Legislature(2021 - 2022)DAVIS 106

05/04/2021 05:30 PM House WAYS & MEANS

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

Audio Topic
05:33:35 PM Start
05:34:41 PM HB189
08:01:30 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time Change --
+= HB 189 EMPLOYMENT TAX FOR EDUCATION TELECONFERENCED
Moved CSHB 189(W&M) Out of Committee
-- Invited & Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
           HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS                                                                          
                          May 4, 2021                                                                                           
                           5:33 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Ivy Spohnholz, Chair                                                                                             
Representative Adam Wool                                                                                                        
Representative Andy Josephson                                                                                                   
Representative Calvin Schrage                                                                                                   
Representative Andi Story                                                                                                       
Representative Mike Prax                                                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative David Eastman                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 189                                                                                                              
"An  Act imposing  an education  tax on  net earnings  from self-                                                               
employment  and   wages;  relating  to  the   administration  and                                                               
enforcement of the education tax;  and providing for an effective                                                               
date."                                                                                                                          
                                                                                                                                
     - MOVED CSHB 189(W&M) OUT OF COMMITTEE                                                                                     
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 189                                                                                                                  
SHORT TITLE: EMPLOYMENT TAX FOR EDUCATION                                                                                       
SPONSOR(s): WAYS & MEANS                                                                                                        
                                                                                                                                
04/26/21       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/26/21       (H)       W&M, EDC, FIN                                                                                          
05/01/21       (H)       W&M AT 11:30 AM DAVIS 106                                                                              
05/01/21       (H)       Heard & Held                                                                                           
05/01/21       (H)       MINUTE(W&M)                                                                                            
05/04/21       (H)       W&M AT 5:30 PM DAVIS 106                                                                               
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
COLLEEN GLOVER, Director                                                                                                        
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions during the hearing on HB
189.                                                                                                                            
                                                                                                                                
ALISON ARIANS                                                                                                                   
Great Alaska Schools                                                                                                            
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 189.                                                                          
                                                                                                                                
KATHERINE UEI                                                                                                                   
Soldotna, Alaska                                                                                                                
POSITION STATEMENT:  Testified in opposition to HB 189.                                                                       
                                                                                                                                
CRIS EICHENLAUB                                                                                                                 
Wasilla, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in opposition to HB 189.                                                                       
                                                                                                                                
JEREMY UEI                                                                                                                      
Soldotna, Alaska                                                                                                                
POSITION STATEMENT:  Testified in opposition to HB 189.                                                                       
                                                                                                                                
QUEEN PARKER                                                                                                                    
Sterling, Alaska                                                                                                                
POSITION STATEMENT:  Testified in opposition to HB 189.                                                                       
                                                                                                                                
ANNIE MASSEY, Director                                                                                                          
Alaska Parents' Rights in Education                                                                                             
Eagle River, Alaska                                                                                                             
POSITION STATEMENT:  Testified in opposition to HB 189.                                                                       
                                                                                                                                
BERT HOUGHTALING                                                                                                                
Big Lake, Alaska                                                                                                                
POSITION STATEMENT:  Testified in opposition of HB 189.                                                                       
                                                                                                                                
FRANCESCA ALLEGREZZA                                                                                                            
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 189.                                                                       
                                                                                                                                
TRAVIS WILSON                                                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 189.                                                                       
                                                                                                                                
NORM WOOTEN, Director of Advocacy                                                                                               
Association of Alaska School Boards                                                                                             
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 189.                                                                          
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
5:33:35 PM                                                                                                                    
                                                                                                                                
CHAIR IVY  SPOHNHOLZ called the  House Special Committee  on Ways                                                             
and Means  meeting to order  at 5:33 p.m.   Representatives Wool,                                                               
Josephson, Story,  Schrage, Prax,  and Spohnholz were  present at                                                               
the call to order.                                                                                                              
                                                                                                                                
              HB  189-EMPLOYMENT TAX FOR EDUCATION                                                                          
                                                                                                                                
5:34:41 PMIME                                                                                                                 
                                                                                                                                
CHAIR SPOHNHOLZ announced that the  first order of business would                                                               
be HOUSE BILL  NO. 189, "An Act imposing an  education tax on net                                                               
earnings  from   self-employment  and  wages;  relating   to  the                                                               
administration  and   enforcement  of  the  education   tax;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
5:34:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL  moved  to   adopt  the  proposed  committee                                                               
substitute  (CS)   for  HB  189,  labeled   32-LS0753\G,  Nauman,                                                               
4/28/21,  as the  working document.   There  being no  objection,                                                               
Version G was before the committee.                                                                                             
                                                                                                                                
5:35:01 PM                                                                                                                    
                                                                                                                                
CHAIR  SPOHNHOLZ  explained  that   HB  189  would  establish  an                                                               
education payroll  tax, which  is modeled on  a 2017  Senate bill                                                               
that  was designed  to address  school construction.   The  major                                                               
change  in  the  current  legislation  is  that  funds  would  be                                                               
designated  to  the  Public Education  Fund  rather  than  school                                                               
construction,   as  Article   7,   Section  1,   of  the   Alaska                                                               
Constitution  requires   a  system   of  public  schools   to  be                                                               
established  and maintained.   The  bill seeks  to raise  a small                                                               
portion  of overall  funding needed  to meet  this constitutional                                                               
obligation, she  said.   She further noted  that in  1919, Alaska                                                               
enacted some form  of an education tax, and that  some form of an                                                               
education tax  remained in place  until 1980.  She  reported that                                                               
the  payroll  tax  would  be  a small  revenue  measure  that  is                                                               
estimated  to  generate  between  $65  million  and  $66  million                                                               
annually.   She  continued  to  relay that  20  percent of  those                                                               
paying  the tax  would be  nonresident workers.   She  reiterated                                                               
that the  legislation would serve  as a  modest part of  a fiscal                                                               
plan.  She invited questions from the committee.                                                                                
                                                                                                                                
5:37:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE STORY inquired about  sequence of the proposed tax                                                               
implementation  on  nonresidents.   She  asked  when the  tax  on                                                               
nonresidents kick in.                                                                                                           
                                                                                                                                
CHAIR  SPOHNHOLZ   responded  that  the  bill   would  allow  the                                                               
deductions to be made from  nonresidents' first and second checks                                                               
in the  calendar year.   She noted  that a  forthcoming amendment                                                               
would propose changing that to a later timeframe.                                                                               
                                                                                                                                
CHAIR SPOHNHOLZ  asked Ms. Glover  to review the fiscal  note and                                                               
the costs associated with implementation.                                                                                       
                                                                                                                                
5:39:09 PM                                                                                                                    
                                                                                                                                
COLLEEN GLOVER,  Director, Tax  Division, Department  of Revenue,                                                               
explained that  as with all tax  programs, this new tax  would be                                                               
programmed into  the Tax Revenue  Management system,  which would                                                               
require capital cost.  She noted  that the proposed tax is simple                                                               
for a broad-based  tax, adding that once in the  system, it would                                                               
be  automated.    She  reported   that  the  tax  would  generate                                                               
approximately $65 million  annually, assuming 480,000 individuals                                                               
would  contribute either  through  their employers  or the  self-                                                               
employment portal.   Additionally,  she stated  that if  DOR were                                                               
administering  the   program,  the  department  would   have  the                                                               
advantage of being able to  acquire information from the Internal                                                               
Revenue  Service   (IRS),  as   well  as   confidential  taxpayer                                                               
information pertaining  to returns  for the purposes  of auditing                                                               
and cross-checking  information.   She believed  that one  of the                                                               
biggest  challenges would  be identifying  the self-employed  and                                                               
nonresidents and  getting them  to pay the  tax, for  which DOR's                                                               
relationship with the IRS would be helpful.                                                                                     
                                                                                                                                
5:42:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRAX, referring  to the  fiscal note,  shared his                                                               
understanding that it  would cost $632,000 to set  up the program                                                               
and $570,000 annually  to run it thereafter.  He  opined that the                                                               
cost seemed high and asked for the reasoning.                                                                                   
                                                                                                                                
MS. GLOVER  acknowledged that the ongoing  cost for administering                                                               
the   program  would   account   for   five  positions:   program                                                               
supervisor, several tax technicians,  accountant, and an auditor.                                                               
She  noted  that  the  cost  would be  small  compared  to  other                                                               
existing tax programs.  She  explained that despite the automated                                                               
software, the  program would still  require people to  handle the                                                               
customer  service aspects,  such  as returns  and  refunds.   She                                                               
added that the difference between the  FY 22 cost and the ongoing                                                               
cost  is the  initial  setup for  new  employees, computers,  and                                                               
office space.                                                                                                                   
                                                                                                                                
CO-CHAIR  SPOHNHOLZ  pointed  out  that  five  people  processing                                                               
500,000  workers  is  the  equivalent   of  100,000  workers  per                                                               
processor, which she believed to be efficient.                                                                                  
                                                                                                                                
5:44:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PRAX recalled that Ms.  Glover had stated that DOR                                                               
has access  to individual income  tax records.   Consequently, he                                                               
asked  why the  employer  is identified  as  the "tax  collector"                                                               
rather than  the state collecting  directly from  the individuals                                                               
themselves.                                                                                                                     
                                                                                                                                
MS.  GLOVER confirmed  that  DOR  has access  to  IRS tax  return                                                               
information;  however, the  department receives  that information                                                               
6-8 months after the returns have  been filed.  She added that in                                                               
regard to  auditing, DOR would  be able to assess  whether people                                                               
had filed.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  PRAX surmised  that the  tax collection  would be                                                               
delayed  by one  year.   He  pointed  out that  the  cost to  the                                                               
individual businesses is  not included in the  fiscal note, which                                                               
would be  substantially more  than $570,000,  he speculated.   He                                                               
asked if the cost to employers could be estimated.                                                                              
                                                                                                                                
MS. GLOVER  clarified that  the employer  would withhold  the tax                                                               
from the  employee and remit  that information to  the department                                                               
via an online portal.                                                                                                           
                                                                                                                                
REPRESENTATIVE PRAX  shared a personal  anecdote.   He speculated                                                               
that the individual employers would  spend more time on this than                                                               
the  state would  auditing.   He  believed that  needed  to be  a                                                               
consideration.                                                                                                                  
                                                                                                                                
5:48:00 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ  reminded Representative  Prax that  fiscal notes                                                               
reflect the cost for the State of Alaska.                                                                                       
                                                                                                                                
REPRESENTATIVE  PRAX questioned  whether the  cost for  employers                                                               
could  be determined.   He  believed  it would  be a  significant                                                               
amount.                                                                                                                         
                                                                                                                                
CHAIR  SPOHNHOLZ pointed  out that  the inquiry  was outside  the                                                               
scope of Ms. Glover's work.                                                                                                     
                                                                                                                                
5:48:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WOOL  directed attention to Section  1, Subsection                                                               
(b) of  CSHB 189,  which listed  5 different  salary ranges.   He                                                               
inquired about  the distribution of the  400,000 taxpayers within                                                               
those categories.                                                                                                               
                                                                                                                                
MS.  GLOVER  listed  the  following  distribution:  approximately                                                               
110,000  taxpayers in  the  first bracket  [annual  tax of  $50],                                                               
150,000 in  the second bracket  [annual tax of $100],  100,000 in                                                               
the  third bracket  [annual tax  of $200],  40,000 in  the fourth                                                               
bracket  [annual tax  of $300],  and 2,000  in the  fifth bracket                                                               
[annual tax of $500].                                                                                                           
                                                                                                                                
5:50:28 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ clarified  that the total number  of taxpayers is                                                               
roughly  500,000, of  which 81,000  are nonresidents  and 406,000                                                               
are residents.   She asked  whether the distribution  provided by                                                               
Ms. Glover accounted for residents only.                                                                                        
                                                                                                                                
MS.  GLOVER   confirmed  that  the  data   referred  to  resident                                                               
taxpayers.     She  explained  [the   division]  had   made  some                                                               
assumptions for  the nonresidents  and added  a multiplier  of 20                                                               
percent per nonresident.  She  further noted that the information                                                               
pertaining  to salary  distribution  is from  2018  IRS data  for                                                               
Alaska taxpayers.                                                                                                               
                                                                                                                                
CHAIR  SPOHNHOLZ asked  whether  the  estimates for  nonresidents                                                               
were based on the 2018 IRS data as well.                                                                                        
                                                                                                                                
MS. GLOVER  said the 20  percent figure was information  from the                                                               
Department  of Labor  & Workforce  Development (DLWD),  which was                                                               
applied to the salary brackets.                                                                                                 
                                                                                                                                
CHAIR  SPOHNHOLZ sought  to  confirm that  the  division had  not                                                               
estimated  how many  nonresidents would  come in  at each  income                                                               
bracket.                                                                                                                        
                                                                                                                                
MS. GLOVER confirmed.                                                                                                           
                                                                                                                                
5:52:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   PRAX   asked    whether   the   department   had                                                               
contemplated the necessary "regulations"  to account for seasonal                                                               
employees that  have multiple  jobs.   He cited  an example  of a                                                               
project in Fairbanks  that was put on hold causing  the work crew                                                               
to be laid off, adding that  that the workers had planned to earn                                                               
$30,000-$40,000.   He asked  how that  situation would  have been                                                               
accounted  for if  the workers  had paid  their head  tax on  the                                                               
first check.                                                                                                                    
                                                                                                                                
MS.  GLOVER  responded that  there  have  been discussions  about                                                               
implementation; however,  until legislation is  passed, potential                                                               
regulations cannot be contemplated.                                                                                             
                                                                                                                                
5:53:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL  inquired  about individuals  with  multiple                                                               
jobs,  asking  which  employer   would  be  the  designated  "tax                                                               
submitter."                                                                                                                     
                                                                                                                                
MS. GLOVER offered  her understanding that if  the employee could                                                               
prove that  he/she had already  paid the tax, the  employer would                                                               
not have to withhold.                                                                                                           
                                                                                                                                
5:54:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRAX  emphasized  his belief  that  the  employer                                                               
would be held accountable for the  tax.  He believed it would put                                                               
the employer at a disadvantage.                                                                                                 
                                                                                                                                
5:55:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SCHRAGE  asked   whether  during  the  onboarding                                                               
process,  a form  could  be included  that  asks whether  another                                                               
employer is covering the education head tax.                                                                                    
                                                                                                                                
MS. GLOVER said it's a good  suggestion.  She reiterated that the                                                               
implementation  process   had  not   been  fully  vetted.     She                                                               
emphasized her  desire to make it  as simple as possible  for all                                                               
parties.                                                                                                                        
                                                                                                                                
5:56:34 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ thanked Ms. Glover.                                                                                             
                                                                                                                                
5:56:49 PM                                                                                                                    
                                                                                                                                
The  House  Special  Committee  on Ways  and  Means  meeting  was                                                               
recessed at 5:57 p.m. to a call of the chair.                                                                                   
                                                                                                                                
7:16:27 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ  called the House  Special Committee on  Ways and                                                               
Means back  to order.   Present  at the call  back to  order were                                                               
Representatives Josephson, Schrage, Wool, Story, and Spohnholz.                                                                 
                                                                                                                                
7:16:52 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ opened invited testimony.                                                                                       
                                                                                                                                
7:17:01 PM                                                                                                                    
                                                                                                                                
ALISON ARIANS,  Great Alaska  Schools (GAS),  shared that  GAS is                                                               
supportive  of the  proposed legislation  with one  caveat.   She                                                               
noted that  GAS is a  statewide nonpartisan  coalition advocating                                                               
for quality public education for  every child.  She believed that                                                               
providing a  good education for  every child would help  ensure a                                                               
strong  future for  Alaska.   She recognized  that continuing  to                                                               
rely on current  revenue sources to fund  Alaska's public schools                                                               
is not  a sustainable solution.   Further, she opined  that given                                                               
the huge  fiscal challenges  facing the  state, Alaskans  need to                                                               
pay more for the services they  receive.  She said she is pleased                                                               
that  public  education   may  be  the  first   to  receive  this                                                               
sustainable funding.  Additionally, she  is pleased the bill uses                                                               
an income-based tax  method rather than a sales tax,  as it would                                                               
fairly distribute  the cost among  residents and  capture revenue                                                               
from nonresidents who  work in the state.   However, she believed                                                               
that the  taxes imposed  on the two  lowest earning  brackets are                                                               
higher  than they  should  be, which  would  unfairly burden  the                                                               
workers  who earn  the  least.   Despite  the  tax increasing  as                                                               
income increases, she  believed the measure was  regressive.  She                                                               
reported that  an individual who  earned under $20,000  would pay                                                               
the government  two-tenths of 1  percent of his/her  income while                                                               
an  individual who  earned $1  million would  pay the  government                                                               
five-hundredths of one percent of  his/her income.  She suggested                                                               
that wage earners  making $20,000 or $50,000 should  pay less and                                                               
higher earners should pay more.   She commended the committee for                                                               
working on a solution.                                                                                                          
                                                                                                                                
7:19:26 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ opened public testimony.                                                                                        
                                                                                                                                
7:19:58 PM                                                                                                                    
                                                                                                                                
KATHERINE UEI opined that the  school districts should go back to                                                               
a  zero-balance budget  from which  they  account for  everything                                                               
they need.   She believed that schools need to  cut their budgets                                                               
and work  within their  means instead of  taking more  money from                                                               
people  who  are  already  suffering   from  the  impact  of  the                                                               
pandemic.  She emphasized her strong opposition to HB 189.                                                                      
                                                                                                                                
7:21:49 PM                                                                                                                    
                                                                                                                                
CRIS   EICHENLAUB  stated   his   opposition   to  the   proposed                                                               
legislation.  He  opined that additional tax  measures should not                                                               
be   considered  until   the  $7,000   in  unpaid   dividends  is                                                               
distributed.    He  believed  that  the  revenue  that  would  be                                                               
collected from  this head tax  could be "easily" trimmed  off the                                                               
budget;  further, that  Alaskans should  not be  taxed to  fund a                                                               
"failing"  [education] system.   He  said that  if Alaska  ranked                                                               
20th  in  the nation,  as  opposed  to  last,  he would  be  more                                                               
supportive of  the bill.   He opined that Alaska's  school system                                                               
needs to be reformed.                                                                                                           
                                                                                                                                
7:24:24 PM                                                                                                                    
                                                                                                                                
JEREMY UEI shared his opposition to  the bill due to Alaska's low                                                               
national ranking.   He opined that  more money should not  be put                                                               
into the school system if a decent education cannot be provided.                                                                
                                                                                                                                
7:25:03 PM                                                                                                                    
                                                                                                                                
QUEEN PARKER, stated her opposition  to the proposed legislation,                                                               
adding  that  she  agreed  with   the  statements  from  previous                                                               
testifiers.                                                                                                                     
                                                                                                                                
7:25:33 PM                                                                                                                    
                                                                                                                                
ANNIE  MASSEY, Director,  Alaska  Parents'  Rights in  Education,                                                               
shared her  opposition to  HB 189.   She claimed  that historical                                                               
data  "proves"  that "more  money  does  not improve  education."                                                               
Further, she argued  that "parents cannot trust  that money being                                                               
requested  will  continue  to   advance  a  social,  sexual,  and                                                               
political agenda  that has  no place in  public education."   She                                                               
pointed out  that education  continues to  be funded  despite the                                                               
state's poor  academic outcomes.   She opined  that if  the state                                                               
continues to  fund education that  is not improving,  the removal                                                               
of parents' rights will continue to persist.                                                                                    
                                                                                                                                
7:28:47 PM                                                                                                                    
                                                                                                                                
BERT HOUGHTALING  stated his opposition  to the bill  and equated                                                               
the proposed  tax measure to  theft.   He reported that,  per the                                                               
Department of  Education and Early Development  (DEED), Alaska is                                                               
ranked  52  in the  nation.    He  argued that  many  third-world                                                               
countries provide a better quality  of education for one-tenth of                                                               
the  amount  that  Alaska  pays.   He  argued  that  the  results                                                               
achieved  by  Alaska's  schools  produce  "some  of  the  dumbest                                                               
children" in  the U.S.   He characterized  the bill  as "taxation                                                               
without  representation."   He reiterated  his  opposition to  HB
189.                                                                                                                            
                                                                                                                                
7:31:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL   said  whether  Mr.   Houghtaling  believes                                                               
Alaska's system  of education  is good,  bad, or  otherwise, it's                                                               
not fair to  call Alaska's children "dumb."  He  added that if an                                                               
individual does  not receive  a good  education, it  doesn't mean                                                               
he/she is unintelligent.                                                                                                        
                                                                                                                                
CHAIR SPOHNHOLZ agreed.                                                                                                         
                                                                                                                                
7:31:55 PM                                                                                                                    
                                                                                                                                
FRANCESCA ALLEGREZZA expressed  her opposition to the  bill.  She                                                               
believed that  increasing taxes to  pay for a  "failed" education                                                               
system is not  the answer.   In response  to Mr. Houghtaling, she                                                               
pointed out that intelligence is  not measured by education.  She                                                               
believed that instead of focusing  on math, reading, and writing,                                                               
schools are  teaching "social justice and  critical race theory,                                                                
which should not be taught in school, she opined.                                                                               
                                                                                                                                
7:33:36 PM                                                                                                                    
                                                                                                                                
TRAVIS  WILSON,  stated  his  strong   opposition  to  the  bill,                                                               
characterizing it  as a "garbage" tax.   He explained that  if an                                                               
employee was  underperforming, he  would not  incentivize him/her                                                               
with a pay raise.  Instead, he said  he would "trim the fat."  He                                                               
suggested auditing  the education  budget rather  than increasing                                                               
the funding.                                                                                                                    
                                                                                                                                
7:34:28 PM                                                                                                                    
                                                                                                                                
NORM WOOTEN,  Director of Advocacy, Association  of Alaska School                                                               
Boards   (AASB),  expressed   his   support   for  the   proposed                                                               
legislation.  He  informed the committee that AASB  has long held                                                               
resolutions  that  support   early,  sustainable,  adequate,  and                                                               
equitable funding  for education.   AASB, he said,  has advocated                                                               
for many years to create a  sustainable fiscal plan for the state                                                               
that will enable Alaskans to  continue to enjoy the benefits this                                                               
state has to offer.  He  believed that Alaska currently stands on                                                               
the edge  of a fiscal  cliff, adding  that it is  disingenuous to                                                               
expect  to  live  the  same  quality of  life  while  failing  to                                                               
recognize  the  real  fiscal  situation facing  the  state.    He                                                               
characterized HB  189 as a  baby step,  but still a  step towards                                                               
looking  at  additional  revenue  sources.    He  reiterated  his                                                               
support for the bill.                                                                                                           
                                                                                                                                
7:36:02 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ closed public testimony.                                                                                        
                                                                                                                                
CHAIR  SPOHNHOLZ   clarified  that   HB  189  does   not  propose                                                               
increasing funding  for public education; instead,  it proposes a                                                               
small  payroll tax  for the  purpose of  raising education.   The                                                               
funds  would go  towards the  public education  fund, she  added.                                                               
She noted that  the legislature would still  have the opportunity                                                               
to make choices about how to allocate funds on an annual basis.                                                                 
                                                                                                                                
7:37:03 PM                                                                                                                    
                                                                                                                                
CHAIR  SPOHNHOLZ   moved  to  adopt  Amendment   1,  labeled  32-                                                               
LS0753\G.2, Nauman, 5/3/21, which read:                                                                                         
                                                                                                                                
     Page 2, line 15:                                                                                                           
          Delete "first two" in both places                                                                                     
          Insert "second and third" in both places                                                                              
                                                                                                                                
7:37:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SCHRAGE objected for the purpose of discussion.                                                                  
                                                                                                                                
7:37:24 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ conveyed that Amendment  1 is proposing to deduct                                                               
from  the employee's  "second  and third"  payrolls  of the  year                                                               
instead of the  "first two" payrolls.  She  proposed a conceptual                                                               
amendment to Amendment  1, such that "second and  third" would be                                                               
changed to  "third and fourth;"  therefore, the  deductions would                                                               
not affect the first two paychecks  of a calendar year, which she                                                               
characterized as insensitive.   She explained that  she wanted to                                                               
give people  a buffer after the  holiday season.  There  being no                                                               
objection, the conceptual amendment to Amendment 1 was adopted.                                                                 
                                                                                                                                
7:38:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SCHRAGE removed his objection to Amendment 1.                                                                    
Without further objection, Amendment 1, as amended, was adopted.                                                                
                                                                                                                                
7:38:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SCHRAGE moved to adopt Amendment 2, labeled 32-                                                                  
LS0753\G.4, Nauman, 5/3/21, which read:                                                                                         
                                                                                                                                
     Page 1, line 14:                                                                                                           
          Delete "$20,000"                                                                                                      
          Insert "$30,000"                                                                                                      
          Delete "$50"                                                                                                          
          Insert "$0"                                                                                                           
                                                                                                                                
     Page 2, line 1:                                                                                                            
          Delete "$20,000"                                                                                                      
          Insert "$30,000"                                                                                                      
          Delete "$50,000"                                                                                                      
          Insert "$60,000"                                                                                                      
                                                                                                                                
     Page 2, line 2:                                                                                                            
          Delete "$50,000"                                                                                                      
          Insert "$60,000"                                                                                                      
          Delete "$100,000"                                                                                                     
          Insert "$90,000"                                                                                                      
                                                                                                                                
     Page 2, line 3:                                                                                                            
          Delete "$100,000"                                                                                                     
          Insert "$90,000"                                                                                                      
          Delete "$500,000"                                                                                                     
          Insert "$120,000"                                                                                                     
          Delete "$300"                                                                                                         
          Insert "$400"                                                                                                         
                                                                                                                                
     Page 2, line 4:                                                                                                            
          Delete "$500,000"                                                                                                     
          Insert "$120,000"                                                                                                     
          Delete "$500"                                                                                                         
          Insert "$600"                                                                                                         
                                                                                                                                
7:38:38 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ objected for the purpose of discussion.                                                                         
                                                                                                                                
7:38:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SCHRAGE  explained that  Amendment 2  would adjust                                                               
the  income  brackets  for  the education  head  tax  to  address                                                               
several concerns that were conveyed  during public testimony.  He                                                               
relayed that the  first bracket would be  changed from $0-$20,000                                                               
to $0-$30,000; further,  the deduction for that  bracket would be                                                               
changed from $50 to $0.   Consequently, the lowest income bracket                                                               
would  not have  to contribute  to the  head tax.   Additionally,                                                               
Amendment  2 would  adjust  the  head tax  for  the other  income                                                               
brackets to allow for progressivity, as opposed to regressivity.                                                                
                                                                                                                                
7:40:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  expressed his support for  Amendment 2.                                                               
He said  he tends  to agree with  the conservative  argument that                                                               
everyone can  pay something minimal.   He believed that  it gives                                                               
all citizens "skin in the game" and creates political viability.                                                                
                                                                                                                                
REPRESENTATIVE    WOOL   pointed    out   a    contradiction   in                                                               
Representative Josephson's  statement, as  he had stated  that he                                                               
agrees  with   the  concept   that  everyone   should  contribute                                                               
something minimal;  however, per  Amendment 2, the  lowest income                                                               
bracket would pay $0 in head tax.                                                                                               
                                                                                                                                
REPRESENTATIVE JOSEPHSON  maintained that he had  a small concern                                                               
about  the   $0-$30,000  income  bracket   contributing  nothing.                                                               
Nonetheless, he said  he intended to support Amendment  2 and not                                                               
offer  Amendment 3,  which would  have raised  more revenue  from                                                               
higher-earning citizens.                                                                                                        
                                                                                                                                
7:42:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL directed  attention  to page  2,  line 4  of                                                               
Amendment 2 and sough to  confirm that the highest income bracket                                                               
would  be lowered  from $500,000  or  more to  $120,000 or  more.                                                               
Further,  he  opined  that  even with  the  changes  proposed  in                                                               
Amendment 2, the education head tax would not be progressive.                                                                   
                                                                                                                                
REPRESENTATIVE   SCHRAGE  explained   the  changes   proposed  in                                                               
Amendment 2  in further  detail.  He  relayed that  people making                                                               
$0-$30,000  would   pay  $0;  $30,000-$60,000  would   pay  $100;                                                               
$60,000-$90,000  would  pay   $200;  $90,000-$120,000  would  pay                                                               
$400l; and those  making over $120,000 would pay $600.   He noted                                                               
that the head tax would not be a  true income tax, as it's a flat                                                               
amount based on wages instead of percentage based.                                                                              
                                                                                                                                
CHAIR SPOHNHOLZ  asked how  Amendment 2  would affect  the fiscal                                                               
notes and the bill's earning potential.                                                                                         
                                                                                                                                
REPRESENTATIVE  SCHRAGE responded  that it  shouldn't adjust  the                                                               
cost of the program; however,  it would slightly reduce the total                                                               
revenue  generated from  the education  head tax.   He  estimated                                                               
that the  proposed amendment  would reduce  the revenue  from $65                                                               
million to $55 million.                                                                                                         
                                                                                                                                
7:45:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL  recalled  that  a head  tax  got  its  name                                                               
because everyone paid  per "head," or person.   He clarified that                                                               
historically,  a  head  tax  was  never  based  on  income.    He                                                               
continued to explain that the  head tax was reintroduced with the                                                               
addition  of "gradation  step  ups."   He  opined  that even  the                                                               
discussion of percentage  of income in relation  to this proposal                                                               
defeats  the purpose  of  a head  tax.   Further,  he shared  his                                                               
belief that an  individual who earns $30,000 could  afford to pay                                                               
$30.   He acknowledged that  the head  tax would deduct  a larger                                                               
percentage of  a lower earner's  income compared to those  in the                                                               
high-income brackets;  nonetheless, he pointed out  that the same                                                               
could be said  about the PFD, but it still  gets distributed.  He                                                               
expressed some concern about the  lowest income bracket paying $0                                                               
and  suggested that  those making  $0-$30,000 pay  a head  tax of                                                               
$20.  Further,  he estimated that if Amendment 2  were to pass in                                                               
its   current   form,  130,000   wage   earners   would  not   be                                                               
contributing, which he characterized as unfair.                                                                                 
                                                                                                                                
REPRESENTATIVE SCHRAGE  believed that  the reductions to  the PFD                                                               
in  recent years  counterbalanced  that to  some  extent, as  the                                                               
lowest earners were  the most affected by  that "reduced negative                                                               
tax."                                                                                                                           
                                                                                                                                
7:47:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE STORY shared her  understanding that people making                                                               
up  to   $30,000  would   be  comfortable   paying  a   $20  tax;                                                               
accordingly, she opined  that a contribution is  worthwhile.  She                                                               
questioned  how  Representative Schrage  came  up  with the  $400                                                               
figure for the $90,000-$120,0000 income bracket.                                                                                
                                                                                                                                
REPRESENTATIVE  SCHRAGE   shared  that  he  had   structured  the                                                               
deductions to  allow for a  modest increase in the  effective tax                                                               
rate throughout  the income brackets.   He explained that  a $400                                                               
tax would  equate to  four-tenths of a  percent for  the $90,000-                                                               
$120,000 bracket, which is slightly  above the previous bracket's                                                               
tax rate  at three-tenths of a  percent.  He reiterated  that his                                                               
intent was  to add  a small  aspect of  progressivity to  the tax                                                               
structure.   He noted that he  would be amenable to  a conceptual                                                               
amendment.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  STORY said  she was  comfortable with  the amount                                                               
presented in the current version of the bill.                                                                                   
                                                                                                                                
7:50:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SCHRAGE shared  that he would be  most amenable to                                                               
amending the deduction  for the lowest income bracket,  as it has                                                               
instigated the most discussion.   He believed that decreasing the                                                               
deduction from  $400 to $300  for the income bracket  of $90,000-                                                               
$120,0000 would  reduce the effective tax  rate; consequently, he                                                               
would not be as supportive of that change.                                                                                      
                                                                                                                                
7:50:32 PM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
7:50:59 PM                                                                                                                    
                                                                                                                                
CHAIR  SPOHNHOLZ  moved  to  adopt   a  conceptual  amendment  to                                                               
Amendment 2, such that "$0" would  be replaced with "$25" on page                                                               
1, line  5.  There  being no objection, the  conceptual amendment                                                               
was adopted.                                                                                                                    
                                                                                                                                
7:51:44 PM                                                                                                                    
                                                                                                                                
CHAIR  SPOHNHOLZ, hearing  no further  objection to  Amendment 2,                                                               
announced that Amendment 2, as amended, was adopted.                                                                            
                                                                                                                                
7:51:53 PM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
7:52:07 PM                                                                                                                    
                                                                                                                                
CHAIR  SPOHNHOLZ  noted  that  she   withdrew  her  objection  to                                                               
Amendment  2.    Without  further objection,  she  restated  that                                                               
Amendment  2,  as amended,  was  adopted.   She  invited  further                                                               
discussion on the underlying bill, HB 189.                                                                                      
                                                                                                                                
7:52:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  associated  Alaska's  fiscal  problems                                                               
with the  state's lack of  a broad-based  tax.  He  stressed that                                                               
this measure must  be passed, adding that  people must contribute                                                               
to state government.                                                                                                            
                                                                                                                                
7:53:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SCHRAGE aligned  himself with  the comments  from                                                               
Representative  Josephson.     Regarding  several  comments  made                                                               
during  public   testimony,  he   clarified  that   the  proposed                                                               
legislation  would not  increase education  funding; instead,  it                                                               
would  increase  the  funding available  to  the  legislature  to                                                               
appropriate to the  schools.  He believed  that Alaska's teachers                                                               
and  administrators  do  care about  their  students'  education,                                                               
contrary  to  some  of  the  previous  testimony.    Further,  he                                                               
explained  that if  the  state  were to  pay  out full  statutory                                                               
dividends,  there would  be  no  money left  for  dividends in  a                                                               
decade.   He  acknowledged that  something  needs to  be done  to                                                               
address the education system in  this state; however, he believed                                                               
that  Alaska's  schools  do  a good  job  at  educating  students                                                               
despite  the low  performance  scores for  the  third and  fourth                                                               
grades.   He shared  his understanding  that the  low performance                                                               
scores are  largely a  result of students  who are  unprepared to                                                               
learn  and may  not know  how to  read, write,  or recognize  the                                                               
alphabet.   Further, he pointed  out that the state's  schools do                                                               
quite well  when measuring the  improvement from  kindergarten to                                                               
third grade.   He  opined that  "cherry picking"  statistics does                                                               
not serve anybody.                                                                                                              
                                                                                                                                
7:55:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE STORY  pointed out  that education  is one  of the                                                               
largest investments  for every state.   She reported  that Alaska                                                               
falls in  the middle of  the pack  for funding when  adjusted for                                                               
inflation.    Additionally,  she  noted  that  the  base  student                                                               
allocation  (BSA) has  not  been  adjusted for  six  years.   She                                                               
explained that  flat funding and increased  expenses has resulted                                                               
many  districts  cutting  their   budgets  and  losing  services.                                                               
Nonetheless,  she  shared  her  understanding  that  schools  are                                                               
providing good  instruction.  She  expressed her support  for the                                                               
bill and  emphasized the importance  of considering  new revenues                                                               
to solve Alaska's fiscal situation.                                                                                             
                                                                                                                                
7:57:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WOOL  recalled that historically, Alaska  had both                                                               
a head  tax and an  income tax  until revenue started  rolling in                                                               
from oil production.  He welcomed  this proposal as a small first                                                               
step  towards  new  revenue.   Additionally,  he  clarified  that                                                               
there's no correlation between the  education head tax and school                                                               
performance.   He stated his  support for advancing  the proposed                                                               
legislation.                                                                                                                    
                                                                                                                                
7:58:41 PM                                                                                                                    
                                                                                                                                
CHAIR  SPOHNHOLZ recalled  the Tax  Foundation's testimony  about                                                               
Alaska having the lowest tax burden  in the nation.  Further, New                                                               
Hampshire is  the only other  state that  lacks both a  sales and                                                               
income  tax;  however,  New Hampshire  has  high  local  property                                                               
taxes, which funds its government,  she said.  The Tax Foundation                                                               
had also informed  the committee that if the state  were to adopt                                                               
a broad-based  revenue measure,  Alaska would  still have  one of                                                               
the  lowest tax  burdens  in  the nation.    She emphasized  that                                                               
although the  proposed legislation  is not a  broad-based revenue                                                               
measure that would balance the budget, it's a first step.                                                                       
                                                                                                                                
8:00:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL  moved  to  report  CSHB  189,  Version  32-                                                               
LS0753\G,  Nauman, 4/28/21,  as  amended, out  of committee  with                                                               
individual  recommendations and  the  accompanying fiscal  notes.                                                               
Without  objection,  CSHB  189(W&M)  was  moved  from  the  House                                                               
Special Committee on Ways and Means.                                                                                            
                                                                                                                                
8:01:30 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Special  Committee on  Ways and  Means meeting  was adjourned  at                                                               
8:01 p.m.                                                                                                                       
                                                                                                                                

Document Name Date/Time Subjects
HB 189 Testimony - Support as of 5.4.21.pdf HW&M 5/4/2021 5:30:00 PM
HB 189
Great Alaska Schools 4.28.21.pdf HW&M 5/4/2021 5:30:00 PM
HB 189
HB 189 Testimony - Opposition as of 5.4.21.pdf HW&M 5/4/2021 5:30:00 PM
HB 189
HB 189 Amendment Packet - Ways and Means 5.4.21.pdf HW&M 5/4/2021 5:30:00 PM
HB 189
CSHB 189 Workdraft version G 4.28.21.pdf HW&M 5/1/2021 11:30:00 AM
HW&M 5/4/2021 5:30:00 PM
HB 189
HB 189 Sectional Analysis.pdf HW&M 5/1/2021 11:30:00 AM
HW&M 5/4/2021 5:30:00 PM
HB 189
HB 189 Fiscal Note DOR-TAX 4.30.21.pdf HW&M 5/1/2021 11:30:00 AM
HW&M 5/4/2021 5:30:00 PM
HB 189
HB 189 Sponsor Statement.pdf HW&M 5/1/2021 11:30:00 AM
HW&M 5/4/2021 5:30:00 PM
HB 189
HB 189 Testimony - Support as of 5.6.21.pdf HW&M 5/4/2021 5:30:00 PM
HB 189
HB 189 Testimony - Opposition as of 5.6.21.pdf HW&M 5/4/2021 5:30:00 PM
HB 189