Legislature(2003 - 2004)

02/09/2004 01:50 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                     February 09, 2004                                                                                          
                         1:50 P.M.                                                                                              
TAPE HFC 04 - 22, Side A                                                                                                        
TAPE HFC 04 - 22, Side B                                                                                                        
CALL TO ORDER                                                                                                                 
Co-Chair Williams called the House  Finance Committee meeting                                                                   
to order at 1:50 P.M.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative John Harris, Co-Chair                                                                                            
Representative Bill Williams, Co-Chair                                                                                          
Representative Eric Croft                                                                                                       
Representative Mike Hawker                                                                                                      
Representative Reggie Joule                                                                                                     
Representative Carl Moses                                                                                                       
Representative Bill Stoltze                                                                                                     
MEMBERS ABSENT                                                                                                                
Representative Mike Chenault                                                                                                    
Representative Hugh Fate                                                                                                        
Representative Richard Foster                                                                                                   
Representative Kevin Meyer                                                                                                      
ALSO PRESENT                                                                                                                  
Representative  Les   Gara;  Peter  Ecklund,   House  Finance                                                                   
Committee   Staff,   Representative   Bill   Williams;   John                                                                   
MacKinnon, Deputy Director, Department  of Transportation and                                                                   
Public Facilities; Kevin Ritchie,  Executive Director, Alaska                                                                   
Municipal League, Juneau                                                                                                        
PRESENT VIA TELECONFERENCE                                                                                                    
Clyde  (Ed)   Sniffen,  Jr.,   Assistant  Attorney   General,                                                                   
Department  of Law,  Anchorage; Robynn  Wilson, Tax  Auditor,                                                                   
Department  of Revenue, Anchorage;  Dan Dickinson,  Director,                                                                   
Division  of  Oil  and  Gas  Audit,  Department  of  Revenue;                                                                   
William  Hupprich, Associate  General  Legal Council,  Alaska                                                                   
Railroad Corporation  (ARRC),  Anchorage; Bill O'Leary,  Vice                                                                   
President,  Finance,  Alaska   Railroad  Corporation  (ARRC),                                                                   
Anchorage; Bill Rolfzen, Municipal  Assistance, Department of                                                                   
Community   &   Economic   Development,    Anchorage;   Wendy                                                                   
Lindskoog,   External  Affairs   Director,  Alaska   Railroad                                                                   
Corporation  (ARRC),   Anchorage;  Steve  Cleary,   Director,                                                                   
Alaska Public Interest Research Group (AKPIRG), Anchorage                                                                       
HB 56     An Act relating to the attorney fees and costs                                                                        
          awarded  in  certain   court  actions  relating  to                                                                   
          unfair  trade practices;  and, if considered  court                                                                   
          rule  changes, amending  Rules 54(d),  79, and  82,                                                                   
          Alaska Rules of Civil Procedure.                                                                                      
          HB 56 was HEARD and HELD in Committee for further                                                                     
HB 156    An Act increasing the  motor fuel tax and repealing                                                                   
          the special tax rates on blended fuels; and                                                                           
          providing for an effective date.                                                                                      
          HB 156 was HEARD and HELD in Committee for further                                                                    
HOUSE BILL NO. 56                                                                                                             
     An Act relating  to the attorney fees and  costs awarded                                                                   
     in  certain  court  actions  relating  to  unfair  trade                                                                   
     practices;  and,  if  considered   court  rule  changes,                                                                   
     amending Rules 54(d), 79,  and 82, Alaska Rules of Civil                                                                   
REPRESENTATIVE  LES  GARA  explained   that  the  bill  would                                                                   
provide the State with a needed  tool to fight consumer fraud                                                                   
more  effectively and  efficiently  without any  cost to  the                                                                   
State.    The   bill  strengthens  the  State's   ability  to                                                                   
represent  Alaskans who  have been  victimized by  fraudulent                                                                   
business practices whether by  used car dealers or others who                                                                   
prey on  Alaska's consumers.   He added that  the legislation                                                                   
would save money for the State of Alaska.                                                                                       
HB 56  would change  law allowing  the State  to recover  its                                                                   
full  enforcement,  investigation   and  court  costs  if  it                                                                   
prevails against a party that  has violated Alaska's consumer                                                                   
protection laws.   The bill  is modeled after  legislation in                                                                   
other areas  that allow state  and federal investigators  and                                                                   
enforcement authorities to recover their enforcement costs.                                                                     
Representative  Gara  continued, highlighting  public  policy                                                                   
behind the bill:                                                                                                                
     ·         Those who engage in unfair business practices                                                                    
               should not force the State to bear the cost                                                                      
               of their misconduct; and that                                                                                    
     ·         By allowing the State to recover not only the                                                                    
               existing  penalties that  are available  under                                                                   
               the State law,  but enforcement costs, the law                                                                   
               would   help   fund  a   more   cost-effective                                                                   
               consumer protection presence in Alaska.                                                                          
Co-Chair  Harris  questioned  what  "reasonable  fees"  would                                                                   
consist   of.       Representative   Gara    explained   that                                                                   
historically, the  Courts have had  laws that allow  the case                                                                   
winner to also receive the attorney  fees.  The attorney fees                                                                   
assessed  in the  prevailing  market rate  would  have to  be                                                                   
indicated.     The  legislation  stipulates  what   would  be                                                                   
required to be reasonable in community and not excessive.                                                                       
Co-Chair  Harris  ascertained  that  "reasonable"  in  Valdez                                                                   
could be different than in Anchorage.   He asked if there was                                                                   
an  "across  the  board reasonable  cost  for  an  attorney".                                                                   
Representative Gara thought that  the Court's would determine                                                                   
that  the prevailing  rate  in  Alaska should  range  between                                                                   
$100-$180/per hour.                                                                                                             
Co-Chair Harris acknowledged that  the Courts would be making                                                                   
the decision.   Representative  Gara interjected that  such a                                                                   
hearing  would be  a short, most  likely not  needing a  jury                                                                   
Co-Chair  Harris  asked  if the  Court's  decision  could  be                                                                   
appealed.   Representative  Gara  responded  it  could.   The                                                                   
process would move no further  forward than the State Supreme                                                                   
Representative  Gara pointed  out support  from the  Attorney                                                                   
General's office in the Department of Law.                                                                                      
Co-Chair Harris  referenced the fiscal note.   Representative                                                                   
Gara noted that  it was a zero  note as there is no  need for                                                                   
the Department to hire new people.    Co-Chair Harris pointed                                                                   
out  that the  major change  to the  fiscal note  would be  a                                                                   
change in revenues.   Representative Gara reiterated  that it                                                                   
will bring in additional revenues.                                                                                              
CLYDE  (ED)  SNIFFEN, JR.,  (TESTIFIED  VIA  TELECONFERENCE),                                                                   
ASSISTANT  ATTORNEY GENERAL,  DEPARTMENT  OF LAW,  ANCHORAGE,                                                                   
commented  that the Department  does support  the bill  as it                                                                   
provides  a   potential  source  of  revenue   in  protection                                                                   
efforts.  He offered to answer questions of the Committee.                                                                      
Representative  Stoltze  commented on  legislation  resulting                                                                   
from last year  regarding consumer protection,  which allowed                                                                   
the Legislature to  look into motor fuel price  gouging.  Mr.                                                                   
Sniffen   did   not   know   the   scenario   referenced   by                                                                   
Representative  Stoltze and  noted that  HB 56 would  require                                                                   
that there  be an investigation  conducted with  legal action                                                                   
taken.   If  found  fraudulent that  action  would allow  the                                                                   
Department  to  recover  the   fees.    The  only  anti-trust                                                                   
legislation  that  passed  last  session was  a  bill,  which                                                                   
eliminated the  source of funds  for a prevailing party  in a                                                                   
class action lawsuit.                                                                                                           
STEVE  CLEARY,  (TESTIFIED  VIA   TELECONFERENCE),  DIRECTOR,                                                                   
ALASKA PUBLIC  INTEREST RESEARCH  GROUP (AKPIRG),  ANCHORAGE,                                                                   
testified  in  support  of  the  legislation  and  urged  the                                                                   
Committee's  support.   He reiterated  that it would  provide                                                                   
more protection  for consumers  while  not costing the  State                                                                   
Co-Chair  Williams  advised  that  HB  56 would  be  HELD  in                                                                   
Committee for further consideration.                                                                                            
HOUSE BILL NO. 156                                                                                                            
     An Act increasing the motor fuel tax and repealing the                                                                     
     special tax rates on blended fuels; and providing for                                                                      
     an effective date.                                                                                                         
Co-Chair  Harris MOVED  to  ADOPT committee  substitute  #23-                                                                   
GH1118\V, Kurtz,  2/9/04, as the  version of the  bill before                                                                   
the Committee.  There being NO OBJECTION, it was adopted.                                                                       
PETER ECKLUND, HOUSE FINANCE COMMITTEE  STAFF, REPRESENTATIVE                                                                   
BILL  WILLIAMS,  explained  that version  "V"  resembles  the                                                                   
gasoline motor  fuel tax portion  of [House Bill  293], which                                                                   
passed out of the House Finance  Committee late last session.                                                                   
Version  V would  increase the  current motor  fuel tax  from                                                                   
eight cents  to twenty cents per  gallon and would  split the                                                                   
increase  of twelve cents  between the  municipality  and the                                                                   
State of  Alaska.  It would  continue a current  incentive in                                                                   
state law for  processing ethanol out of wood  and fish waste                                                                   
and would extend the incentive to June 30, 2009.                                                                                
Mr. Ecklund  noted a couple  differences between  the version                                                                   
that passed  out.  In  the sales tax  bill, there was  a two-                                                                   
cent home  fuel tax,  whereas the  bill before the  Committee                                                                   
does  not  continue  that  provision.   HB  156  removes  the                                                                   
exemption for  the Alaska Railroad Corporation  (ARRC) to pay                                                                   
the motor  fuel tax.  The bulk  of the fuel purchased  by the                                                                   
Railroad is  for rail use  and taxed at  a rate of  two cents                                                                   
per gallon.  Any fuel use for  off-the-road purposes would be                                                                   
taxed at two cents per gallon.                                                                                                  
Co-Chair Harris  asked how raising  the tax from  eight cents                                                                   
per  gallon  to twenty  cents  per  gallon would  affect  the                                                                   
state's economy.   Mr. Ecklund advised that if  the state tax                                                                   
rate was  twenty-cents per  gallon, there  would only  be ten                                                                   
states paying  less and  Alaska would continue  to be  in the                                                                   
bottom fifth.                                                                                                                   
Co-Chair Harris asked  if it was the legislation's  intent to                                                                   
place the  funds back  into highway  maintenance or  to defer                                                                   
current costs  coming out of the  General fund.   Mr. Ecklund                                                                   
noted  the  chart  in member's  packet  indicating  that  $60                                                                   
million  per year  is spent  on highway  maintenance and  $50                                                                   
million dollars  per year  from the  Capital Budget  to match                                                                   
the federal  highway dollars.   The collection  of a  gas tax                                                                   
could be used to offset those costs.                                                                                            
Co-Chair  Harris pointed  out that aviation  tax on  gasoline                                                                   
was  not increasing  four to  seven  cents per  gallon.   Mr.                                                                   
Ecklund  acknowledged  that it  was  not under  the  proposed                                                                   
version  of the  legislation.   Co-Chair  Harris indicated  a                                                                   
"conflict of interest" regarding the aviation gasoline tax.                                                                     
Co-Chair  Harris  asked  if those  driving  longer  distances                                                                   
would be  paying an  "unfair" amount  of money  on tax.   Mr.                                                                   
Ecklund  could not  answer that  question.   Co-Chair  Harris                                                                   
reiterated expense concerns for  those driving distances such                                                                   
as  the  one  between Mat-Su  and  Anchorage.    Mr.  Ecklund                                                                   
commented  that  the  Department  might  be  able  to  supply                                                                   
numbers  regarding the  number  of people  that travel  those                                                                   
Co-Chair  Harris pointed  out that  under HB  156, the  House                                                                   
Finance  Committee  version,  the Alaska  Railroad  would  be                                                                   
paying two  cents per gallon for  fuel.  Mr.  Ecklund advised                                                                   
that currently,  the Railroad is  tax exempt.   He understood                                                                   
that they use approximately 5.5  - 6 million gallons fuel per                                                                   
year.     The  two-cent  per   gallon  rate  would   generate                                                                   
approximately $120,000 dollars per year.                                                                                        
Representative  Stoltze inquired  if  the exemption  affected                                                                   
ARRC's entire fleet  of vehicles.  Mr. Ecklund  noted that in                                                                   
the last version, any vehicle  that the Railroad has would be                                                                   
exempt, while under the proposed  version, they would not be.                                                                   
If there were vehicles on the  road, they would be subject to                                                                   
the full  twenty-cent tax.   He  did not  know the amount  of                                                                   
fuel used on the road.                                                                                                          
In  response  to Representative  Stoltze,  Co-Chair  Williams                                                                   
pointed  out that  the  national motor  fuel  tax average  is                                                                   
twenty-three cents per gallon.                                                                                                  
Co-Chair Harris noted that Alaska  currently pays per twenty-                                                                   
six  cents federal  and  State tax  on  gasoline with  Hawaii                                                                   
being  the  highest  amount paid  at  fifty-three  cents  per                                                                   
gallon.  He reiterated that Alaska  is the lowest and that HB
156 proposes a price of thirty-eight cents per gallon.                                                                          
KEVIN RITCHIE,  EXECUTIVE DIRECTOR, ALASKA  MUNICIPAL LEAGUE,                                                                   
JUNEAU,  voiced support  for the  proposed  legislation.   He                                                                   
stressed that it  would create a "user pays"  for maintaining                                                                   
roads.  What is proposed would  be between the municipalities                                                                   
and State  government,  making sense  as some  of the gas  is                                                                   
consumed on municipal roads.   Sharing those costs would help                                                                   
to  guarantee  that  the  roads are  well  maintained.    Mr.                                                                   
Ritchie maintained  that it is  a fair tax  in that it  is an                                                                   
overall  cent per  gallon cost  and  cost and  people in  all                                                                   
areas of the State would pay the same per gallon of gas.                                                                        
Representative  Stoltze asked  if local  governments had  the                                                                   
ability to tax.  Mr. Ritchie replied that they do.                                                                              
WENDY  LINDSKOOG, (TESTIFIED  VIA TELECONFERENCE),  DIRECTOR,                                                                   
EXTERNAL   AFFAIRS,  ALASKA   RAILROAD  CORPORATION   (ARRC),                                                                   
ANCHORAGE,  introduced Bill O'Leary,  Vice President,  Alaska                                                                   
Railroad, &  Bill Hupprich, Associate General  Legal Council,                                                                   
Alaska Railroad, Inc.  She responded  to comments made by Mr.                                                                   
Ecklund  regarding the  gasoline  consumed  for highway  use.                                                                   
The total  per year amount  is approximately 150,000  gallons                                                                   
gasoline  and  75,000  gallons  diesel fuel.    The  Railroad                                                                   
purchases gas and diesel fuel for the following uses:                                                                           
     ·         Highway use is approximately 1%                                                                                  
     ·         Equipment use is approximately 1%                                                                                
     ·         Heating use is approximately 1%                                                                                  
     ·         Locomotive use is approximately 98%                                                                              
Ms.  Lindskoog  noted  that for  highway  use,  the  Railroad                                                                   
should be  tax exempt,  however, they  have not received  any                                                                   
reimbursement for  that fuel tax  over the years.   She noted                                                                   
that there is no objection to  paying for it.  With regard to                                                                   
legal  issues   regarding  the   locomotive  fuel   tax,  Ms.                                                                   
Lindskoog requested that Mr. Hupprich testify.                                                                                  
WILLIAM HUPPRICH,  (TESTIFIED VIA TELECONFERENCE),  ASSOCIATE                                                                   
GENERAL LEGAL  COUNCIL, ALASKA  RAILROAD CORPORATION  (ARRC),                                                                   
ANCHORAGE, noted  that the Railroad  has the same  objections                                                                   
that  they voiced  last year  on  SB 112.   A  tax will  most                                                                   
likely  violate the  federal  Alaska Railroad  Transport  Act                                                                   
provision,  which mandated  that  revenues  generated by  the                                                                   
railroad shall  be maintained  and managed  by the  State for                                                                   
railroad purposes only.  He claimed  that it would constitute                                                                   
the  federally  mandated  dedication  of  revenues  that  are                                                                   
binding on  the State  and subject  to the railroad  transfer                                                                   
and comparable to the quasi trust  laws opposed to University                                                                   
lands.   The intent of Congress  in requiring  the dedication                                                                   
of  railroad  revenues was  to  prevent  any State  or  local                                                                   
intent  to  erode  the Court  and  transportation  assets,  a                                                                   
continued assistance, which seems  vital to federal interests                                                                   
as  well as  to the  State.   The Transfer  Act prevents  the                                                                   
Legislature  from  appropriating  the  Railroad's  funds  and                                                                   
using  them for non-railroad  purposes.   The  2% tax on  the                                                                   
locomotive  fuel   would  primarily  be  used   on  highways,                                                                   
airports  and  ports,  which  would be  a  violation  of  the                                                                   
federal Transport Act.                                                                                                          
Mr. Hupprich added that the 2%  tax would most likely violate                                                                   
the Federal  Railroad  Act from  1976.  The  bill before  the                                                                   
Committee proposes  to take the  Railroad's money and  use it                                                                   
for construction  of airports,  highways and port  facilities                                                                   
used by competitors,  which would be unlawful  discrimination                                                                   
against the  Railroad under  that Act.   He noted  that those                                                                   
are  the  two   basic  legal  arguments  that   the  Railroad                                                                   
currently has on the tax.                                                                                                       
Co-Chair Williams  noted a letter in member's  files from the                                                                   
Department  of Law  dated  May 2003.   (Copy  on  File).   He                                                                   
referenced Page 4, regarding the  Railroad being subject to a                                                                   
motor  fuel tax.    Mr. Hupprich  pointed  out that  specific                                                                   
reference  was to  one case  in the  9  Circuit  and did  not                                                                   
address the  discrimination issue.   If the tax  passes, ARRC                                                                   
expects to act on the discrimination  issue.  Under decisions                                                                   
from  other   jurisdictions,  the   Court  would   find  that                                                                   
discriminatory against the Railroad.                                                                                            
Co-Chair  Williams  requested  that  the  Railroad  submit  a                                                                   
letter addressing  those concerns.  Mr. Hupprich  pointed out                                                                   
that on  Page 2, there is  a reference to the  discrimination                                                                   
in  the  Burlington Northern  Railroad  versus  the  Triplett                                                                   
Representative  Croft advised  that in  that case, the  Court                                                                   
found  discrimination  on  two  grounds.   He  asked  if  the                                                                   
Atchison  case  had  been overruled  by  the  Supreme  Court.                                                                   
Mr. Hupprich understood that it had not been overruled.                                                                         
Representative  Croft thought  that it  was applicable  as we                                                                   
are in  the 9  Circuit governing  law.  Mr.  Hupprich advised                                                                   
that  it  was  applicable  but   that  it  does  not  address                                                                   
discrimination  based on  the abuse  of the  funds that  were                                                                   
discussed in the Burlington Northern versus Triplett case.                                                                      
Representative  Croft asked  if  that had  been dedicated  to                                                                   
repair and maintenance of roadbeds.   Mr. Hupprich understood                                                                   
that  case only  looked  at  the rate  issue  and  if it  was                                                                   
Representative Croft  noted that he did not have  the case at                                                                   
hand but  did have  the summary from  the Department  of Law.                                                                   
He referenced Page 2 & Page 3.   In the Burlington case there                                                                   
were two grounds for discrimination:                                                                                            
     ·         Dedication of the funds to road maintenance,                                                                     
     ·         Higher than other rates                                                                                          
Representative  Croft thought that  Alaska would  be governed                                                                   
by the 9  Circuit decision.  The  Legislature cannot dedicate                                                                   
constitutionally  and  has  been   set  at  the  lowest  rate                                                                   
available.    He did  not  know  if the  Burlington  Northern                                                                   
Railroad decision would apply.   Mr. Hupprich agreed that the                                                                   
Legislature could not constitutionally  dedicate those funds,                                                                   
however,  the Railroad  understood that  on a defacto  basis,                                                                   
all those  funds are used to  fund highway, airport  and port                                                                   
Representative  Croft commented that  the 1  issue  discussed                                                                   
was separate from  the 4-R issues because under  the Transfer                                                                   
Act, the  Railroad assets  cannot be taken.   He asked  if it                                                                   
was interpreted  that  a tax could  never be  applied to  the                                                                   
Railroad.  Mr. Hupprich said not  entirely.  The Transfer Act                                                                   
indicates  that revenue  generated  "shall"  be retained  and                                                                   
managed  by the  Railroad  for railroad  related  work.   The                                                                   
State could possibly  tax the Railroad and use  the money for                                                                   
a railroad related purpose.  That  is the reason that they do                                                                   
not  have objection  to paying  a  fuel tax  for the  on-road                                                                   
vehicle  fleet because  the money  ends up  going into  roads                                                                   
that the  Railroad receives "benefit"  from.  The tax  on the                                                                   
on-road vehicles  is "okay"  under the  Transfer Act,  as the                                                                   
Railroad needs roads  on occasion to drive its  own vehicles.                                                                   
He  reiterated  that  the  Railroad  would  not  receive  any                                                                   
benefit from  the locomotive  tax and would  be used  to fund                                                                   
the infrastructure for their competitors.                                                                                       
Mr.  Hupprich  explained  that   revenues  generated  by  the                                                                   
Railroad shall  be retained and  managed by the  Railroad for                                                                   
railroad  related purposes.   Representative  Croft asked  if                                                                   
there was  any case  in law  on that.   Mr. Hupprich  replied                                                                   
that there  is not  and that  it only  applies to the  Alaska                                                                   
Railroad from  the federal government transfer.   He admitted                                                                   
that it is a unique legal provision.                                                                                            
Representative   Stoltze  understood   that  no  matter   how                                                                   
successful the Railroad is or  becomes, the State could never                                                                   
expect any return to the general  fund.  Mr. Hupprich advised                                                                   
that the  Railroad is not opposed  to paying taxes  for which                                                                   
they  receive some  benefit.   The  federal  Act attempts  to                                                                   
prevent taking  money from the  Railroad and use it  for non-                                                                   
Railroad  purposes.   The  intent  of  the provision  was  to                                                                   
preserve  the important  transportation asset  for the  State                                                                   
and  not have  it subject  to  being dismantled  periodically                                                                   
when the State is running low  on funds.  He pointed out that                                                                   
there is not  unfair competition between the  Alaska Truckers                                                                   
and the Railroad.                                                                                                               
Representative  Croft asked  if the Railroad  would  have any                                                                   
objection  to   using  some  of  the  $120,000   dollars  for                                                                   
maintenance  and  operations of  the  Whittier  Tunnel.   Mr.                                                                   
Hupprich  responded that  they  would look  at that  specific                                                                   
proposal as it is definitely a Railroad connection.                                                                             
TAPE HFC 04 - 22, SIDE B                                                                                                      
Co-Chair Williams stated that HB 156 would be HELD in                                                                           
Committee for further consideration.                                                                                            
The meeting was adjourned at 2:38 P.M.                                                                                          

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