Legislature(2019 - 2020)BELTZ 105 (TSBldg)
03/21/2019 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
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ALASKA STATE LEGISLATURE SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE March 21, 2019 3:31 p.m. MEMBERS PRESENT Senator Click Bishop, Chair Senator Chris Birch, Vice Chair Senator Elvi Gray-Jackson MEMBERS ABSENT Senator Mia Costello Senator Lyman Hoffman COMMITTEE CALENDAR SENATE BILL NO. 63 "An Act repealing the fisheries business tax allocation to municipalities; repealing the refunds to local governments of fisheries business taxes; repealing revenue sharing for the fishery resource landing tax; providing for an effective date by amending the effective date of Sec. 36, Ch. 61, SLA 2014; and providing for an effective date." - HEARD & HELD PREVIOUS COMMITTEE ACTION BILL: SB 63 SHORT TITLE: FISH TAX: REPEAL MUNI REFUNDS/REV. SHARE SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR 02/18/19 (S) READ THE FIRST TIME - REFERRALS 02/18/19 (S) CRA, FIN 03/21/19 (S) CRA AT 3:30 PM BELTZ 105 (TSBldg) WITNESS REGISTER BRUCE TANGEMAN, Commissioner Alaska Department of Revenue Juneau, Alaska POSITION STATEMENT: Provided an overview of SB 63. BRANDON SPANOS, Deputy Director Tax Division Alaska Department of Revenue Anchorage, Alaska POSITION STATEMENT: Addressed tax questions related to SB 63. NILS ANDREASSEN, Executive Director Alaska Municipal League Juneau, Alaska POSITION STATEMENT: Provided an overview of the impact of SB 63 and the effect of fisheries taxes on all Alaska communities. JON ERICKSON, Manager City & Borough of Yakutat Yakutat, Alaska POSITION STATEMENT: Testified in opposition to SB 63. LAYTON LOCKETT, City Manager City of Adak Adak, Alaska POSITION STATEMENT: Testified in opposition to SB 63. PHIL ZAVADIL, City Manager City of St. Paul St. Paul, Alaska POSITION STATEMENT: Testified in opposition to SB 63. PAT BRANSON, Mayor City of Kodiak Kodiak, Alaska POSITION STATEMENT: Testified in opposition to SB 63. ANNE BAILEY, Administrator Aleutians East Borough Anchorage, Alaska POSITION STATEMENT: Testified in opposition to SB 63. GARY HENNIGH, City Administrator City of King Cove Anchorage, Alaska POSITION STATEMENT: Testified in opposition to SB 63. CLAY KOPLIN, Mayor City of Cordova Cordova, Alaska POSITION STATEMENT: Testified in opposition to SB 63. MARY SWAIN, Assembly President Bristol Bay Borough Naknek, Alaska POSITION STATEMENT: Testified in opposition to SB 63. JOE BERESKIN, Mayor City of Akutan Akutan, Alaska POSITION STATEMENT: Testified in opposition to SB 63. FRANK KELTY, Mayor City of Unalaska Unalaska, Alaska POSITION STATEMENT: Testified in opposition to SB 63. JORDAN KEELER, City Administrator City of Sand Point Anchorage, Alaska POSITION STATEMENT: Testified in opposition to SB 63. ALICE RUBY, Mayor City of Dillingham Dillingham, Alaska POSITION STATEMENT: Testified in opposition to SB 63. MATT ALWARD, President United Fishermen of Alaska Homer, Alaska POSITION STATEMENT: Testified in opposition to SB 63. JILA STUART, Finance Director Haines Borough Haines, Alaska POSITION STATEMENT: Testified in opposition to SB 63. LEE BURGESS, Finance Director City & Borough of Wrangell Wrangell, Alaska POSITION STATEMENT: Testified in opposition to SB 63. TERRY EUBANK, Finance Director City of Kenai Kenai, Alaska POSITION STATEMENT: Testified in opposition to SB 63. MARILYN MENISH-MEUCCI, representing self Petersburg, Alaska POSITION STATEMENT: Testified in opposition to SB 63. GLORIANNE WOLLEN, representing self Petersburg, Alaska POSITION STATEMENT: Testified in opposition to SB 63. JEFF GUARD, representing self Cordova, Alaska POSITION STATEMENT: Testified in opposition to SB 63. JAMES WIESE, representing self Cordova, Alaska POSITION STATEMENT: Testified in opposition to SB 63. STOSH ANDERSON, representing self Kodiak, Alaska POSITION STATEMENT: Testified in opposition to SB 63. SHAWN DOCHTERMANN, representing self Kodiak, Alaska POSITION STATEMENT: Testified in opposition to SB 63. DARIUS KASPRZAK, representing self Kodiak, Alaska POSITION STATEMENT: Testified in opposition to SB 63. RACHEL LORD, representing self Homer, Alaska POSITION STATEMENT: Testified in opposition to SB 63. JOHN MURRAY, representing self Sitka, Alaska POSITION STATEMENT: Testified in opposition to SB 63. CATHY RENFELDT, representing self Cordova, Alaska POSITION STATEMENT: Testified in opposition to SB 63. DUSTIN DICKERSON, Vice President Unalaska Native Fisherman's Association Unalaska, Alaska POSITION STATEMENT: Testified in opposition to SB 63. GERALD MCCUNE, Board President Cordova District Fishermen United Cordova, Alaska POSITION STATEMENT: Testified in opposition to SB 63. ACTION NARRATIVE 3:31:42 PM CHAIR CLICK BISHOP called the Senate Community and Regional Affairs Standing Committee meeting to order at 3:31 p.m. Present at the call to order were Senators Gray-Jackson, Birch, and Chair Bishop. SB 63-FISH TAX: REPEAL MUNI REFUNDS/REV. SHARE 3:32:39 PM CHAIR BISHOP announced the consideration of Senate Bill 63 (SB 63). 3:33:29 PM BRUCE TANGEMAN, Commissioner, Alaska Department of Revenue, Juneau, Alaska, detailed that the state currently shares 50 percent of the revenues collected from its two main fisheries taxes with municipalities. The Fisheries Business Tax is shared with municipalities where fisheries resources were processed, and the Fishery Resource Landing Tax is shared with municipalities where the fishery resources were brought to shore. The revenues are shared each October and are based on actual receipts from the previous calendar year. In FY2018, the state shared approximately $29 million in revenues with municipalities. He explained that SB 63 would repeal the statutes that provide for the fisheries tax revenue sharing. The policy rationale is to identify statewide revenues currently being shared or diverted in order to help balance the state budget. The loss of shared revenue is somewhat offset by Governor Dunleavy's pledge to share 50 percent of the alcohol tax revenues through the Community Assistance Program, although the administration recognizes that it is not a dollar-for-dollar offset. He detailed that SB 63 repeals the 50 percent revenue sharing from the Fisheries Business Tax, also known as the Raw Fish Tax, collected from processors and people who export unprocessed fishery resources from Alaska. The bill also repeals the Fishery Resource Landing Tax levied on fishery resources landed in Alaska and processed outside the state. The fisheries taxes relate to processing activities within and outside of an incorporated city or organized borough. Language in the bill states that the legislation is retroactive to January 1, 2019. Consequently, the fisheries taxes will not be shared with municipalities starting in October 2019 even though the taxable even occurred in 2018. 3:35:40 PM COMMISSIONER TANGEMAN explained that the Fisheries Business Tax dates to 1899, before Alaska was a territory. The tax was first shared with municipalities at 10 percent of total revenue in 1962, raised to 20 percent in 1979, and then raised again to the current 50 percent in 1981. Sharing with the unorganized borough was authorized in 1990. The Fishery Resource Landing Tax dates to 1994. The legislature restructured the tax in 1996 to mirror the Fisheries Business Tax program. Sharing was part of the program from the beginning. SENATOR BIRCH asked if local communities will be allowed to raise an equivalent tax to offset whatever diminishment results from SB 63. 3:38:07 PM BRANDON SPANOS, Deputy Director, Tax Division, Alaska Department of Revenue, Anchorage, Alaska, answered that there is no statutory provision that would preclude a municipality from having a fish tax. SENATOR GRAY-JACKSON disclosed that she was the finance manager for Akutan and noted that approximately 95 percent of revenues for their budget come from the fish tax. She asked what amount Akutan would receive in substituted revenue from the alcohol tax. COMMISSIONER TANGEMAN specified that the portion of the 50 percent alcohol tax is not part of SB 63; it is a separate piece of legislation. He offered to follow up with additional information. SENATOR GRAY-JACKSON replied that she would appreciate receiving the information. CHAIR BISHOP asked for the sectional analysis overview of SB 63. MR. SPANOS reviewed the sectional analysis for SB 63 reading from the following prepared document: Section 1 would amend AS 29.60.800(a), relating to the harbor facility grant fund, to conform to the repeal later in the bill of the statute providing for refunds to municipalities from the fisheries business taxes. Section 2 would amend AS 29.60.810, relating to grant applications for harbor facilities, to conform to the repeals later in the bill of the statutes providing for the allocations and the refunds to municipalities of fisheries business taxes. Section 3 would amend AS 43.77.015(b), related to payments under a fishery cooperative contract, to conform to the repeal later in the bill of the statute providing for revenue sharing to municipalities from the fishery resource landing tax. Section 4 would amend AS 43.77.050(b), relating to separate accounting for fishery resource landing tax revenues, to conform to the repeal later in the bill of the statute providing for revenue sharing to municipalities from the fishery resource landing tax. Section 5 of the bill would repeal the following statutes: 1) AS 29.60.450, relating to allocations to municipalities of revenues from the refunds for fisheries business taxes and the revenue sharing from the fishery resource landing tax; 2) AS 43.75.130, relating to refunds to municipalities from the fisheries business taxes; 3) AS 43.75.133, relating to the provision of information to municipalities regarding the fisheries business taxes; 4) AS 43.75.137, relating to additional refunds to municipalities from the fisheries business taxes; and 5) AS 43.77.060, relating revenue sharing of fishery resource tax with municipalities. Sections 6 through 9 of the bill make conforming amendments to delayed repeal provisions in existing law. Section 10 of the bill clarifies the applicability of the changes in sections 1 through 5 of the bill. Sections 11 and 12 of the bill provide the Department of Revenue with flexibility in timing to adopt or repeal any regulations necessary to conform to the changes in the bill. Section 13 of the bill provides for retroactive application of bill sections 1-5 to January 1, 2019. Sections 14 - 18 provide effective dates. Most sections of the bill have an immediate effective date. Sections 6, 8, and 9 are amendments to delayed repeals in existing law with effective dates that match the effective dates in existing law. 3:42:54 PM SENATOR BIRCH asked what the net difference is between the alcohol tax revenue and the fish tax revenue. MR. SPANOS answered that the fiscal note shows the half that will not be shared if the bill were to pass amounts to approximately $30 million. The total alcohol tax number in 2018 was roughly $40 million. SENATOR BIRCH offered his understanding that the alcohol tax is then going to be split to replace, in part, the fisheries tax distribution. MR. SPANOS clarified that the alcohol tax is a separate bill. The governor wishes to share half of the alcohol tax to offset the other reductions. He advised that the alcohol tax would not be a dollar-for-dollar replacement for each community. He explained that the fishery tax is dependent on where the fish was landed, processed, or exported from and the alcohol tax would be shared differently. 3:45:21 PM CHAIR BISHOP asked if there have been communications with the impacted communities pertaining to SB 63. COMMISSIONER TANGEMAN answered that he has not communicated with the communities and he is not sure what communications have taken place from the governor's office. CHAIR BISHOP asked the committee aide to make a note to reach out to the governor's office to ask that question. He asked if SB 63 is a priority for the administration. COMMISSIONER TANGEMAN confirmed it is a priority. It is one of several bills intended to bring all revenue streams together and then be distributed to benefit all Alaskans statewide. The consolidation will allow the state to know what is available for statewide spending. 3:47:12 PM CHAIR BISHOP asked what sort of analysis has been done of the secondary and tertiary impacts that would occur by taking money out of these municipalities. COMMISSIONER TANGEMAN answered that he was not aware of any analysis. MR. SPANOS added that the Tax Division has not done an analysis. CHAIR BISHOP referenced a Senate Finance Committee meeting in January where Senator Hoffman asked Office of Management and Budget (OMB) Director Arduin if education appropriations for FY2019 and FY2020 will be implemented if the law isn't changed and Director Arduin responded "yes." He asked Commissioner Tangeman if he recalled the conversation. COMMISSIONER TANGEMAN answered no; he did not attend the meeting. SENATOR GRAY-JACKSON asked him to confirm that an economic analysis of the communities affected by SB 63 was not done. COMMISSIONER TANGEMAN answered correct. 3:49:41 PM At ease. 3:50:31 PM CHAIR BISHOP called the committee back to order. He announced that the committee would hear invited testimony. 3:50:53 PM NILS ANDREASSEN, Executive Director, Alaska Municipal League (AML), Juneau, Alaska, stated that AML's presentation will show that the fisheries taxes affect all Alaska communities. He emphasized that AML is not interested in dividing its approach for addressing the budget on the backs of different areas of the state. He opined that care must be taken in targeting coastal communities where the state has such strong fisheries and economic activity. The presentation does include OMB's principles, "sustainable, predictable, and affordable," because that is what shared fisheries taxes achieve in Alaska communities. He detailed that AML represents 165 cities and boroughs. Those affected by the fisheries taxes are roughly one-third of all local governments in Alaska. Every Senate district is affected to varying degrees, but the AML overview will focus on the cities and boroughs that are most significantly affected by SB 63. 3:52:24 PM He referenced "Shared Fish Taxes, Sustainable Communities" as follows: • Used by municipalities to: o Operate/maintain ports and harbors. o Provide local contribution to education. o Support public safety and municipal-owned hospitals. o Maintain public works such as water, sewer, sanitation, solid waste. o Replace gaps in State capital investment. o Provide grants to local nonprofits and youth activities. o Offer quality of life programs: square4 Pools, square4 Libraries, square4 Parks. o Improve credit ratings. MR. ANDREASSEN summarized that the shared fish taxes are used to ensure sustainable communities where the revenue contributes to general funds; helps support education, hospitals, solid waste, and public works; replaces gaps in state capital investment which has declined over these last few years; provides grants to local nonprofits; and ensures quality of life programs in those communities for residents. He noted that the taxes are also used to operate and maintain ports and harbors, many were transferred in neglect from the state to municipalities many years ago. He referenced "Municipal Impact: Hardest Hit Total Dollars" as follows: • City of Dillingham: o 2018 Total: $443,905; o Tax Revenue: 8.04 percent. • City & Borough of Juneau: o 2018 Total: $447,875; o Tax Revenue: 0.43 percent. • City of Seward: o 2018 Total: $456,144; o Tax Revenue: 6.61 percent. • City of Valdez: o 2018 Total: $512,449; o Tax Revenue: 1.16 percent. • City of King Cove: o 2018 Total: $564,174; o Tax Revenue: 33.04 percent. • City of Saint Paul: o 2018 Total: $623,979; o Tax Revenue: 30.62 percent. • Kenai Peninsula Borough: o 2018 Total: $860,097; o Tax Revenue: 0.85 percent. • City of Kodiak: o 2018 Total: $880,642; o Tax Revenue: 6.67 percent. • City of Akutan: o 2018 Total: $999,031; o Tax Revenue: $29.94 percent. • City & Borough of Sitka: o 2018 Total: $1,279.885; o Tax Revenue: 6.55 percent. • City of Cordova: o 2018 Total: $1,429,951; o Tax Revenue: 24.03 percent. • Aleutians East Borough: o 2018 Total: $1,887,896; o Tax Revenue: 38.13 percent. • Kodiak Island Borough: o 2018 Total: $1,919,461; o Tax Revenue: 10.39 percent. • Bristol Bay Borough: o 2018 Total: $3,820,480; o Tax Revenue: 57.79 percent. • City of Unalaska: o 2018 Total: $8,162,129; o Tax Revenue: 37.21 percent. MR. ANDREASSEN stated that the hardest hit list focuses on 15 impacted communities that range from almost $500,000 to more than $8 million. The revenue from the taxes are essential to maximizing self-government which is a constitutional mandate. He referenced "Municipal Impact: Hardest Hit Tax Revenue Percentage" as follows: • City of Atka: o 2018 Total: $11,318; o Tax Revenue: 22.00 percent. • City of Adak: o 2018 Total: $195,387; o Tax Revenue: 23.16 percent. • City of Emmonak: o 2018 Total: $61,167; o Tax Revenue: 23.74 percent. • City of Cordova: o 2018 Total: $1,429,951; o Tax Revenue: 24.03 percent. • City of Akutan: o 2018 Total: $999,031. o Tax Revenue: 29.94 percent • City of Saint Paul: o 2018 Total: $623,979; o Tax Revenue: 30.62 percent. • City of King Cove: o 2018 Total: $564,174; o Tax Revenue: 33.04 percent. • City of Unalaska: o 2018 Total: $8,162,129; o Tax Revenue: 37.21 percent. • Aleutians East Borough: o 2018 Total: $1,887,896; o Tax Revenue: 38.13 percent. • City of False Pass: o 2018 Total: $51,588; o Tax Revenue: 41.95 percent. • Bristol Bay Borough: o 2018 Total: $3,820,480; o Tax Revenue: 57.79 percent. • City of Togiak: o 2018 Total: $165,013; o Tax Revenue: 107.03 percent. • City of Chignik: o 2018 Total: $98,919; o Tax Revenue: 178.38 percent. • City of Larsen Bay: o 2018 Total: $155,056; o Tax Revenue: 303.81 percent. MR. ANDREASSEN said a second way to look at the proposed legislation is by impacts as a percentage of tax revenue. The proposed legislation could mean as much as a 300 percent impact to some communities. The tax percentage listing shows 15 municipalities that would experience at least a 20 percent reduction in their overall tax revenue. He noted that Senator Birch inquired about the possibility of a municipality implementing a tax at the local level. He opined that the state preemption of the shared fish taxes might result in additional taxes on one of Alaska's strongest industries and largest employers. 3:54:42 PM He referenced "Total Impact" as follows • Top 37 = $27,920,880 o Representing 186,739 Alaskans, not including Anchorage equals 25 percent of state. • Average impact: o $615,845. • Average fish tax impact as percentage of tax revenue: o 29.82 percent. • Top 10 characteristics: o Total population: 97,908; o Total employees: 929; o Bond debt: $455,300,666; o School bond debt: $131,489,219; o Combined contribution to school districts: $72,033,407; o Hospitals: 3; o Police powers: 6; o 100-percent PERS; o 7/Property tax; o 6/Sales tax. MR. ANDREASSEN said that the total impact for the Top 37 lists municipalities that would be most significantly affected by the proposed legislation. The cumulative amount would be approximately $27 million, representing 25 percent of the state if Anchorage, which receives $51,000 from the shared taxes, was taken out. The average impact for the Top 37 communities is $615,000 and the average impact as a percentage of tax revenue is just under 30 percent. He emphasized that the Top 37" as strong communities where the top ten account for 100,000 in population, have a 100 percent participation in the state pension program, service almost 1,000 employees between them, have property taxes, and some have sales taxes. Some of the Top 37 impacted municipalities have the option of implementing a tax and some would struggle. He explained that a local tax is on local activity, the sharing is from local to state, not vice versa. The impacted communities carry bond debt and rely on the shared tax revenues to ensure their debt obligations are made. The communities that contribute to school districts do so in the amount of $72 million. Many communities have municipal hospitals and local law enforcement. 3:56:09 PM SENATOR BIRCH asked how the tax dollars are collected and distributed. MR. ANDREASSEN answered that he does not have a clear answer but will get back to the committee. CHAIR BISHOP said Commissioner Tangeman will probably be able to answer the question. MR. ANDREASSEN referenced "Total Impact by Senate District" as follows: • District E: o Total fish: $546,938. • District F-N: o Total fish: $53,269. • District O: o Total fish: $1,442,426. • District P: o Total fish: $5,588,775. • District Q: o Total fish: $800,759. • District R: o Total fish: $2,600,153. • District S: o Total fish: $17,687,490. • District T: o Total fish: $61,167. He pointed out that the data on total impact by Senate district clearly shows that the repeal or defunding of the shared fisheries taxes has a significant impact. 3:57:05 PM He addressed "Scenario Development: Shared Fish Taxes" as follows: • Taxes and or moorage fees increase: o Seafood prices remain low or flat. o Small vessels and business owners become unviable. o Sell-off of local, small vessels to larger fleets. o Fleet consolidation benefits accrue to outside owners. • Maintenance and repair of ports and harbors diminished: o State-transferred assets increasingly unable to serve seafood or tourist industry. • Additional taxes considered, where none exist: o Duplicate industry taxing and decreased economic growth. He summarized that additional taxes would have to be considered where none exist, and you end up with duplicate industry taxing and decreased economic growth. 3:58:10 PM MR. ANDREASSEN referenced scenario development for the City of Kodiak, City of Dillingham, City of Kenai, City of Atka, Petersburg Borough, City of St. Paul, City & Borough of Yakutat, and City of Seldovia as follows: • City of Kodiak: o The combined reductions and cost-shifting will mean that the City of Kodiak anticipates: square4 Potential staff reductions: 13 of 133; square4 Public Safety budget reduced by 8 percent; square4 Public Works budget reduced by 8 percent; square4 Harbor budget reduced by one full-time equivalent (FTE): • Lack of need for officers at Alaska Marine Highway System (AMHS) Terminal. • $50,000 loss of revenue at Pier I and II. square4 Quality of Life programs potentially eliminated include the Kodiak Public Library and Parks and Recreation programs. o Taxes would need to increase to offset the decisions from SB 63. o The City of Kodiak underwent a strenuous evaluation of sales tax during the 2016-2018 fiscal years: square4 The sales tax cap was increased. square4 Future adjustments to sales tax would include taxing internet sales, eliminating exemption programs, and compliance audits. square4 Other adjustments to sales tax would come as cuts of City services to residents. • City of Dillingham: o Receives Shared Fisheries Business Tax of $398,350 in FY2019. o Despite an almost nine-year effort, the Local Boundary Commission denied the city's efforts to expand its municipal boundaries in order to levy a local fisheries tax. o While the city is a major commercial fishing community, the does not have the resources to make up the loss of state shared fish tax revenue. o Reduction in state revenue will significantly impact the city's overall ability to continue to provide services: square4 Up to 25-percent staff reductions. square4 Significant reduction in services in all or most departments/services. square4 Tax increases: • Mill rate and sales tax need to be explored. o The tertiary impact will be a significant loss of jobs and a loss of residents as people will move to seek employment. o Unknown where funding will come from to replace lost shared revenues. • City of Kenai: o The combined reductions and cost-shifting will mean: square4 Potential staff reductions: • 6-7 fulltime positions. square4 Public Safety budget reduction to be determined. square4 Public Works budget reduction to be determined. o Quality of Life programs potentially eliminated that includes ski trails, outdoor ice skating, and possible reduction in park maintenance and beautification. o Taxes would need to increase by 0.63 mills to offset SB 63. • City of Atka: o The combined reductions and cost-shifting will mean that the City of Atka anticipates: square4 Potential staff reductions = 4. square4 Public Safety budget reduced by 100 percent. Atka has a VPSO through the regional tribal entity but provides about $6,000 in additional support from City funds. square4 Public Works budget reduced by 40 percent. square4 The ability to comply with unfunded mandates related to utility operations will be severely hindered. square4 The City will not be able to adequately maintain and operate public facilities or provide public services. o Job opportunities in Atka are limited at present. Low income residents cannot afford additional costs that would be necessary to cover increases in charges that would be needed to continue operation of public utilities and services: square4 The tax base in Atka is severely limited. Even if the local population were to agree to tax themselves, this would not bring in enough to cover even the cost of implementing and managing tax collection. • Petersburg Borough: o The combined reductions and cost-shifting will mean that the Petersburg Borough anticipates: square4 Property Taxes would need to increase by 1.7 mills in service Area 1 to offset the elimination of the State school bond debt reimbursement. o The current property tax levy for Education of 4.35 mills would need to double to make up the lost funding from the State. Due to the Borough's tax cap of 10 this would not be possible as we are already at 9.25 for school and general services. This would mean drastic cuts to our school and local government, including: square4 Quality of Life programs potentially eliminated including our community aquatic center, reduced hours to the library and to our Parks & Recreation Department. square4 Loss of School Activities (sports, music, etc.), and increase in classroom sizes. square4 Reduction of staff Borough wide (Borough, School and Hospital). square4 Major rate increase for Harbor moorage and its resulting impact on the economic engine of the Borough. • City of St. Paul: o The combined reductions and cost-shifting will mean that the City of Saint Paul anticipates: square4 Potential staff reductions of 3 to 4 fulltime positions with a reduced work week from 40 hours per week to 35 hour per week. square4 Public Safety budget reduced by 7 percent. square4 Public Works budget reduced by 19 percent. square4 Travel and training budgets reduced by 90 percent. square4 General fund capital improvement budget reduced by 100 percent. square4 Local sales tax would need to increase by 90 to 95 percent to offset these decisions. square4 An increase in utility (electric, water, sewer, and refuse) rates to cover the administrative costs for operation of these utilities. • City and Borough of Yakutat: o Impacts based on the proposed FY2020 budget: we have highlighted below some of the impacts that this proposal will have on our residents. square4 Community Assistance funding has been $310,615.28 and is 10 percent of the budget. square4 Current local contribution to education is the maximum amount allowed of $503,849. square4 Residents depend on $351,731.65 in PCE funding to afford high energy costs. square4 Share of the Shared Fisheries Business Tax is $218,773 and the share of the Fish Landing Tax is $39,078. square4 Anticipated cuts to the school district are $252,220. square4 Senior Services cuts are expected of $100,000. o Yakutat is concerned about the long-term sustainability of Community Assistance and PCE. o Anticipated combined reductions and cost shifting: square4 Potential staff reductions: • 3 of 17 or 17 percent reduction in staff. square4 Public Safety budget reduced by 20 percent. square4 Public Works budget reduced by 20 percent. square4 Taxes would need to be increased by 300 percent. • City of Seldovia: o Share of the Shared Fisheries Business Tax in FY2019 is $2,341: square4 Funds are invested directly into the city's fish dock to support its commercial fishing industry. o The combined reductions and cost shifting will mean that the City of Seldovia anticipates: square4 Potential staff reductions: • Two Full-Time Equivalents (FTE); • Less workforce equals less services. square4 Public Safety budget reduced by 13 percent. square4 Public Works budget reduced by 13 percent. square4 Reductions in staffing would lead to potential deficiencies in health and welfare, including monitoring our water utility and preservation of the city's safe working environment. square4 Important significant programs potentially eliminated include Seldovia Senior Meal Program, quality of life to Medicaid recipients, Parks and Recreation, and overall quality of life for Seldovians and visitors alike. 4:00:54 PM MR. ANDREASSEN addressed "Choices Combined: Micro Implications" and first addressed matters that compound the situation: • Capital Project Reimbursement: o $32,450,199; o FY2020: square4 $2,003,484. • Harbor Matching Grants: o $7,500,000. • Alaska Marine Highway System: o $8,709,307. MR. ANDREASSEN addressed the micro implications of defunding that act like a feedback loop that includes: • Decreased economic growth, • Departure of residents, • Departure of businesses, • Fewer jobs in private and public sector, • Decrease in taxability, • Decrease in local required school contribution, • Quality of schools decrease, • Departure of families, • Industry invests elsewhere. He explained that the previously noted municipal impact statements include things that compound the situation like the Capital Project Reimbursement, the Harbor Matching Grants, and loss of the Alaska Marine Highway System. But the fish taxes repeal would be tough to manage at a local level as noted in the feedback loop where the departure of residents means the departure of businesses, decreased taxability, and its knock-on effect for other factors. He said the outcomes from the passage of SB 63 will lead to the following: • Less sustainable communities. • Less predictable economies. • Less affordable services. 4:02:52 PM CHAIR BISHOP announced that the committee will hear invited testimony. 4:02:58 PM JON ERICKSON, Manager, City & Borough of Yakutat, Yakutat, Alaska, testified in opposition to SB 63. He said he supports the commitment to having a sustainable budget, but not by making Yakutat unsustainable. The fish tax money has been used to repair and upgrade the fish plant dock so there is a place in Yakutat for commercial fishermen to sell their fish. He opined that the recipe to kill the economy in Yakutat and Southeast Alaska is to take away the fish tax, weaken Power Cost Equalization (PCE), cut contributions to education, stop ferry service, take away Medicaid funds for a new clinic, take away revenue sharing, and cause the City and Borough of Yakutat to raise property taxes and sales taxes. He asked what part of shutting down rural Alaska equates to "Alaska is open for business." 4:05:56 PM CHAIR BISHOP asked him to confirm that the City and Borough of Yakutat uses its fish tax funds to keep its dock up and running. MR. ERICKSON answered yes; the city and borough inherited the dilapidated dock in 1972 and has used the fish tax and money from various companies that rent it to repair and run the dock. SENATOR GRAY-JACKSON said she agrees with Mr. Erickson's comments. 4:07:19 PM LAYTON LOCKETT, City Manager, City of Adak, Adak, Alaska, testified in opposition to SB 63. He explained that Adak derives the majority of its revenue through taxation of the fishing industry. Thirty-four percent of the operating revenues to date are derived from the tax. Adak is a former naval facility that was never platted or subdivided upon its transfer and the city's ability to institute a property tax would require a significant amount of capital and effort. Therefore, the city's ability to generate revenue must continue to come from the levy of taxes such as sales and local fish taxes. In order to replace the equivalent amount of revenue would require a 200 percent increase in the city sales tax or a budget cut of 33 to 51 percent, which would decimate city services. 4:10:48 PM PHIL ZAVADIL, City Manager, City of St. Paul, St. Paul, Alaska, testified in opposition to SB 63. He said the fish taxes makes up one-third of St. Paul's total general fund operating budget. These funds go directly to providing public safety and public work services to residents. He detailed the history of how the state supported Saint Paul and the Pribilof Islands in creating a stable, fisheries-based economy. He said SB 63 sends a message that the state will no longer support its commitment to the community and value people. SB 63 will threaten the long-term stability and sustainability of significant investments the state and local entities made into the St. Paul harbor. SB 63 will impair St. Paul's ability to pay back the loans that the city had to take to pay for its share of the harbor and other local infrastructure. Over $100 million in state, federal, and local funds was invested into the St. Paul harbor infrastructure alone. Thanks to the harbor, St. Paul remains as one of the top generators statewide of fisheries business taxes. 4:14:15 PM PAT BRANSON, Mayor, City of Kodiak, Kodiak, Alaska, testified in opposition to SB 63. He said the City of Kodiak faces a dire threat from the governor's proposed budget that takes the shared Fisheries Business Tax and shared Fishery Resource Landing Tax. The taxes amount to $859,000 to the City of Kodiak budget, or 4.5 percent of the general fund revenue. The funds are used to maintain infrastructure, which supports Kodiak's and the state's economic engine, the seafood industry. Kodiak is the third ranked community in pounds landed, and fourth in product value in all U.S. ports for the fisheries economy. The state no longer owns the infrastructure in Kodiak, an infrastructure that supports an important industry. Without the tax funds municipalities will have to look at raising taxes, cutting services, and for some communities to even continue as viable government entities. She summarized that cost shifting and revenue grabbing is not budget solving. 4:16:55 PM ANNE BAILEY, Administrator, Aleutians East Borough, Anchorage, Alaska, testified in opposition to SB 63. She detailed that the Aleutians East Borough is responsible for 3,141 residents located in the following communities: Akutan, Cold Bay, False Pass, King Cove, Nelson Lagoon and Sand Point. She said the shared fisheries taxes is a partnership between the state and municipalities. There are significant general fund revenues that the municipalities rely on as part of their tax base that supports services and capital projects. The shared fisheries taxes program represents 28 percent of the borough's operating budget of approximately $2.2 million. 4:19:42 PM GARY HENNIGH, City Administrator, City of King Cove, Anchorage, Alaska, testified in opposition to SB 63. He said fisheries represent the revenue cornerstone of the King Cove economy. The prospects of SB 63 becoming law is the most daunting of any fishing-related changes during his 29 years as city administrator. Since King Cove became a first class city in the mid-1970s, state shared fish taxes have been 20 to 25 percent of the their budget. Currently it is approximately $580,000 of a $2.5 million general fund budget. He concluded that SB 63 threatens the long-term survival of King Cove. 4:22:56 PM CLAY KOPLIN, Mayor, City of Cordova, Cordova, Alaska, testified in opposition to SB 63. He said Cordova has already reduced its budget from $12 million to $10 million in the wake of economic contraction. Taking $1.2 million in fish taxes from Cordova will not allow the city to invest in a growing fishery. Cordova ranks as the thirteenth largest seafood port in the United States. It is nearly a $100 million economy and the city is on track to be in the top five seafood ports. The state made a partnership with the community via the fish tax revenues. Cordova is on a growth trajectory and taking away the tax will put the city in a survival mode. He opined that this proposal basically says Alaska is open for business as long as you don't live here. He said if the state is the only beneficiary of these local taxes, it removes the incentive to make the local investments that have grown the tax revenues. The possible result in five years is floating processors that ultimately generate less revenue for the state. 4:26:56 PM MARY SWAIN, Assembly President, Bristol Bay Borough, Naknek, Alaska, testified in opposition to SB 63. She said the borough is the heart of the largest red salmon fishing industry in the world with an estimated annual value of $1 billion. The Naknek port is the third largest commercial landing port in the United States, based on commercial fishing landings ranked by dollar value. The tax revenue supports the borough's essential services. The borough and the state have had a 57 year history of supporting the $1 billion Bristol Bay fishing industry and the borough hopes that will continue. 4:30:16 PM JOE BERESKIN, Mayor, City of Akutan, Akutan, Alaska, testified in opposition to SB 63. He said the shared fishing taxes accounted for 38 percent of the city's revenues in 2018. Combined with the city's other revenues this accounts for 88 percent of the city's revenues. The shared fishing taxes has allowed Akutan to develop projects completely paid for with city funds. The taxes have also supported the city's essential services and capital projects. The shared fishing taxes is essential for the city to meet its goals as well as allowing the city to step up as a partner with the state. SENATOR GRAY-JACKSON noted that she had worked for Mayor Bereskin in Akutan and thanked him for his testimony. 4:34:42 PM FRANK KELTY, Mayor, City of Unalaska, Unalaska, Alaska, testified in opposition to SB 63. He pointed out that the City of Unalaska has been the number-one commercial fishing port in the nation for 22 years and is highly dependent on the shared and local landing taxes. The fisheries industry in the Bering Sea is Unalaska's only industry and if the fish tax revenues are impacted the result will be felt in all city sectors. Unalaska's shared fish taxes account for 26 percent of the its $31 million general fund revenues. Unalaska provides services to help support the nation's largest commercial fishing port that supports harvesters and processors. Unalaska has heavily invested in the infrastructure that supports the fishermen, processors, essential services, nonprofit services, and capital projects. With the lack of state capital project funds, many communities have taken over formally funded state services. Unalaska's fish taxes allow the city to pay its own way. He summarized that the governor has repeatedly stated he will not implement a tax on the people. By taking dollars from communities that service industries on a local level, the impact will require higher taxes imposed by municipalities. He opined that the administration is forcing local governments to tax the people of Alaska and the bill will impact the quality of life for all Alaskans. 4:38:29 PM CHAIR BISHOP asked how the city will deal with the impact of receiving the additional 20 cruise ships that are anticipated. MAYOR KELTY replied that cruise ship visits are part of Unalaska's recent $40 million dock expansion. He detailed that the expanded dock has room for two container ships or up to two cruise ships. He noted that Unalaska annually ships over a billion pounds of seafood out of its port and the city must take care of its facilities on its own. SENATOR BIRCH asked how taxes are collected. MAYOR KELTY answered that the three percent Alaska Fisheries Business Tax is paid to the state by the processors based on shore and half is returned to the communities. The three percent Fishery Resource Landing Tax makes an equal playing field between the shore-based and off-shore processing fleet. The landing tax is based on where the finished product is landed because the processing occurs in federal waters. The majority of the landing taxes go to Unalaska because the city has the only major shipping port in the Aleutians. 4:41:21 PM JORDAN KEELER, City Administrator, City of Sand Point, Anchorage, Alaska, testified in opposition to SB 63. He explained that the fisheries tax comprises 15 to 20 percent of Sand Point's general fund over the past decade. The shared fish taxes are used for administrative costs, core services, enterprise funds, and debt service obligations. SB 63 will have a serious impact on Sand Point and its ability to serve its residents. 4:43:14 PM ALICE RUBY, Mayor, City of Dillingham, Dillingham, Alaska, testified in opposition to SB 63. She said Dillingham is a small, first-class city in Bristol Bay that is located among the communities in the middle of the Bristol Bay commercial salmon fishery. Dillingham is the economic transportation and public service center for western Bristol Bay. Dillingham's fishing industry contributes a great deal to both its own community and to the state since over 40 percent of the permits that participate in the fishery are owned by residents from outside of the region but located within the state. Part of Dillingham's success is due city support of the infrastructure that the industry and community needs. Dillingham currently receives $398,000 in shared fish tax revenue, which is critical to the community. The fish tax revenue accounts for one third of the school contribution, one quarter of the public safety budget, and half of the public works budget. The city cannot levy its own fish tax because the local boundary commission has denied the city's nine-year effort to expand its boundaries for levying a local fish tax. Dillingham taxes itself heavily and its ability to generate more tax revenue to make up for its loss from SB 63 is limited if not impossible. Dillingham's only alternative to make up for its loss would be to reduce essential services. The loss from SB 63 will impact Dillingham's ability to support the fishing industry, the very industry that is generating the economic benefit for both the state and Dillingham. 4:47:04 PM MATT ALWARD, President, United Fishermen of Alaska, Homer, Alaska, testified in opposition to SB 63. He said the legislature chose a long time ago to share a portion of the fisheries taxes with the communities that the fishing industry relies on for processing and shore-side services. The communities use the funds to support the fishing industry as well as paying for its basic services. Communities will have no choice but to backfill funds or cut services if the shared taxes are removed. If SB 63 passes, some of the fishing industry's financial burden will be transferred to coastal communities which will result in more financial stresses for commercial fishing operations. 4:48:41 PM JILA STUART, Finance Director, Haines Borough, Haines, Alaska, testified in opposition to SB 63. She said she shares the concerns that were voiced by the coastal communities that support the fishing industry. The Haines Borough receives the Fisheries Business Tax which accounts for 3 to 10 percent of their general fund revenues. These are funds that the borough tries to use for infrastructure to support the fishing industry as well as supporting schools in Haines. 4:50:02 PM LEE BURGESS, Finance Director, City & Borough of Wrangell, Wrangell, Alaska, testified in opposition to SB 63. He explained that Wrangell uses its share of the fish taxes to reinvest in its harbor infrastructure. To make up for the loss of revenue from SB 63, Wrangell will have to increase its moorage rates by 43 to 57 percent. He opined that the effects of SB 63 will be extremely variable depending on the community and would in effect be an example of arbitrarily picking winners and losers by causing disproportionate harm to certain communities relative to how much their economic backbone is made up of commercial fishing. 4:51:40 PM TERRY EUBANK, Finance Director, City of Kenai, Kenai, Alaska, testified in opposition to SB 63. He said SB 63 is a bill that will eliminate the current sharing of tax revenue to municipalities that are providing direct assistance and infrastructure to the processors and fishermen who are operating within municipal boundaries. MR. EUBANK explained that while small in comparison to many communities, the City of Kenai receives between $125,000 to $225,000 per year in shared fisheries business and resource landing taxes. These shared taxes allow the city to provide services and infrastructure directly to the processors and fishermen in Kenai. Loss of the shared tax revenues will result in a shift of the taxes to other non-fishing related taxpayers. The proposed bill does not eliminate the need for revenue at the local level but shifts the tax burden to other taxpaying groups. 4:53:07 PM MARILYN MENISH-MEUCCI, representing self, Petersburg, Alaska, testified in opposition to SB 63. She opined that the fisheries business fish tax needs to stay in the communities that generated the tax. Petersburg received $899,855 in 2018 and the revenue was used for the harbors and the other needs of the community. She suggested that the governor find alternative revenue sources. 4:53:55 PM CHAIR BISHOP opened public testimony. 4:54:07 PM GLORIANNE WOLLEN, representing self, Petersburg, Alaska, testified in opposition to SB 63. She noted that she is the harbormaster in Petersburg. She detailed her fishing and crabbing history. She said repealing the shared fish taxes would devastate coastal communities that rely on the program to support infrastructure and quality of life programs. She addressed the history of the shared taxes and explained that because the fishing industry gets the opportunity to harvest seafood, the industry owes it to the state and communities to share in the bounty. The concept is that "we are all in this together" and the state government had faith in the industry by providing enough tools to better care for itself. She said the fishing industry is proud of the partnerships created amongst the fishing fleet, the state, and the communities where the seafood is landed. 4:57:10 PM JEFF GUARD, representing self, Cordova, Alaska, testified in opposition to SB 63. He opined that legislators took oaths to "serve and defend the State of Alaska." He said coastal communities are starting to feel under attack after watching the proposals for the state ferry system, the shared Raw Fish Tax revenue, and school dollars. He asked the legislature to use the power of the purse to defend coastal communities from the administration's proposed budget cuts. 4:58:25 PM JAMES WIESE, representing self, Cordova, Alaska, testified in opposition to SB 63. He noted that the shared fishery taxes are used to support Cordova's infrastructure, city services, and bond debt. He concluded that this repeal cannot be managed at the local level. 5:00:27 PM STOSH ANDERSON, representing self, Kodiak, Alaska, testified in opposition to SB 63. He said he is a commercial fisherman who has delivered fish in coastal communities that have all benefited from the taxes that fishermen have paid. The taxes collected and conveyed to the cities are appropriate and need to be maintained. The proposed alcohol tax distribution as a mitigation for reducing the sharing of the fish tax is not appropriate. He opined that any distribution of the alcohol taxes will not be proportional to the communities that have received fish taxes. 5:02:15 PM SHAWN DOCHTERMANN, representing self, Kodiak, Alaska, testified in opposition to SB 63. He said he is a commercial fisherman and delivers seafood to multiple coastal communities. He remarked that he has great concern with the taking of the taxes that helps provide for each port to keep its local infrastructure healthy. He opined that the governor has no business in removing the shared funds with the municipalities that receive seafood landings. The economic stability of every coastal community and borough is at stake if SB 63 were to pass. He suggested that the governor consider other revenue sources. 5:03:52 PM DARIUS KASPRZAK, representing self, Kodiak, Alaska, testified in opposition to SB 63. He noted that he is a commercial fisherman and opined that eliminating the shared taxes will accelerate Kodiak's recent and consistent population decreases. He said as the monies will necessarily be made up from new additional local taxes, Kodiak is already one of the most expensive towns to live in within the state. He remarked that SB 63 will disenfranchise Kodiak. CHAIR BISHOP said he would like to give a shout-out to all the fishermen, men and women, who risk their lives every day to provide a very sustainable industry for Alaska. 5:05:44 PM RACHEL LORD, representing self, Homer, Alaska, testified in opposition to SB 63. She detailed that she is a staff member for the statewide Alaska Association of Harbormasters and Port Administrators and sits on the Homer City Council. She said SB 63 is an irresponsible effort to balance the state finances on the backs of municipalities and working waterfronts. The state's harbors are set up as enterprise funds where harbors pay their way including funding deprecation reserves through fees and tariffs. Fish do not come across the dock unless docks are maintained and properly managed. The shared fish tax revenues are used to help recapitalize infrastructure and operate the docks and harbors. She asserted that the Raw Fish Tax is not statewide revenue. She opined that SB 63 would irresponsibly pull revenue from the communities that are generating the tax revenue and using it to maintain the infrastructure that generates the revenue. 5:07:49 PM JOHN MURRAY, representing self, Sitka, Alaska, testified in opposition to SB 63. He detailed that he is a commercial fisherman. He noted that Sitka is the largest small boat harbor system in Alaska, both commercial and recreational. He opined that Sitka would be hard pressed to backfill the loss of the fish tax revenue. He asserted that SB 63 would be very detrimental to the commercial fleet. 5:08:43 PM CATHY RENFELDT, representing self, Cordova, Alaska, testified in opposition to SB 63. She noted that she works for the Cordova Chamber of Commerce. She said all Cordova businesses are opposed to SB 63 and repealing the revenue sharing of fish taxes would be extremely detrimental to city. The revenue from the fish taxes represents 25 percent of the operating budget and cutting the tax would likely result in cuts to Cordova's basic services. The cuts in SB 63 are unrealistic and show a disregard for the wellbeing of the state. The approach from SB 63 is shortsighted and sends a clear message that the administration does not value its coastal communities, which include six of the largest seafood ports for landing value in the world. She said without Alaska's coastal communities the state would lose an extremely rare, wild, and intact ecosystems along with much of its history, native culture, and unique character and charm. 5:10:56 PM DUSTIN DICKERSON, Vice President, Unalaska Native Fisherman's Association, Unalaska, Alaska, testified in opposition to SB 63. He said he makes a hundred percent of his income from the fish that he delivers on the dock. He stated that the Unalaska Native Fisherman's Association does not support SB 63. 5:11:39 PM GERALD MCCUNE, Board President, Cordova District Fishermen United, Cordova, Alaska, testified in opposition to SB 63. He explained that fishermen indirectly pay the tax and the tax is included in the processors' business plans. He detailed that a fisherman pays a 2-percent aquaculture tax and a 1-percent marketing tax; to make up the money in the tax a fisherman would have to pay 9 or 10 percent out of their own income to make up for the loss. He asserted that if Cordova put in a 9-percent "Raw Fish Tax" then plants in Valdez, Whittier and Seward would attract fishermen away from Cordova. He opined that coastal communities would probably lose money because less fish is coming in which leads to less work and less product. He added that Cordova's hospital is struggling and without a hospital the U.S. Coast Guard would have to go to a location that has a hospital facility. 5:13:32 PM CHAIR BISHOP asked Commissioner Tangeman if he had closing remarks. COMMISSIONER TANGEMAN commented that he appreciates everyone's concern and passion. He stated that the testifiers are obviously seeing the possible impact from their backyards, from their own communities along the coastline. He said his hope is everyone can also appreciate the fact that the state is struggling with the budget as well. He pointed out that the state has a $1.6 billion deficit and a budget that is unsustainable. CHAIR BISHOP asked, if SB 63 did not pass, would the funds still flow out from the state coffers to the communities as it has been COMMISSIONER TANGEMAN replied that the shared fish tax is the law that is in place and the administration's intent is to change the law through SB 63. SENATOR GRAY-JACKSON thanked everyone for their comments and noted how much she appreciated Commissioner Tangeman's comments that the state is struggling. However, the administration should not punish communities because the state is struggling; that is not the way to handle the problem. SENATOR BIRCH asked for the motivation behind allocating the alcohol tax revenue as opposed to the fisheries tax to the coastal communities. COMMISSIONER TANGEMAN replied that he did not know what the policy call was for the 50 percent distribution from the alcohol tax. He reiterated that the alcohol tax is not connected to SB 63 and he cannot speak to the policy. CHAIR BISHOP remarked that he thinks one of the commenters summed it up best with the alcohol taxes, as much as they might try to, he did not think they could drink enough to make up the shortfall. He admitted that his remark is a bit of levity but pointed out that the state is trying to go the other way by using the alcohol funds to help people with drinking addiction problems. He opined that the state needs to address alcohol addiction on the front end and that is where that money needs to go. COMMISSIONER TANGEMAN referenced an earlier question and explained that the fisheries taxes are administered and collected at the state level and then distributed to the communities. 5:17:04 PM CHAIR BISHOP closed public testimony. 5:17:26 PM CHAIR BISHOP held SB 63 in committee. 5:17:46 PM There being no further business to come before the committee, Chair Bishop adjourned the Senate Community and Regional Affairs Standing Committee meeting at 5:17 p.m.