Legislature(2015 - 2016)BELTZ 105 (TSBldg)
02/16/2016 06:00 PM Senate LABOR & COMMERCE
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SB 131-ELECTRONIC TAX RETURNS & ALCOHOL TAX 7:00:59 PM CHAIR COSTELLO reconvened the meeting and announced the committee would hear public testimony on SB 131. JEFF JESSE, Chief Executive Officer, Alaska Mental Health Trust, Juneau, Alaska, testified in support of SB 131. He directed attention to a spreadsheet from the Division of Behavioral Health that shows that the state spent over $41 million for alcohol treatment and prevention. Additionally, other general fund costs due to alcohol are substantial. A survey by the McDowell Group found that the 2010 general fund spending for alcohol-related healthcare costs totaled $170 million; $9.5 million for public assistance; $50.5 million for traffic accidents; $156.7 million for the criminal justice and Office of Children's Services systems of care. Together that is a $387 million cost to the general fund from alcohol. That is larger than every department and every budget component except the foundation formula and the Medicaid program. He pointed out that this cost will be paid through user fees, as contemplated by SB 131, or it will be passed on to all Alaskans through other taxes and decreased dividend payments. To further emphasize the magnitude of the problem, he pointed out that the loss of productivity due to alcohol is $500 million per year. He emphasized that the alcohol tax is one of the fairest ever devised. 7:05:13 PM BANDON HOWARD, Amalga Distillery, Juneau, Alaska, testified in opposition to SB 131. He is starting a new distillery in an industry that is growing quickly. In 2003 there were about 40 licensed producers in the U.S. and now there are close to 600. He suggested that growth is a better way to generate revenue than increasing taxes. The industry has both capital and administrative barriers and the proposed tax will add to those. If SB 131 were to pass and become law, he will pay about $8/bottle in state excise tax. He'll pass that on, but it will make his business less able to compete with producers outside the state. 7:07:35 PM ROBERT MCCORMICK, Director, Glacier Brew House, Chugiak, Alaska, testified in opposition SB 131. He said he appreciates the need to find new sources of revenue for the state, but he believes that any tax should be broad based and not come from sources where Alaskans already pay more than average. Alaska has among the highest liquor taxes in the nation and doubling them doesn't make sense. While the tax is levied at the wholesale level, it's exponential from there with everyone adding their markup. A 3 ounce martini will likely cost the customer $2.25 more, not 45 cents more, he said. He pointed out that the brewing industry is one of the few industries in Alaska that is growing and it's grown without incentives from the state. Doubling the excise tax will only hurt the industry and drive sales online, he said 7:11:11 PM MARCY LARSON, co-founder, Alaskan Brewing Company, Juneau, Alaska, stated that SB 131 has unintended consequences for the entire hospitality industry, not just the producers. She agreed with Mr. McCormick that the tax is exponential because it goes up every step along the way. That includes the city sales tax, which will be raised five percent. She opined that the extreme nature of the proposed tax will affect the health of the hospitality industry and "make it no longer hospitable." MS. LARSON pointed out that the existing excise tax on alcohol makes it possible for someone in Oregon to buy Alaskan beer at the same price as in Alaska. If the tax is doubled, it will be cheaper to purchase Alaskan beer in Oregon than here where it's made. She proposed not raising the tax to such extreme levels so the hospitality industry can stay strong. 7:14:08 PM SASSAN MOSSANEN, founding partner, Denali Brewing Company, Talkeetna, Alaska, testified in opposition to SB 131. He shared the history of the company and its robust growth over the last seven years. All their available capital is reinvested in Alaska. With 27 year-round employees they are the largest employer in Talkeetna and the largest consumer of energy. He expressed concern that an unintended consequence will be that people will figure out a way to circumvent the system. He maintained that to create and maintain mental health, people need to be engaged in their community. "When you create a prohibitive state where people hide, it makes it harder to keep track of who is consuming what." He pointed out that during Prohibition, people drank more and community costs went up. MR. MOSSANEN reported that Denali Brewing was approached last year by the state Division of Economic Development and the U.S. counterpart to engage in talks about increasing Arctic commerce. As a result, they collaborated with a brewery in Norway in an effort to further the economic benefits of alcoholic beverages produced in Alaska. He encouraged the committee to consider creating an exemption for wineries and distilleries that small breweries currently enjoy. 7:18:38 PM GARY SUPERMAN, co-owner, Hunger Hut Bar and Liquor Store, Nikiski, Alaska, testified in opposition to SB 131. He shared the history of his career and described himself as "strictly blue collar, working class." He lives among folks that get by on $30,000-$50,000 per year; they build their own homes. His perspective is that doubling the alcohol taxes is an assault on the blue color working class in Alaska. He stressed that the proposed alcohol and tobacco taxes coupled with the permanent fund proposals will consume a significant portion of the working class's disposable income. "If you're looking for a new revenue stream, I suggest that you look elsewhere for the sake of fairness," he said. 7:23:00 PM KRISTEN MYLES, Director, Cook Inlet CHARR, Anchorage, Alaska, testified in opposition to SB 131. She pointed out how this tax will hurt those who serve alcohol. Speaking hypothetically, she said if Senator Stevens' martini costs $8.50 he probably gives the server $10. With the proposed tax the martini will cost closer to $9.50. While the Senator is aware of the tax situation and may adjust his spending so the server isn't punished, the average patron likely won't give a thought to the dollar or so the server is losing on each drink sale. "Now we're punishing business owners, responsible consumers and employees," she said. 7:24:47 PM RICK ARMSTRONG, owner, Baranof Island Brewing Company, and President, Brewers Guild of Alaska, Sitka, Alaska, testified in opposition to SB 131. He opined that the industry is already doing its fair share when it collects over $40 million each year for the state. The proposed tax places a burden on the only small industry in Alaska that is growing and punishes responsible adults who are trying to make an honest living. Higher prices won't lower consumption, but force consumers to buy lower priced products elsewhere. He agreed with previous testimony that the dime a drink argument is inaccurate. If SB 131 passes and becomes law, Alaska will have the highest alcohol taxes in the nation. "I strive to be number 1, but not in this instance and I'm quite happy knowing that we're already at number 2," he said. 7:26:58 PM BILL BUBBEL, The Pump House Restaurant, Fairbanks, Alaska, testified in opposition to SB 131. He maintained that even if oil were to return to $100 per barrel, the tax wouldn't return to the existing level because taxes never go down. He said the distributor pays the tax initially and it trickles down to the end user which ultimately inhibits sales. Municipalities often compound the problem by following the state policy and raising local taxes. He asked the committee to consider something more manageable and perhaps take another look at casino gambling or a Powerball lottery. 7:28:41 PM TIFFANY HALL, Executive Director, Recover Alaska, Anchorage, Alaska, testified in support of SB 131. She stated that increasing the alcohol tax will generate needed revenue and support long-standing public health and safety objectives. She maintained that the increased tax will save money because the cost of alcohol abuse to Alaskans totaled $1.2 billion in 2010. She noted she would submit her sources via email. Beyond the financial benefits, raising the alcohol tax will save lives, improve the health of babies and reduce underage drinking. She reported that the increases in the alcohol tax in 1983 and 2002 were followed by 29 percent and 11 percent decreases in the number of alcohol related deaths in the state. Furthermore, increased alcohol taxes has been found to reduce binge drinking during pregnancy, decrease the incidence of fetal alcohol syndrome, and significantly reduce youth alcohol consumption. She stressed the importance of this, highlighting that youth that drink before age 15 are 5 times more likely to abuse alcohol as adults. She noted that the U.S. surgeon general and a host of others recommend increasing the excise tax on alcohol because research indicates that it is directly related to decreased alcohol- related deaths, traffic crashes, violent crime, and child abuse. 7:31:51 PM MARK STAPLES, President, Midnight Sun Brewing, Anchorage, Alaska, testified in opposition to SB 131. He said his brewery employs over 50 people and sells product in four states in addition to Alaska. It's been exciting to be part of this growing industry, he said, but growth could cease and the industry could be in peril if this tax goes forward. He referenced the list of proposed new revenue components and highlighted that with this legislation the alcohol industry will be the third highest taxed industry in the state, which seems unfair. 7:34:21 PM TOM CHARD, Executive Director, Alaska Behavioral Health Association, Juneau, Alaska, testified in support of SB 131. He isn't opposed to responsible consumption, but as Mr. Jessee pointed out, the tax increase ultimately ends with the consumer and their relative consumption. His hope is that this will mitigate the impact on business. He maintained that the tax increases revenue to help address the budget shortfall, decreases the costs associated with problem drinking, and raises much needed revenue for prevention and treatment efforts. Studies show the link between increased alcohol tax and decreased consumption, particularly among youth. He cited the McDowell report that found that the impact of alcohol on the system totaled $1.2 billion. He noted that last year a group gathered in Anchorage to talk about drug and alcohol treatment options. Last night about 400 people gathered to talk about how the 14 detox beds in Anchorage can serve a population of 300,000. 7:36:56 PM PAM WATTS, Member, Alaska Behavioral Health Association, Juneau, Alaska, testified in support of SB 131. Having worked in the behavioral health field for over 30 years, she can attest to the damage that alcohol has caused to individuals, families and communities and the cost to the state. Over time and with flat funding access to treatment and detox has been reduced. Treatment costs money but without treatment and resources to help people become healthy and productive, even more money is spent on public safety, court costs, prisons, and spiraling healthcare costs. Alaska has the distinction of being the first in the nation in alcoholism, alcohol-related deaths, fetal alcohol spectrum disorder, and alcohol-related domestic violence, rape and suicide. Changing those numbers takes money and the increased excise tax on alcohol will help, she said. 7:38:33 PM MICHAEL CERVANTES, owner/operator, The Banks Alehouse, Fairbanks, Alaska, testified in opposition to SB 131. He works with 15 different breweries in Alaska and employs 55 people. The proposed tax will have a ripple effect. He'll pass the tax along to the consumers and they will go elsewhere. That may force him to look for other breweries outside the state with cheaper products. 7:40:35 PM CARMEN LUNDE, Director, Kodiak CHARR, Kodiak, Alaska, testified in opposition to SB 131. She related that when the alcohol industry was taxed some years ago she didn't believe she'd live long enough to see another proposed hike. That made Alaska the highest in the nation for alcohol taxes with a couple of small exceptions. She said the alcohol tax brings the state $40 million per year and she doesn't believe the state should be looking at the hospitality industry for more money. The industry already pays far more than the national average and the proposal to double the tax is outrageous. She suggested cutting government spending, revisiting the tax cuts for oil, having a state lottery, but not touching the permanent fund. 7:43:05 PM ROBIN MINARD, Director, Public Affairs, Matsu Health Foundation, Wasilla, Alaska, testified in support of SB 131, pointing to the many benefits it offers. She highlighted that a substantial body of evidence demonstrates that an increase in the tax on alcohol results in reduced alcohol consumption and improvements in various health outcomes, particularly for youth. She pointed out that alcohol consumption contributes to the three leading causes of death for adolescents, and that it is a risk factor for a host of negative behaviors and experiences. She cited 2009 data showing that Alaska's youth consumed 17.9 percent of alcohol sold in the state that year, and noted that the surgeon general and the Institute of Medicine have specifically advocated for increases of excise taxes for alcohol as a means to reduce underage drinking. She also discussed the documented benefit to adults of increased excise taxes on alcohol. MS. MINARD summarized that the proposed tax increase will help keep underage drinking indicators moving in the right direction, reduce deaths caused by alcohol and save babies, all while helping reduce costs in corrections, youth justice, and healthcare. 7:45:10 PM PHILLIP LICHT, Chair-elect, Advisory Board on Alcoholism and Drug Abuse (ABADA), Palmer, Alaska, testified in support of SB 131 on behalf of the ABADA Board, the Alaska Mental Health Board, and Thrive MatSu. He noted that he submitted written comments. He asked the committee to consider SB 131 as part of a comprehensive effort to address the budget deficit and not a tax bill targeting a single industry. "It's really part of a larger effort to reduce spending, increase revenue, and contain costs through reform," he said. SB 131 provides revenue that is needed to maintain access to substance abuse treatment and prevention efforts along with health and safety services. 7:47:15 PM JIM PSENAK, Alpine Inn, Sutton, Alaska, testified in opposition to SB 131. He directed attention to Section 3 of the bill and questioned the reason that retailers are mentioned because the tax will be levied before it reaches the retail level. Next, he asked if the committee understands that he will incur a $40.58 increase on each case of distilled beverage he purchases. He estimated that the up-front cost of the additional tax will be $1,000 to $1,200 per week. He questioned how the State of Alaska can give away between $700 million and $2.4 billion every year in the permanent fund dividend and then expect private industry to support the government. He warned that at some point the federal government will reevaluate what it sends to Alaska. 7:50:20 PM Finding no further comments, Chair Costello closed public testimony on SB 131 and held the bill in committee.