04/24/2003 07:10 AM House W&M
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ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
April 24, 2003
7:10 a.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Jim Whitaker, Co-Chair
Representative Cheryll Heinze
Representative Vic Kohring
Representative Bruce Weyhrauch
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
Representative Norman Rokeberg
OTHER LEGISLATORS PRESENT
Representative Carl Gatto
Representative Paul Seaton
Representative Dan Ogg
Representative Ralph Samuels
COMMITTEE CALENDAR
HOUSE BILL NO. 271
"An Act levying and providing for the collection and
administration of an excise tax on passenger vehicle rentals;
and providing for an effective date."
- MOVED CSHB 271(W&M) OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 9
Proposing amendments to the Constitution of the State of Alaska
relating to an appropriation limit and a spending limit.
- HEARD AND HELD
HOUSE JOINT RESOLUTION NO. 26
Proposing amendments to the Constitution of the State of Alaska
relating to and limiting appropriations from and inflation-
proofing the Alaska permanent fund by establishing a percent of
market value spending limit.
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 271
SHORT TITLE:PASSENGER VEHICLE RENTAL TAX
SPONSOR(S): REPRESENTATIVE(S)KOTT
Jrn-Date Jrn-Page Action
04/15/03 0986 (H) READ THE FIRST TIME -
REFERRALS
04/15/03 0986 (H) W&M, FIN
04/15/03 0986 (H) REFERRED TO WAYS & MEANS
04/22/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/22/03 (H) Heard & Held
MINUTE(W&M)
04/23/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/23/03 (H) Heard & Held
MINUTE(W&M)
04/24/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
BILL: HJR 9
SHORT TITLE:CONST AM: APPROPRIATION/SPENDING LIMIT
SPONSOR(S): REPRESENTATIVE(S)STOLTZE
Jrn-Date Jrn-Page Action
01/31/03 0102 (H) READ THE FIRST TIME -
REFERRALS
01/31/03 0102 (H) STA, JUD, FIN
01/31/03 0102 (H) REFERRED TO STATE AFFAIRS
02/11/03 (H) STA AT 8:00 AM CAPITOL 102
02/11/03 (H) Heard & Held
MINUTE(STA)
03/28/03 0687 (H) COSPONSOR(S): ROKEBERG
04/04/03 0797 (H) W&M REFERRAL ADDED BEFORE STA
04/04/03 0797 (H) REMOVED FROM STA REFERRED TO
W&M
04/09/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/09/03 (H) Heard & Held
MINUTE(W&M)
04/17/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/17/03 (H) Heard & Held
MINUTE(W&M)
04/24/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
BILL: HJR 26
SHORT TITLE:CONST. AM: PF APPROPS/INFLATION-PROOFING
SPONSOR(S): RLS BY REQUEST OF LEG BUDGET & AUDIT BY REQUEST
Jrn-Date Jrn-Page Action
04/17/03 1025 (H) READ THE FIRST TIME -
REFERRALS
04/17/03 1025 (H) W&M, JUD, FIN
04/17/03 1025 (H) REFERRED TO WAYS & MEANS
04/22/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/22/03 (H) Heard & Held
MINUTE(W&M)
04/24/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
WITNESS REGISTER
ARLISS STURGULEWSKI, Trustee
University of Alaska Foundation
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HJR 26.
MARY GRISWOLD
Homer, Alaska
POSITION STATEMENT: Testified in support of HJR 26.
EDWARD MARTIN, SR.
Soldotna, Alaska
POSITION STATEMENT: Testified in opposition to HJR 26.
JAMES PRICE
Nikiski, Alaska
POSITION STATEMENT: Testified in opposition to HJR 26.
LAURIE CHURCHILL
Nikiski, Alaska
POSITION: Testified in opposition to HJR 26.
PETRIA FALKENBERG
Kenai, Alaska
POSITION STATEMENT: Testified in opposition to HJR 26.
ACTION NARRATIVE
TAPE 03-13, SIDE A
Number 0001
CO-CHAIR WHITAKER called the House Special Committee on Ways and
Means meeting to order at 7:10 a.m. Representatives Whitaker,
Hawker, Heinze, Kohring, Wilson, and Moses were present at the
call to order. Representatives Weyhrauch and Gruenberg arrived
as the meeting was in progress. Representatives Gatto, Seaton,
Ogg, and Samuels were also in attendance.
HB 271-PASSENGER VEHICLE RENTAL TAX
Number 0125
CO-CHAIR WHITAKER announced that the first order of business
would be HOUSE BILL NO. 271, "An Act levying and providing for
the collection and administration of an excise tax on passenger
vehicle rentals; and providing for an effective date."
Number 0152
CO-CHAIR HAWKER moved to adopt the proposed committee substitute
for HB 271, Version 23-LS0936\S, Kurtz, 4/23/03, as the working
document. There being no objection, Version S was before the
committee.
CO-CHAIR HAWKER explained that the proposed committee substitute
was drafted in response to public testimony by industry members
during yesterday's hearing. The proposed committee substitute
has been constructed with the cooperation of the members of the
committee and the bill's sponsor [Representative Kott]. This
version expands the definition of vehicles subject to the excise
tax to include recreational vehicles as well as passenger
vehicles. The rate on passenger vehicles has been reduced to 10
percent from the previous bill's 15 percent level because local
taxes and access fees created too much of a burden on the
industry. The 10 percent [excise tax] is more in line with
national standards, he commented. The tax on recreational motor
vehicles [RVs] is established at 3 percent with the
understanding that RVs will rent on a dollar-per-day basis 3 to
5 times as much as an average passenger vehicle. This keeps the
tax levies in a proportional perspective, he said. Co-Chair
Hawker told the members that the committee substitute also has
administrative provisions that specify that the regulations for
the administration of this tax shall be determined by the
[Department of Revenue]. Nothing in this bill in any way
prohibits the lessors of the vehicles from collecting the excise
tax from the consumers.
Number 0421
CO-CHAIR HAWKER told the members that he is comfortable with the
bill with respect to the way it fits into the general revenue
system where funds are not dedicated, and where revenues come in
from many sources such as oil and gas revenue excise taxes or
fees for registration of motor vehicles. The general revenue
system has not been looked at for many years, and is no longer
consistent with what has become generally accepted across the
country in funding of state governments, he commented. Co-Chair
Hawker explained that excise taxes on vehicles is a common
mechanism and this bill is consistent with what has been found
to be a proven component of the general revenue system
nationwide. He told the members he believes [this tax] fits
into a comprehensive fiscal structure for the state of Alaska
that makes sense and is appropriate at this time.
Number 0541
REPRESENTATIVE WILSON asked what the estimated revenues for this
[excise tax] would be.
CO-CHAIR HAWKER replied that the fiscal note on the first
version of HB 271 showed approximately $7.5 million [in
revenue]. He pointed out that fiscal note was predicated on all
vehicles, including recreational vehicles, being taxed at the 15
percent level. A fiscal note reflecting the changes in the
committee substitute is not yet available; however, he said he
believes there will be a proportional reduction in relation to
the tax base.
CO-CHAIR WHITAKER added that he estimates the fiscal note will
be around $7 million. A revised fiscal note for this committee
substitute will be provided to the committee soon.
Number 0639
REPRESENTATIVE SEATON commented that he believes the reduced
rate on RVs makes sense especially since individuals renting RVs
are not only getting a vehicle, but accommodations or lodging.
He said the committee talked about the applicability of a
municipal tax on vehicles or a bed tax that could be instituted
by a municipality. He stated he believes there should be
clarification in the bill on this point.
CO-CHAIR HAWKER responded that bed taxes are usually justified
as a means to promote economic development and tourism, as well
as a means of accommodating the costs that municipalities incur
as a result of having tourists in their midst. He pointed out
that from the standpoint of additional burden on the community,
the motor vehicle renter also pays taxes through motor fuel
taxes and dumping fees that are associated with RVs. He told
the members he does not see the need to equate the [excise tax]
to a bed tax or apply it in addition to a bed tax. That would
be very difficult to do, he commented. Co-Chair Hawker said he
does not see this excise tax as a conflict with a bed tax
imposed by communities since they are two different tax
structures.
REPRESENTATIVE SEATON explained that he is only interested in
clarifying the language as to whether [a bed tax] is acceptable
or not acceptable [with a RV rental] because he believes the
question will come up.
CO-CHAIR WHITAKER noted for the record, that Representatives
Weyhrauch and Samuels had joined the meeting.
Number 0909
CO-CHAIR HAWKER proposed a technical amendment to Version S as
follows:
On page 2, line 15
After the words "passenger vehicle"
Insert the words "or recreational vehicle"
CO-CHAIR HAWKER pointed out that this change is important since
there has been a separation in definitions of passenger vehicles
and recreational vehicles in the bill. There being no
objection, the technical amendment was adopted.
The committee took an at-ease from 7:18 a.m. to 7:22 a.m.
Number 1048
REPRESENTATIVE HEINZE moved to report CSHB 271, Version 23-
LS0936\S, Kurtz, 4/23/03, out of committee with individual
recommendations and the accompanying fiscal notes.
Number 1123
REPRESENTATIVE KOHRING objected and said he is not convinced
that a tax of this nature is something that will be beneficial
to the economy. Representative Kohring explained that he has
not heard a compelling argument as to why this tax is needed
other than the fact that it is another revenue source. He
recalled comments that the industry needs to contribute to the
state in terms of what it consumes in the wear and tear on roads
and public facilities; however, he said he has not heard that
this industry has been a detriment to the infrastructure.
Representative Kohring added that the industry does pay gas
taxes, business license fees, vehicle registration fees, airport
taxes, and other [taxes and fees] of that nature. He said he
believes the industry has already made a sizeable contribution
to the state. Representative Kohring summarized his comments by
saying that he does not believe this is a prudent action at a
time when encouraging economic development in the state and
encouraging small businesses, which are the backbone of a good
strong economy, is essential.
Number 1326
A roll call vote was taken. Representatives Moses, Gruenberg,
Wilson, Weyhrauch, Heinze, Whitaker, and Hawker voted in favor
of reporting CSHB 271, Version S, from committee.
Representative Kohring voted against it. Therefore, CSHB
271(W&M) was reported out of the House Special Committee on Ways
and Means by a vote of 7-1.
HJR 9-CONST AM: APPROPRIATION/SPENDING LIMIT
Number 1420
CO-CHAIR WHITAKER announced that the next order of business
would be HOUSE JOINT RESOLUTION NO. 9, Proposing amendments to
the Constitution of the State of Alaska relating to an
appropriation limit and a spending limit.
CO-CHAIR WHITAKER determined that no one in the room or on-line
wanted to testify.
CO-CHAIR WHITAKER noted for the record that Representative
Gruenberg had joined the meeting.
Number 1444
CO-CHAIR HAWKER commented that since the committee last
discussed HJR 9, he has had many conversations about the
structure of the resolution. He said that if this resolution
results in a constitutional amendment, it will be one of the
legislature's most significant accomplishments. The [Alaska]
Constitution is truly the backbone of the way the state
operates. The budget is how the government satisfies the needs
and priorities of the people of Alaska.
CO-CHAIR HAWKER pointed out that the original version of HJR 9
was particularly restrictive. It provided a flat basis for all
future appropriations with no escalating provision. Each year,
the legislature could raise the amount spent over the base year
by 2 percent with a three-quarters vote of the legislature. But
then, the next year the legislature would have to go back to the
base line and perhaps could increase it 2 percent that year.
Under the [original] HJR 9 the legislature could have a 2
percent increase over a base year. The base year would be the
current budget, which would be in effect for the next 10 years.
Given the inflationary pressures and the desire for economic
growth, the original resolution might be too constrictive to
maintain a budget, even at the current level.
Number 1710
CO-CHAIR HAWKER added that he will not offer specific changes
today, but that he and others have considered various means of
making HJR 9 more flexible as it caps expenditures. He
suggested the committee consider some increments such as: 1
percent increase with a simple majority vote, an additional 2
percent with a two-thirds vote, and perhaps an another 2 percent
increase with a three-quarters vote, for a potential total
increase of five percent. A three-quarters vote is a huge
hurdle, he acknowledged. The stair step concept would retain a
very rigid commitment to the people to control expenditures, but
it would allow for a reasonable growth of government,
particularly in response to things the legislature does not
always control. For example, the education budget is formula
driven, and the legislature does not have the ability to cut 15
percent across the board. That would not be good policy, he
stated. There are other formula programs, such as Medicaid,
that the legislature wants to constrain, but it is a billion
dollars, and the state has no control over it. He concluded his
comments by encouraging the committee to add flexibility to HJR
9 or whatever mechanism is used.
Number 1910
CO-CHAIR WHITAKER noted there will be public testimony on HJR 9
tomorrow and next week. With the support of the majority of the
members, he said he intends to move HJR 9 out of committee next
week. He invited interested people to bring their concerns and
comments forward.
Number 2006
REPRESENTATIVE GRUENBERG stated that for government to function,
there must be sufficient flexibility in a spending limit; he
said legislators cannot begin to know what will happen [in the
future].
[HJR 9 was held in committee.]
HJR 26-CONST. AM: PF APROPOS/INFLATION-PROOFING
Number 2110
CO-CHAIR WHITAKER announced that the final order of business
would be HOUSE JOINT RESOLUTION NO. 26, Proposing amendments to
the Constitution of the State of Alaska relating to and limiting
appropriations from and inflation-proofing the Alaska permanent
fund by establishing a percent of market value spending limit.
Number 2118
ARLISS STURGULEWSKI, Trustee, University of Alaska Foundation,
congratulated the legislature on having established the House
Special Committee on Ways and Means. She told the members that
she is very supportive of the constitutional amendment [HJR 26].
There are a number of reasons she believes this is important,
she said, but the most important is that it offers stability in
year-to-year amounts that are available [for appropriation].
This constitutional amendment would provide some stability in
planning, she said.
MS. STURGULEWSKI explained that she serves as a trustee on the
University of Alaska Foundation which was formed primarily for
scholarships for students. She explained that [the University
of Alaska Foundation] uses methods similar to that proposed by
this constitutional amendment as do large endowment foundations
across the country; this method is a very standard approach.
MS. STURGULEWSKI told the members that when she was in the
legislature she carried the bill which inflation proofed the
[Permanent] Fund principal, not the earnings reserves. She said
that this constitutional amendment would pull together both.
Over time the markets do go up and down and this would assure a
steady, real rate of return for the fund and that will protect
it. Ms. Sturgulewski summarized her comments by saying that she
believes this is an excellent method of protecting the fund, and
she will personally commit herself to working to pass this
constitutional amendment.
Number 2411
MARY GRISWOLD, testified in support of the proposed
constitutional amendment [HJR 26]. She read the following
testimony into the record:
I am an enthusiastic supporter of a 5 POMV payout
because it constitutionally inflation-proofs the
entire permanent fund. Right now, only the principal
is inflation-proofed, and that is done by statute, not
through the constitution, and only after the dividend
program is funded.
The second reason I support 5 POMV is that it sets a
spending limit. Under the current distribution
methodology, the legislature may appropriate the
entire earnings reserve account. Five POMV forces us
to resist the temptation to appropriate too much money
when the fund is flush, yet makes distributions
available in lean years.
Number 2550
Third, an annual payout based on market value is
compatible with the fund's diversified portfolio that
is managed, in conformance to industry standards, for
long-term value over short-term gain. The current
distribution method, based on income, was appropriate
20 years ago when the fund was invested primarily in
bonds. A 5 percent payout is generally recognized by
large fund managers as the highest sustainable payout,
beyond which the real value of the fund would diminish
over time. This straightforward approach protects the
value of the fund and provides a limited, predictable,
and sustainable revenue stream.
The permanent fund trustees combined the fund's
principal and income in one pot of money to make 5
POMV work effectively. Segregating the principal
interferes with value-management goals by exerting
pressure to produce short-term income for dividends or
other distributions during periods of poor
performance. Segregating the principal also tempts
the legislature to provide for a greater than 5
percent payout when the earnings reserve account is
flush, as in HJR 1. This is just what POMV is
designed to avoid.
How the legislature chooses to divide the payout is an
important question. The APFC [Alaska Permanent Fund
Corporation] takes no position on the use of the
payout. Five POMV is a management tool, not a
distribution plan. However, the two are intrinsically
linked. The use of the payout should not be set in
the constitution because this is an appropriation
issue better left to the legislative process.
However, the statutes relating to permanent fund
income and income distribution must be amended to
conform to 5 POMV. I urge you to preserve the current
dividend formula when you change these statutes. Five
POMV is too valuable to the permanent fund to risk
voter rejection by threatening their dividend checks.
Number 2670
For modeling purposes, we assume an 8 percent total
return, 3 percent inflation, and 5 percent real
return. Under existing statutes, 50 percent of the
income available for distribution, or 4 percent, goes
to the dividend program. Inflation proofing then
takes 3 percent, leaving 1 percent for the other
legislative appropriation, which has never been
touched. For this distribution to work under POMV, 80
percent of the 5 percent payout must be allocated to
the dividend program to provide the same 4 percent.
Inflation-proofing of 3 percent has already been
accounted for by establishing a 5 percent payout
limit, leaving 20 percent of the payout for other
legislative appropriation, which is the same as the 1
percent under the existing distribution statutes.
Fifty percent of the money available for distribution
after inflation proofing cannot provide the same
amount for dividends as 50 percent of the money
available for distribution before inflation-proofing.
It is time to move forward on a fiscal plan. This
constitutional amendment combined with a change to the
statutes securing 80 percent of the annual payout for
dividends is critical first step. Please promote a
comprehensive package the voters will accept. It is a
three-way win. The permanent fund gets a better
management framework, the legislature gets a
predictable revenue stream, and the people keep their
dividend formula. [original punctuation provided]
Number 2747
REPRESENTATIVE GRUENBERG asked Ms. Griswold whom she represents,
and if she would provide the members with a written copy of her
testimony.
MS. GRISWOLD stated that she is representing only herself. A
copy of her written testimony has been provided to the
committee.
Number 2819
EDWARD MARTIN, SR., testified in opposition to HJR 26. He told
the members that he believes [HJR 26] is a poor way to manage
the fund. The state legislature has a very large financial
management problem and so does the Permanent Fund Corporation
Board of Trustees, he said. They have to use the "so-called"
prudent man rule. They have invested 99 percent of the fund
outside of our borders which has produced about [$6 billion].
The sad part [of this policy] is that the [trustees] are
continuing the same policy [of investing outside Alaska] while
recommending this legislation which takes more from the people
of Alaska and lets government have more to waste. He asked the
members to remember that the money has no value to Alaska
citizens without its use. He told the members that there will
be a heavy political price paid when the citizen rule is applied
at the ballot box. This legislation does not benefit the
citizens of Alaska, only special interests, and the people are
not buying it, he warned.
Number 3112
JAMES PRICE, testified in opposition to HJR 26. He told the
members he believes that this resolution brings the state one
step closer to using the dividend earnings and perhaps the
principal to fund the operation of state government. Mr. Price
said that he thinks the legislature should find a solution to
the deficient problem before changing any provisions of the
Permanent Fund. He said he would like to see the dividend
program off the table with respect to legislative
appropriations. He said he does not believe this legislation
will solve the problem, but will perpetuate it. Mr. Price
summarized his comments by saying he opposes HJR 26 and the
appropriation of any of the earnings for the funding of state
government.
Number 3309
LAURIE CHURCHILL, testified in opposition HJR 26. She told the
members that she does not believe there should be a change in
the [Alaska] Constitution without a vote of the people. She
said she believes there is a serious spending problem with a
bloated budget and it needs to be cut drastically. Ms.
Churchill noted that many of the legislators who are serving
made campaign promises to their constituents that they would
leave the PFD [Permanent Fund dividend] alone. This
[resolution] is a violation of the constituents' trust.
Number 3429
CO-CHAIR WHITAKER clarified that what is being discussed is a
proposed constitutional amendment [HJR 26] which, if passed by
the legislature, would require a vote of the people in 2004.
Number 3450
PETRIA FALKENBERG, testified in opposition to HJR 26. She told
the members that she is opposed to the resolution because most
candidates elected in 2002 promised not to touch the Permanent
Fund. She asked if the members were listening to the 83 percent
of Alaskan voters. Ms. Falkenberg said she believes that the
major problem lies with overspending. She said she does not
believe the Permanent Fund should be a source of funding to run
the government. She said she opposes the legislature's coming
through the back door to rob the PFD with bills of this nature.
Number 3633
REPRESENTATIVE WILSON explained to those individuals who
testified and those who are listening that the members have been
advised that it is possible that the PFD could disappear at
various times; however, with this resolution in place it would
be a more stable and more assured dividend for the people of the
state.
CO-CHAIR WHITAKER announced that there will be public testimony
taken tomorrow, Tuesday, and Wednesday on HJR 9 and HJR 26.
[HJR 9 and HJR 26 were held over.]
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
7:50 a.m.
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