majority of the
wealth in the nation. This was the reason the estate tax was
implemented. He supported increasing the limit and abolishing the
tax for middle income and higher income Alaskans. He noted the
value of farms, fishing permits, boats, small businesses and real
estate is significant; however a cap should be imposed and the tax
should be implemented for high value estates. Otherwise, the wealth
of the nation would again become concentrated. Some extremely
wealthy families, including the Bill Gates family, have brought
this concern forward.
9:11:51 AM
Co-Chair Green asked if the extremely wealthy families support
paying an estate tax.
9:11:55 AM
Senator Stedman understood those families oppose the permanent
exemption of all residents because an estate of hundreds of
millions of dollars or billions of dollars transferred from
generation to generation is a different issue than the inheritance
of a family business or property. It is not good public policy to
have a few people in control of the majority of the country's
assets.
9:13:00 AM
Co-Chair Wilken told of the difficulties in paying taxes on the
estates of his late parents. He must carry life insurance to
prevent his heirs from having to liquidate his assets to pay estate
taxes. He did not oppose estate taxes on significant estates, but
opposed the tax on middle class estates.
9:16:10 AM
Co-Chair Wilken recalled a similar resolution was before the State
Senate a few years prior, which did not pass because the question
was raised about the impact of this repeal on the State general
fund. No answer was provided at that time. He again posed the
question.
9:16:31 AM
Ms. Grundmann responded that the permanent repeal of the estate tax
would have zero fiscal impact on the State general fund.
9:16:57 AM
MIKE WILLIAMS, Auditor, Tax Division, Department of Revenue,
testified via teleconference from an offnet location to affirm that
the current federal structure provides that there would be no
fiscal impact on the state of Alaska.
9:18:13 AM
Senator Stedman noted the limited time allowable for heirs to
procure the funds necessary to pay the estate tax. Many families
are forced to sell off assets to raise money for this tax.
9:19:10 AM
Senator Huggins gave an example of the state of Nebraska, where his
wife was raised. A number of the small farms in that state have
been passed down to family members over many generations. Often in
these instances, acreage must be sold off to pay the estate tax and
the farm becomes smaller. This is not conducive to successful
family farming.
9:20:35 AM
Senator Olson understood that taxes have been paid on investments
and other earnings. However, he cautioned against allowing "super
monopolies" from controlling the nation's wealth. He exampled the
Carnegie and Rockefeller families, which controlled the nation's
economy until estate taxes were created and other actions were
taken.
9:21:43 AM
Senator Huggins remarked that those families have many attorneys
structuring their assets in such a manner as to avoid estate taxes.
The impact on these families is minimal. The average American
families however are not protected.
9:23:10 AM
Senator Dyson appreciated this resolution. The federal government
has enacted anti-trust legislation to prohibit monopolies. He
opposed the concept that government should limit a family's ability
to become rich.
9:24:11 AM
STEVE BOYD, Alaska Chapter of National Electrical Contractors
Association, testified that this resolution represents the position
the union has held for many years. He told of the hardship of the
estate tax on second and third generation-owned businesses.
9:25:21 AM
Co-Chair Green pointed out that the US Congress is debating the
matter this week.
9:25:35 AM
Senator Bunde supported the bill.
9:25:54 AM
Co-Chair Wilken offered a motion to report SJR 14 from Committee
with individual recommendations and accompanying fiscal note.
Without objection SJR 14 MOVED from Committee with zero fiscal note
#1 from the Department of Revenue.
AT EASE 9:27:03 AM/9:31:48 AM
9:31:50 AM
SENATE BILL NO. 158
"An Act prohibiting the imposition of municipal sales and use
taxes on state construction contracts and certain
subcontracts; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
DEBBIE GRUNDMAN, Staff to Senator Charlie Huggins, read testimony
into the record as follows.
During the course of business in the last couple of years,
subcontractors in the construction industry, who work in some
areas of the state have experience negative financial impact
due to the imposition of local sales taxes on State DOT/PT
funded projects.
These taxes have been assessed on the value of the subcontract
- we are not talking about the
1. purchase of incidental materials,
2. renting of equipment,
3. purchasing food or lodging
Those items would be taxed. Again, we are talking about the
construction contract or subcontract.
1. The State cannot afford to have an increase in the cost of
construction projects due to the levying of sales taxes on the
State construction contracts and subcontracts awarded directly
in connection with the project funded under the construction
contract.
2. While all municipalities do not assess this sales tax, and
many municipalities DO have tax caps - the policy needs to be
consistent statewide.
Example: In one instance, on a Nome Airport Project, a
construction contract was awarded to Quality Asphalt Paving
(QAP). QAP and Diamond Electric entered into a subcontract
directly in connection with the project funded under the
construction contract. Dimond Electric was assessed a sales
tax of over $20,000 on the value of their subcontract. This
tax was unexpected and not considered in their bid.
SB 158 will prohibit the imposition of municipal sales and use
tax on State construction contracts and certain subcontracts
and remedy the inequity that exists.
Co-Chair Green ordered the bill HELD in Committee until later in
the meeting.
9:34:26 AM
SENATE BILL NO. 147
"An Act providing for a sport fishing facility surcharge on
sport fishing licenses; providing for the construction and
renovation of state sport fishing facilities and for other
projects beneficial to the sport fish resources of the state
as a public enterprise; and authorizing the issuance of
revenue bonds to finance those projects."
This was the first hearing for this bill in the Senate Finance
Committee.
SENATOR RALPH SEEKINS, sponsor of the bill, testified to the desire
to catch fish while sport fishing and the practice of stocking
water bodies with fish species for this purpose. Formally, three
hatcheries supplied fish for sport fish activities; however, the
Clear Hatchery was closed and likely another would close soon.
Population has increased in the Interior region, particularly with
the expansion of the military bases. Some areas of the State,
primarily in Southcentral and Interior Alaska, are facing a crisis
in providing the necessary biomass for sport fishing activities.
Senator Seekins detailed the process of certain Fairbanks residents
to consider options to increase the biomass. The Aurora Energy
power plant is situated along the Chena River and discharges heated
water into the river. This heat could be captured and utilized for
a hatchery. Interested parties began contacting State and federal
agencies and US Senator Ted Stevens to request assistance. Senator
Stevens secured $10 million for the construction of a new hatchery
facility located in Fairbanks, near the power plant.
Senator Seekins reported that no statewide plan exists to address
sport fishing hatchery needs. The proposed Fairbanks facility would
have the capability of meeting statewide needs.
Senator Seekins opined that the new facility would be "not cheap,
but affordable." Federal funds and receipts from a revenue bond
package would be utilized. The bond would be repaid from a
"moderate fisheries enhancement fee" added to the price of
recreational fishing licenses. The cost of the license would be
comparable to that of licenses in other states, especially given
the better assurance of a successful catch. He detailed the
consideration of the proposed fee amount and stated that $8.50 per
license would be adequate to repay the bond. Once the bond is paid,
the fee would be eliminated.
Senator Seekins stated this proposal should alleviate the current
shortages, sustain the need for 20 to 25 years, and be useful in
planning for the future. Before a new hatchery could be completed,
the biomass would be reduced and short-term impacts would be
realized.
Senator Seekins cautioned that taking no action would delay the
replacement of the biomass. He stressed the intent this program be
a "statewide concept". Other efforts to enhance sport fishing in
Southeast Alaska are under review.
9:41:56 AM
Senator Hoffman questioned the assertion that this is a statewide
problem, as shortages were not occurring in Southwestern Alaska and
the Bristol Bay area. He asked how this legislation would affect
residents of Southwestern Alaska.
9:42:25 AM
Senator Seekins replied that residents would have the ability to
stock lakes and areas in Southwestern Alaska. He understood this
area currently has "world class" fisheries; however, increased
demand on the resources would reduce the wild fish stocks.
9:43:06 AM
Senator Hoffman asked who would determine the allocation of the new
fish.
9:43:17 AM
Senator Seekins answered that the Division of Sport Fish in the
Department of Fish and Game would administer the program. The
Department is "very excited to be able to use enhancement"
opportunities.
9:43:39 AM
ROB BENTZ, Deputy Director, Division of Sport Fish, Department of
Fish and Game, outlined the annual process of updating a five-year
stocking plan. This plan details the fish species allocated to
certain lakes and rivers. He told of the public process involving
local fish and game advisory committees and sport fishing
organizations.
9:44:42 AM
Senator Hoffman asked if the infrastructure for operation and
maintenance of the new facility and this program are in place. If
not, he asked whether funds for these efforts are included in this
legislation.
9:45:10 AM
Senator Seekins responded that funds for infrastructure are not
included in this bill. The bonds are intended for construction
costs only. He stated that funds for operation and maintenance "are
there". He spoke about the current practice in which hatchery fish
are flown into areas to be stocked.
9:45:49 AM
Senator Hoffman pointed out that this legislation would impose an
additional $8.50 charge for all sport fishing licenses in the
State. The largest concentration of sport fishing activity occurs
in Southcentral Alaska and fishers in that area would contribute
the largest share to this endeavor. He wanted to understand what
benefit these fishers would receive.
9:46:41 AM
Senator Seekins responded that as demand increases and enhancement
is needed, supplies would be made available. The majority of the
funds would be generated from nonresident licenses, most of which
are sold in the Interior, Southcentral and Southeastern Alaska. In
some respects, anglers in Southeast may not benefit as much from
this bond issue as they would from "some of the other commitments
that we've made to be able to help them enhance their fisheries."
9:47:35 AM
Senator Hoffman requested a detail of the locations throughout the
State in which sport fishing licenses are utilized. This would
demonstrate who would be paying the additional fee and the benefits
they would receive.
9:48:14 AM
Senator Seekins did not have the information. He opined that most
Alaskans consider the State as a "statewide organization", although
some would receive more benefits than others.
9:48:37 AM
Senator Hoffman requested this information.
9:48:47 AM
Mr. Bentz did not have a detail of license sales by region. Twenty-
five percent of sport fishing licenses are sold in Southeastern
Alaska and the majority of the licenses are sold in the
Southcentral region. Large areas of Southwestern Alaska are
designated as subsistence areas where rod and reel fishing is
prohibited. Sport fishing licenses are not required to fish these
areas and many area residents do not purchase licenses.
Nonresidents would pay most of the fees generated from this
enhancement fee.
Mr. Bentz continued that this program would benefit areas that
currently are not stocked with fish. Approximately 20 percent of
the Sport Fish Division spending is done in stocked areas. When the
number of fish declines in a stocked area, those anglers begin
fishing other areas, i.e. areas with wild stocks. Most wild stocks
are either fully allocated or an increased harvest would result in
stricter regulations.
9:51:07 AM
Senator Hoffman requested information on sport fish license
purchases delineated by postal zip code.
9:51:29 AM
Mr. Bentz indicated he would provide the information.
9:51:34 AM
Co-Chair Wilken asked the percent of sport fish licenses are
nonresident licenses.
9:51:54 AM
Senator Seekins listed the categories of license purchasers:
115,000 resident sport fishing, which contributes approximately $1
million annually; 44,000 resident sport fishing and hunting; 6,000
sport fishing, hunting and trapping; 4,200 nonresident military,
110,000 nonresident one-day sport fishing, and etc. He cited the
fiscal note for additional information. Residents would pay
approximately $1.4 million and nonresidents would pay approximately
$5.1 million for this surcharge.
9:53:16 AM
Senator Bunde recalled research he conducted eight years prior on
the statewide distribution of residents who purchase hunting and
fishing licenses. He discovered that less than one percent of
residents living in unorganized areas purchased licenses. He
therefore concluded that this legislation would not likely concern
those rural residents.
9:54:11 AM
Co-Chair Wilken calculated that nonresident anglers would pay 82
percent of this bond obligation.
Senator Seekins affirmed.
9:54:34 AM
Senator Stedman surmised the proposed rate structure burden would
"fall" on nonresident anglers.
Senator Stedman understood that as more visitors fish in certain
concentrated areas, such as near Fairbanks, wild stocks would
diminish to a point that the area would be closed to fishing until
restocking could done.
9:55:35 AM
Senator Seekins asserted this is already occurring, noting some
areas are limited to catch and release fishing.
9:55:44 AM
Senator Stedman expressed concern about the proposed hatchery
construction. He surmised that a privately managed nonprofit agency
operating a hatchery would be more viable than a State operated
system. He asked about an analysis to determine whether
reactivation of a "non-utilized" or "under-utilized" hatchery
should be done with fish stock shipped to various locations as
necessary.
9:56:51 AM
Senator Seekins told of a clear distinction between production for
sport fisheries and commercial fisheries that involve "turf wars"
and different constituencies served. The two should remain
separated for targeted markets.
9:58:32 AM
Mr. Bentz was not involved in portions of analysis involving
underutilized hatcheries. There are major differences between sport
fish hatcheries and private nonprofit hatcheries. Sport fisheries
hatcheries must retain brood stock to be raised on an annual basis,
which is not done in commercial fisheries hatcheries. Each species
must have separate waters with separate temperatures, etc.
9:59:52 AM
Senator Olson asked the origins of the brood stock for commercial
fisheries.
9:59:55 AM
Mr. Bentz replied that the brood stock is taken each year from
returning salmon.
10:00:05 AM
Senator Stedman assumed the Department has contacted hatcheries
currently in operation on this matter and that none have expressed
interest in participating in this program.
10:00:47 AM
Senator Seekins did not consult with existing hatcheries. Central
locations were considered to meet the biomass demand. The
Department already has control of two sport fisheries hatcheries
and a municipal government is "eager" to help provide property for
location of a third hatchery facility.
10:01:16 AM
Senator Stedman remarked on the prudence of the Finance Committee
to secure a cost analysis on this project before tens of millions
of dollars are spend. If the need is identified, the project should
commence, but not before research confirms this need.
10:01:48 AM
Senator Stedman expressed concerns about implementation of this
program. He understood efforts to revitalize areas of Fairbanks
were planned and that this hatchery would be integrated into those
plans. He asked if the proposed facility would be an
"industrialized fish growing plant", or an "architectural complex"
that would attract visitors.
10:02:58 AM
Senator Seekins had heard rumors that the hatchery would be the
"kingpin to development". He produced a map [copy on provided] and
pointed to the location of the proposed hatchery near Pioneer Park
and the Carlson Center. He detailed the municipality mayor's plans
for improving and developing this area with better access,
condominiums, etc. The primary reason this location was selected
was proximity to the Aurora Power Plant. The project has received a
commitment from the power company to provide hot water for a
minimum of 15 years.
Senator Seekins stated the hatchery would have a visitor component
as well as an education component for the University of Alaska,
which would be constructed with federal funds. The facility is
meant to be a functioning building, although somewhat attractive.
The proposed hatchery is not the cornerstone to future development
of the area, but rather a functioning hatchery with good access.
10:06:30 AM
Senator Stedman did not disagree with the concept of integrating
tourism with the hatchery, although stressed the greater importance
to integrate the hatchery activities with education. He asked for
further explanation of the heated water issue, noting that
hatcheries located in Southeast Alaska did not change water
temperatures.
10:07:30 AM
Senator Seekins responded that fish "grow faster" in warm water.
10:07:40 AM
Senator Stedman surmised that hot water is therefore necessary for
hatchery activities.
10:08:01 AM
Senator Seekins indicated the location of the power plant along the
Chena River on the aforementioned map. The river water near the
power plant does not freeze in the winter, given the BTUs of the
water discharged from the plant. The hatchery would utilize the hot
water otherwise cycled back into the river, thus alleviating an
environmental issue.
10:08:56 AM
Senator Stedman assumed the commitment for the supply of hot water
was less than an actual guarantee.
10:09:11 AM
Senator Seekins replied that Usibelli Coal Mine owns the power
plant and has given a 15-year commitment.
10:09:28 AM
Senator Stedman commented that, generally speaking, commitments
should be tied to the life expectancy of the bonds and debt of
projects.
10:09:56 AM
Senator Seekins distributed a letter from Aurora Energy, indicating
this commitment [copy on file].
10:10:19 AM
BUKI WRIGHT, General Manager, Aurora Energy Company, testified via
teleconference from Fairbanks about the process of utilizing water
from the Chena River to cool the plant systems. Some of the heat is
returned to the river, although the temperature increase is
approximately 55 degrees and not significant. This excess heat is
not suitable for hot water heating systems, but would be suitable
for hatchery operations. The water would be made available to the
hatchery "almost free". He clarified that Aurora Energy did not
intend to incur the costs of installing, operating or maintaining
the pipes. The hatchery would require additional heat for the
offices and other public areas, which the company would supply at
the usual assessed rate. That expense would be a moderate portion
of the total operating costs of the hatchery.
Mr. Wright reported that the power plant has been in operation many
years and would continue much longer. The company has plans for
business expansion. If this legislation is passed and the hatchery
is constructed, Aurora Energy intends to enter into a long-term
contract to provide the heated water. The minimum term of the
contract would be 15 years, although the terms could be longer.
10:14:25 AM
Senator Seekins reported this would result in an annual savings of
approximately $750,000.
10:14:44 AM
Senator Stedman understood that the residents of Fairbanks would
continue to require electricity and therefore the power plant would
likely continue to operate.
Senator Stedman repeated that the Committee should undertake an
analysis of existing infrastructure to determine how these
facilities are inferior to a new facility.
10:15:31 AM
Senator Seekins responded that in communicating with Department
representatives, he learned that the available infrastructure is
not adequate to produce the sport fishery stocks.
10:16:15 AM
Co-Chair Wilken spoke to the timing of this project. Utilizing the
aforementioned map, he told of a major upgrade to a road system
near the proposed facility. The intent is to lay the water pipes
necessary for the hatchery operation at the time the road is under
construction. This digging is planned for the upcoming summer
season. Therefore, this legislation should not be delayed.
10:17:36 AM
GORDON GARCIA, Department of Fish and Game, addressed the issue of
whether existing hatcheries could perform this function. The
Department reviewed the conditions of other facilities and
determined that the complexities of the different fish species
necessary for sport fishing activities require that a specific
hatchery be constructed. Commercial fisheries hatcheries produce
andronomous fish. However, in dispersing fish across the State,
water quality is important. The intent is to construct a "bullet
proof" facility to raise a range of fish species for planting in
over 400 lakes and rivers.
10:19:32 AM
Senator Stedman countered the witness' testimony differs from
information he has received from hatchery operators.
Senator Stedman wanted to know the architectural elements of the
proposed Fairbanks hatchery. He understood the feasibility of
installing water pipes at a time when the road is under
construction. He did not support re-digging and re-paving of
streets. However, the matter is larger than the road construction
aspect.
10:20:51 AM
Senator Seekins informed that he has invested five years to this
project, starting before he became a legislature. He worked with
the Department of Fish and Game, the Fairbanks municipality and
user groups to develop a plan that did not "overstep" the "peoples'
money" to produce biomass. He has never seen a project with greater
community support than this. People identify the need, especially
with an expanded military presence. Those people spend time
enjoying outdoor activities. This proposal is intended to reach
the broadest number of people possible in the State with an
enhanced fisheries program. The people who harvest the fish would
pay for the project. Further delay would ensure the demand would
not be met.
10:23:41 AM
Senator Hoffman commented he should probably support this
legislation because it would limit fishing pressure in rural
Alaska. The Anchorage hatchery is expected to cost $45 million and
generate approximately $6.4 million in fish, $4 million of that in
salmon and the proposed Fairbanks hatchery is expected cost $25
million and produce less than one-third of a million dollars. He
questioned the economics. There is nothing "mystical or magical"
about hatcheries. They utilize incubators and other equipment.
Existing hatcheries should be considered. He requested additional
information about retrofitting existing hatcheries versus
constructing new facilities.
10:26:32 AM
DOUG VINCENT-LANG, Assistant Director, Division of Sport Fish,
Department of Fish and Game, testified that hatcheries located in
Southeast Alaska could be used for stocking waters in Southeast,
but would not be viable for Southcentral and Interior Alaska.
Building new facilities in Anchorage and Fairbanks would be most
cost effective.
10:27:47 AM
Senator Olson asked the field source of the power that would be
provided to the Fairbanks facility.
10:27:58 AM
Mr. Wright responded that coal from the Usibelli Mine is used to
fuel the power plant.
10:28:08 AM
Senator Olson asked the impact to the power plant of a natural gas
supply provided to the community.
Mr. Wright replied that natural gas would likely be used for some
uses such as space heat. However, switching from coal to natural
gas would not be economical for other power uses in the short term.
10:29:33 AM
Senator Olson asked how the hatchery would operate if the hot water
were not supplied from the power plant.
10:29:40 AM
Senator Seekins responded that boilers would be needed to heat the
water.
10:29:50 AM
Co-Chair Wilken asserted that "nobody is contemplating taking down
Chena five power", Fairbanks' major power source.
10:30:11 AM
Mr. Wright affirmed and reported that Aurora Power has a long-term
contract with Golden Valley Electric Association and provides heat
to almost every building located in downtown Fairbanks. Those
buildings have no other heat source method.
10:30:50 AM
Senator Olson asked about the ability to air transport fish fry
across the State.
10:31:06 AM
Senator Seekins had seen it done in roadless areas.
10:31:22 AM
Senator Olson asked if successful air transport is possible to
locations in Western Alaska.
10:31:39 AM
Mr. Garcia replied that the Department has "fish flying down to a
science" and that it is possible to transport fish fry over
distances. The issue is cost.
10:32:09 AM
Mr. Vincent-Lang reiterated that stocking of areas is determined
based on a five year stocking plan with a public process. If a need
is identified in a certain area, the public has the ability to
petition for inclusion in the plan.
10:32:56 AM
Senator Olson asked the plan in the event disease was to become
rampant in an area, possibly through the introduction of Canadian
stocks.
10:33:33 AM
Mr. Vincent-Lang responded that the Department could do nothing
about fish from Canada introducing diseases. The Department has
invasive species policies and efforts would be made to prevent
disease from entering the system or stop if from spreading if it
did occur. The Department stocking policy dictates that stock fish
are disease free and are raised from local areas. For example, fish
would not be taken from waters in Southeast Alaska and transferred
to Southwestern waters.
10:34:43 AM
Senator Bunde shared that he has caught hatchery fish. If this bill
were before the Committee and proposed utilizing State general
funds to construct the new facilities, he would join in the
scrutiny and likely vote against its passage. However, this
legislation provides that the program would be user paid. Although
all who purchase a sport fishing license in Alaska would
contribute, the majority of residents who purchase a license live
along the Alaska Railbelt and would be direct beneficiaries.
10:37:29 AM
Senator Hoffman emphasized the intent that this program be user
paid. While general funds would not be utilized, he could not
identify the benefit to Western Alaska residents required to pay
the additional charge. He then asked the percentage of hatchery
Coho salmon that would be caught by commercial fishers who would
not pay this fee.
10:38:34 AM
Senator Hoffman contended that salmon from the Anchorage hatchery
must go to sea then return to area rivers and streams. He
understood that the king salmon would likely be caught by sport
fishers, but again asked the percentage of Coho salmon that would
be caught in commercial fisheries.
10:39:22 AM
Mr. Vincent-Lang responded that hatchery fish are tagged. In past
surveys it has been determined that 85 to 90 percent of hatchery
salmon are caught by sport fishers, with the remainder caught by
commercial fishers.
10:39:57 AM
Senator Hoffman concluded that the catchers of 15 percent of the
hatchery fish are not paying anything to this program.
10:40:42 AM
Senator Bunde clarified he is not necessarily against this bill.
10:41:18 AM
Senator Stedman announced intent to review the funding "mechanism"
further. He qualified that he does not oppose the concept of
hatchery sport fish activities and that part of the program is
located in Senate District A, which he represents.
Co-Chair Green ordered the bill HELD in Committee.
10:42:02 AM
SENATE BILL NO. 158
"An Act prohibiting the imposition of municipal sales and use
taxes on state construction contracts and certain
subcontracts; and providing for an effective date."
This bill was heard earlier in the meeting.
STEVE BOYD, Alaska Chapter of National Electrical Contractors
Association read his testimony into the record as follows.
We feel that the scope of the State projects logically links
the subcontractors to the general contractor and therefore
subcontract values should be exempt from local taxes. Bids on
projects are generally solicited from a general contractor for
a total project including subcontractor work and the
coordination of their work thereof. Subcontractors can
therefore only work for the State via this "conduit"
established by the State and the general contractor and
language that binds the subcontractor to the State as much
like the general contractor is bound to the State.
It has come to our attention that subcontractors have been
charged local sales taxes and in particular the City of Nome
assessed Diamond Electric ($20,000), Alaska Industrial
Insulation and Fireproofing($6,100), Midnight Sun Services,
Northland Tile, Arctic Striping and Premier Construction on an
airport project in Nome, While AirTek from Soldotna was
assessed a tax of $1,800 by the City of Sand Point on an
airport project.
This is not just an electrical contractor issue, but one that
impacts any subcontractor. For example a painting contractor…
Negative financial impact to the State. For example a tax of
$20,000 assessed on a subcontractor would probably result in a
mark-up of, for discussion sake, of ten percent, or $22,000
included in the bid to the general contractor, which perhaps
marks up the value of the subcontract by ten percent, so the
State would see $24,200 increase in project cost.
As an industry association it is our goal to create a
consistent and equitable practice statewide so everyone knows
the rules. This is why we are here today after evaluating the
steps the contractor took in seeking relief. We feel
clarification of the statute would be in the best interest of
the State and our industry.
10:45:51 AM
Senator Olson asked the amount of the subcontract with Diamond
Electric.
Mr. Boyd replied the amount was approximately $419,000.
10:46:26 AM
SENATOR HUGGINS, sponsor of the bill told of three elements
instigating this legislation. The first was the experience of
Diamond Electric and others in Nome. It was determined that State
agencies had no established guidelines to address the taxation of
subcontractors in Alaskan communities. Secondly, this practice
created an "unstable, cloudy business environment". Finally, the
practice "wasn't right." In talking with parties across the State,
this was agreed upon.
Senator Huggins read an e-mail message addressed to the director of
the Alaska Municipal League demonstrating this was not "just a
community that stumbled on an isolated practice" and would expand
to other communities if allowed to continue. He noted that
identifying information is omitted.
"I think most communities that use as their legal firm, [name
of firm], have a policy of collecting sales tax from
subcontractors doing business in the community regardless of
the funding source."
Senator Huggins restated the communication that communities that
are clients of certain legal firms would adopt this taxation and
the practice would spread.
10:48:37 AM
Co-Chair Green asked the number of communities already involved.
Senator Huggins told of at least three. Each community is a client
of the unnamed legal firm.
10:48:57 AM
Co-Chair Green asked if this practice continues whether it would
impact the State capital budget.
Senator Huggins answered "absolutely" and noted the State currently
has appropriated approximately $500 million for capital projects
and an assessment of five percent for subcontract taxes added to
this amount would be "staggering". He added that the taxation would
be assessed at the local sales tax rate, and the amount could be
higher.
10:49:30 AM
Co-Chair Green asked if the community that has chosen to do this
did so to offset the loss of other funds.
10:49:42 AM
Senator Huggins replied that the rational varies.
10:50:02 AM
Senator Olson asserted that the Murkowski Administration supports
local control and local self-funding. The practice outlined in this
legislation has occurred for a number of years and cities have
established a history of such; he knew of other projects.
10:51:05 AM
Co-Chair Green remarked that the Committee should be aware of this
practice in drafting the annual capital budget.
10:51:13 AM
Senator Huggins noted the difficulty in that the City of Nome has
been very inconsistent in applying this local tax. This creates a
"sketchy business environment."
10:51:41 AM
Senator Bunde commented that he appreciated local control. However
in some areas, local support is defined in "spending other peoples'
money" in lieu of local contributions. He characterized this
practice as "double dipping" in that a community secures a State-
funded improvement, then attempts to receive funding from that
project.
10:52:43 AM
Senator Hoffman commented on the need for uniformity. This matter
was brought forward by a subcontractor unaware of the sales tax.
The practice of other communities should be reviewed and a
determination should be made whether those communities assess a tax
on subcontractor activities or provide an exemption. Many
contractors operate in small communities in which they are not
based. The community must accommodate for these activities, for
example through the repair and maintenance of roads damaged by the
use of heavy equipment.
10:54:42 AM
Senator Huggins agreed that the issue is uniformity. Other
communities do not tax subcontractors.
10:55:06 AM
Co-Chair Green understood that subcontractor employees would pay a
sales tax on goods purchased in the community.
Senator Huggins affirmed.
10:55:21 AM
DAVID LANTZ, Owner and General Manager, Diamond Electric, testified
via teleconference from Anchorage, that halfway through completion
of the project, the City of Nome notified the subcontractor of the
sales tax that would be levied. The amount of the tax was therefore
not included in the bid. This tax is a retail tax and the
subcontract was not a retail purchase. He attempted to work with
the City to rectify the situation and also hired attorneys;
however, the company was eventually presented with a tax lien and
was forced to pay the tax. The tax and attorney fees totaled over
$30,000. He noted the company and workers also paid sales tax on
groceries, housing, concrete and rental of equipment. As a result,
the company was double-taxed on almost 25 percent of the contract.
10:58:06 AM
Senator Olson asked if the company purchased a permit or other
licenses from the City.
Mr. Lantz answered the company did not.
10:58:41 AM
DENISE MICHELS, Mayor, City of Nome, testified via teleconference
from Nome in opposition to the bill. The City views this sales tax
as an option to generate local revenue. The City increased its
sales tax to offset increased costs of insurance and other
expenses. Unlike other communities, Nome does not have a large tax
base. Subcontractors utilize City services, including roads,
ambulances and police, who arrest workers acting unruly. This tax
is fair to the City of Nome. She informed she is a contractor and
understands the need to ensure that all fees are known; this tax
should not have been a surprise for Diamond Electric.
11:01:34 AM
Senator Huggins spoke highly of Mayor Michels. Senator Huggins
explained that the Department of Transportation and Public
Facilities imposes an administration fee on capital projects
because it must provide staff to oversee the project. The City of
Nome should benefit from the influx of subcontractors through
revenue generated from hotels, restaurants, etc.
Co-Chair Green ordered the bill HELD in Committee.
ADJOURNMENT
Co-Chair Green adjourned the meeting at 11:03 AM
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