Legislature(1993 - 1994)
02/17/1994 09:05 AM Senate CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE COMMUNITY & REGIONAL AFFAIRS
February 17, 1994
9:05 a.m.
MEMBERS PRESENT
Senator Randy Phillips, Chairman
Senator Robin Taylor, Vice Chairman
Senator Al Adams
Senator Fred Zharoff
MEMBERS ABSENT
Senator Loren Leman
COMMITTEE CALENDAR
-- REVIEW OF ALASKA SCHOOL FOUNDATION FUNDING PROGRAM
Duane Guiley, Director of School Finance
Department of Education
SENATE BILL NO. 261
"An Act relating to municipal sales and use taxes involving air
carriers; and providing for an effective date."
PREVIOUS SENATE COMMITTEE ACTION
SB 261 - See Transportation minutes dated 2/1/94 and
Community & Regional Affairs minutes dated
2/15/94.
WITNESS REGISTER
Duane Guiley, Director of School Finance
Department of Education
801 W. 10th St., Suite 200
Juneau, AK 99801-1894
Robert Hallford
3900 W. International Airport Road
Anchorage, AK 99502
POSITION STATEMENT: Supports SB 261
Tim Troll, City Manager
City of Sand Point
1600 A St., Suite 103
Anchorage, AK 99501
POSITION STATEMENT: Opposes SB 261
Steve Van Sant, State Assessor
Department of Community & Regional Affairs
333 W. 4th Ave., Suite 200
Anchorage, AK 99501-2241
POSITION STATEMENT: Offered information on fiscal note
on SB 261
Tom Boedekev
144 N. Binkley St.
Soldotna, AK 99669
POSITION STATEMENT: Opposes SB 261
John Hartle, Assistant City Attorney
City & Borough of Juneau
155 S. Seward St.
Juneau, AK 99801
POSITION STATEMENT: Opposes SB 261
Paul Bowers, Airport Manager
City & Borough of Juneau
1873 Shell Simmons Drive
Juneau, AK 99801
POSITION STATEMENT: Opposes SB 261
Robert Jacobson
Wings of Alaska
1873 Shell Simmons Drive
Juneau, AK 99801
POSITION STATEMENT: Supports SB 261
ACTION NARRATIVE
TAPE 94-14, SIDE A
Number 001
The Senate Community & Regional Affairs Committee was called to
order by Chairman Randy Phillips at 9:05 a.m. He stated the first
order of business would be an overview by Duane Guiley on the
Alaska School Foundation Funding Program.
Number 010
DUANE GUILEY, Director of School Finance, Department of Education,
directed attention to a packet of information that had been
distributed earlier to the committee.
Mr. Guiley said one of the primary reasons that their current
foundation formula comes under attack is that they find there are
students that generate as much as $40,000 per individual student
down to as little as $4,366 on average throughout the state.
Mr. Guiley explained how the formula works. There is a calculation
of basic need. Basic need is made up of two components: the state
share and the local share. The local share is equalized
throughout the state, regardless of a local district's ability to
pay. If they are incorporated, they must make an equivalent
contribution of 4 mills of real and personal property tax. It does
not have to come from that source, but it must be equal to that
source. The formula has been upheld in court in that it does not
cause disparate taxation. The 4 mills is limited to 35 percent of
the basic need calculation, which establishes a minimum state share
of 65 percent of basic need. The allowable excess for this cap is
what is their measure of disparity of the relative wealth available
to support each and every student throughout the state. Currently,
this cap is limited by statute to 23 percent of current year basic
need. Everyone in the state is equal at basic need, but they are
not equal in the allowable excess. In theory, no student is
disadvantaged by more than 23 percent of basic need statewide.
Mr. Guiley noted that the formula was studied for two years by a
committee of school district superintendents, business managers,
CPAs that audit schools and other parties that deal directly with
public schools and the group came up with several concerns. In
trying to solve those concerns it appeared that some existing
districts were going to lose money, and it became apparent that if
anyone was going to lose there wasn't going to be a resolution.
So, after two years of trying to resolve the concerns, the
committee was disbanded with no recommendation.
Basically, the public school foundation funding formula is
controlled by AS 14.17 and in regulations (Section 9). They
calculate basic need by instructional units. The instructional
units are increased by the area cost differential and then
multiplied by the unit value. Currently, the area cost
differential ranges from 1.0 to 1.46. This number was based upon
a household cost-of-living study done by the McDowell Group in
1983. Mr. Guiley pointed out that as much controversy as the area
cost differential has, it only drives $58 million of the formula,
or less than 10 percent. The balance of the difference in the
$40,000 per student down to $4,000 per student is driven by the
formula itself. The statutory instructional unit value is
currently set at $61,000.
Number 170
SENATOR ADAMS asked when the area cost differential was last
evaluated. DUANE GUILEY answered that it was evaluated in
approximately 1985 with an update done by the McDowell Group.
There was an attempt to put that into statute, but it has never
been adopted.
Mr. Guiley in the formula, there is also a calculation of state
foundation aid, as it relates to basic need. They start with the
calculation of basic need, subtract the required local effort, and
subtract their eligible impact aid.
Mr. Guiley directed the members to page 4 of the packet, which
relates to projected FY 95 foundation program entitlements for the
school districts in the state. He pointed out that in the formula,
as property values increase and decrease throughout the state,
there is a recognition and impact on the basic need and state aid
calculation. As property values dip, two years later there is an
increase requirement on state aid, because the recognition of
property valuation is delayed two years in the formula. For the
local municipality as property values start to decline and the tax
receipts are less, they have two years in which to adjust their
support to the local schools if they so desire. On the other side,
as property values start to increase, the local municipality has
two years to collect the receipts and to phase in gradually to a
increased state aid requirement.
Mr. Guiley continued to go through and explain the numerical data
he had supplied to the committee.
Number 312
SENATOR PHILLIPS asked how many funding communities there were with
less than 10 students. DUANE GUILEY answered that right now there
are about 16 funding with less than 10 students, and the smallest
funding community is five students. He added that the funding
communities with less than eight students will disappear next year
as far as separate funding units. Those students still generate
money within the system by being added to the largest funding
community within that district.
Number 350
SENATOR TAYLOR discussed the high cost of building a school at
Tenakee Springs, which has a current enrollment of nine students.
DUANE GUILEY explained that under the existing board plan there
will not be any schools with less than 10 students by the year
2000. The state owns title to the Tenekee Springs school and the
school district uses the building under a use permit which requires
the district to maintain the building for one year after it is no
longer used for educational purposes. The state has that one year
to decide how to dispose of the building, but the Department of
Education has already received notice from Tenekee Springs that the
community doesn't want the building because they can't afford the
maintenance bill on it.
Number 375
SENATOR ADAMS noted that Adak has an average daily membership of
approximately 495 students and that the military site is being
demobilized by the military, and he asked what happens to the
funding for that district. DUANE GUILEY answered that under
existing state law, a district that has a substantial decrease in
average daily membership is afforded the opportunity to phase out
their program on a progressive basis. Last year they had almost
800 students, this year they have 495 students, and next year they
are projected to have 150 students. That is more than a 10 percent
loss in K-12 units in one year so the district must absorb 25
percent of the loss in the first year, 50 percent in the second
year, and 75 percent in the third year, and 100 percent in the
fourth year. So the state will be phasing out state funding to
this school district over a four-year time period.
Mr. Guiley pointed out that the State of Alaska has been under a
foundation program since 1970. The foundation program has revised
approximately five times throughout that time period. When the
formula was last revised in 1987, there were two important policy
decisions that were made in that revision. One is a shifting of
the burden to the local through the 4 mill required deduct of every
district, regardless of wealth. The second was the recognition of
impact aid in every single district, or the supplanting of state
dollars with federal dollars. Those two decisions have saved the
state $155 million.
TAPE 94-14, SIDE B
Number 010
SENATOR RANDY PHILLIPS asked what was done prior to 1970. DUANE
GUILEY responded that prior to 1970, for most of the years since
statehood, money was distributed based on teacher units, and in
some years there were only five differences in valuation across the
state. In some years the money was distributed assuming a certain
class load for teacher and in some years the money was distributed
based upon what's the equivalent of standardized teacher salary
schedule. 1970 was the first time a foundation formula was adopted
where it went to these more complex calculations.
Number 022
SENATOR TAYLOR commented that we did make that shift, but we failed
to mandate that 4 mills. Had that full 4 mills been mandated, it
would have saved for the state and rolled out of the local
districts an additional sixty plus million dollars. He suggested
it was time to give serious thought to a policy call about whether
or not districts and communities that have the wealth to able to
contribute more to continue to decide not to contribute more.
Number 120
SENATOR TAYLOR asked if the department was making a recommendation
that the Legislature should adjust the area cost differential.
DUANE GUILEY answered that at this point there is not a recommended
replacement However, he added that there is still a bill before
the committee that includes the Alaska School Price Index and
within the statute it provides an opportunity for the department to
develop that Alaska School Price Index through regulation. Should
the bill make it through the legislative process, the department
stands ready to develop an Alaska School Price Index to replace the
current area cost differential. SENATOR TAYLOR said we're talking
about a three to six differential that has been impacting the
districts he represents since this formula was last changed in
1987.
Number 170
SENATOR RANDY PHILLIPS thanked Mr. Guiley for his presentation on
the school foundation formula. He then brought SB 261 (NO
MUNICIPAL SALES TAXES ON AIR CARRIERS) before the committee as the
next order of business and stated testimony would be taken over the
teleconference network.
Number 195
ROBERT HALLFORD, representing Northern Air Cargo in Anchorage,
noted that over the last several years there have been several
communities that have attempted to impose a local tax on air
transportation, and it has been costly for the air carriers
involved to mount a response to defeat them. He also noted that
the City and Borough of Juneau is opposed to SB 261 because it
would like to enact a tax on flight seeing and the bill would
impede the ability to do so.
Mr. Hallford read a portion of a letter he received from Edmund W.
Burke, recently retired Justice of the Alaska Supreme Court, in
which Justice Burke concludes that the federal preemption statute
renders the city sales ordinance invalid and unenforceable with
regard to transportation services sold and provided by Northern Air
Cargo and other air carriers similarly situated.
Mr. Hallford said SB 261 is not intended by the air carriers nor
the sponsor to deprive any community of its right and ability to
derive revenue from the sources normally available to it, but,
rather, it is to put an end to the extremely costly process of
defending themselves against these revenue raising methods that are
preempted by federal law.
Number 320
SENATOR ADAMS asked Mr. Hallford if he knows when the decision on
the St. Marys versus Northern Air Cargo and Alaska Airlines lawsuit
will be made. ROBERT HALLFORD responded that no case has been
formally filed in the courts, and the reason they don't want to
wait is because every day that passes costs more money to fight a
battle that they believe has already been decided a number of
times.
Number 330
TIM TROLL, City Manager, City of Sand Point, stated he was the
former city attorney in St. Marys, and he confirmed that no lawsuit
has been filed by St. Marys against anybody, but they are posturing
at this point with the air carriers in trying to resolve the issue
without having to go to court. He added that the air carriers are
trying to resolve the issue at the legislative level rather than at
the negotiating level.
Mr. Troll read sections of the federal law and a section which
stated that nothing in the section shall prohibit a state or
political subdivision to levy or collect taxes other than those
enumerated in a previous subsection. That particular section of
federal law was looked at by the U.S. Supreme Court and the court
stated that section showed "that to the degree that Congress
considered the power of state to tax air travel, it expressly and
unequivocally permitted the states to exercise that authority."
Mr. Troll voiced his concern that passage of SB 261 may lead to
more litigation because it goes beyond what is involved in federal
law.
Number 429
STEVE VAN SANT, State Assessor, Department of Community & Regional
Affairs, speaking to the department's fiscal note, said the minimal
impact that he came up with in preparing the fiscal note was based
on currently levied sales taxes in municipalities of the state.
Number 456
TOM BOEDEKEV, a Kenai Peninsula Borough attorney, stated that SB
261 is not a clarification; it is clearly an expansion on the
federal exemptions. The exemption under federal law, or the
preemption question is the carriage of passengers; it has nothing
to do with freight. He suggested that if air carriers are to have
the hauling of freight exempt, then any other form of
transportation that hauls freight should also be addressed.
Number 606
JOHN HARTLE, Assistant City Attorney, City & Borough of Juneau,
stated opposition to SB 261 because it goes beyond the federal law
in that it includes prohibition on taxes on carriage of freight and
on head taxes.
Mr. Hartle pointed out that municipalities have to provide
municipal services to air carriers, but if the Legislature were to
pass SB 261, the state would be precluding the municipalities from
locally deciding whether or not to tax them.
The City & Borough of Juneau's biggest concern is the broadness of
language "use tax on an activity that directly involves the
carriage of individuals or goods." Mr. Hartle said that could
include landing fees, and the City & Borough Juneau collects
$850,000 in landing fees. They are also concerned that "federally
certificated" is too broad.
TAPE 94-15, SIDE A
Number 005
Mr. Hartle noted that the federal law has recently been changed to
allow passenger facilities charges, and SB 261 would clearly
prohibit that.
Number 032
PAUL BOWERS, Airport Manager, City & Borough of Juneau, testifying
in opposition to SB 261, said the passenger facilities charges are
not imposed today anywhere in the state, but the likelihood is that
they will be in Juneau, Anchorage and Fairbanks within the next
several years. There is concern that SB 261 not preclude that.
Number 056
ROBERT JACOBSEN, representing Wings of Alaska, said when he first
learned of the introduction of SB 261, he felt it wasn't necessary
because there is a federal preemption on states and local
jurisdictions implementing sales and use taxes on air carriers.
However, he then recalled how many times in the last ten years he
has had to deal with city administrators (new ones) in the
jurisdictions that Wings flies to, and then decided that it
probably was a good idea that the state clarify the policy.
Mr. Jacobsen said in considering the Airport Development
Acceleration Act of 1973, the Senate Commerce Committee was
concerned with primarily two issues: (1) the impact of state and
local taxes; and (2) the urgent need for federal involvement to
encourage local governments to construct new and improved airport
facilities. In the purposes section of the Senate report, the
committee states:
"The legislation to provide increased federal participation in
airport development grants is required because of the serious
financial difficulties being experienced by many of local
government agencies who bear the responsibility to build, operate
and maintain the nation's system of publicly owned airports. The
funds required to increase the federal share of airport development
grants will come from the airport and airway trust fund established
by the Airport and Airway Revenue Act of 1970. The fund is funded
from revenues from user taxes and aviation system users and
contains and will contain adequate revenues to cover the cost of
the increased federal assistance. No new taxation and no
expenditure of general U.S. funds will be required as a result of
the legislation. The bill prohibits any government agency, other
than the United States, from establishing or levying a passenger
head tax or use tax. This prohibition will ensure that passengers
and air carriers will be taxed at a uniform rate by the United
States and that local taxes will not be permitted to inhibit the
flow of interstate commerce and the growth and development of
airport transportation."
The report also reads:
"The bill provides that the cost of this increased federal
participation will be born by the users of the system, not the
general taxpayer. The airlines, the airline passengers and
shippers and aircraft owners and operators all contribute to the
development of the system by paying user taxes established in
1970."
The report further reads:
"In accepting a greater federal role and responsibility in
airport development, the committee has also acted to prohibit local
taxation. We believe local taxation to be inimical to the
development of a national system funded in large part by uniform
federal taxes. The committee views S. 38 as a aviation development
package, the components of which cannot be separated. Therefore,
by prohibiting state taxation on passengers or on air
transportation, the committee has accepted greater responsibility
for U.S. assistance believing that the two actions must be viewed
together and that neither should stand alone. "
Mr. Jacobsen pointed out that a Florida circuit court has most
recently held that Section 1113 of the Federal Aviation Act
prohibits states from taxing air cargo, and struck down a Florida
provision assessing a 5 percent tax on intrastate air freight and
a 2.5 percent tax on intrastate shipments.
Mr. Jacobsen asserted that the aviation community is paying a lot
of taxes to the federal government. He said he would much rather
pay 4 percent to the City & Borough of Juneau and have that money
stay within the local community. Presently, Wings is paying the
federal government 10 percent on passengers and a 6.25 percent
cargo tax on all cargo shipments. That money comes back to the
communities throughout the state in a big way. Over the last five
years, Juneau has received over $8 million from the airport and
airway trust fund.
Concluding, Mr. Jacobsen said it might be timely and good public
policy for the Legislature to intervene and help define this issue.
Number 166
SENATOR RANDY PHILLIPS asked for the pleasure of the committee on
SB 261. SENATOR ADAMS and SENATOR ZHAROFF agreed that the bill
needs more work and SENATOR TAYLOR said he was willing to abide by
the decision of the Chair on the bill. SENATOR PHILLIPS stated he
wanted to move the bill out of committee, but the votes weren't
there to do so. He then stated the bill would be back before the
committee the following week, and he suggested the members prepare
any amendments they may wish to offer at that time.
There being no further business to come before the committee, the
meeting was adjourned at 10:55 a.m.
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