Legislature(1999 - 2000)

05/03/1999 09:10 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
MINUTES                                                                                                                         
SENATE FINANCE COMMITTEE                                                                                                        
May 3, 1999                                                                                                                     
9:10 AM                                                                                                                         
                                                                                                                                
TAPES                                                                                                                           
                                                                                                                                
SFC-99 # 117, Side A and Side B                                                                                                 
                                                                                                                                
CALL TO ORDER                                                                                                                   
                                                                                                                                
Co-Chair Torgerson convened the meeting at approximately                                                                        
9:10 AM.                                                                                                                        
                                                                                                                                
PRESENT Senator John Torgerson, Senator Sean Parnell,                                                                           
Senator Al Adams, Senator Dave Donley, Senator Lyda Green,                                                                      
Senator Pete Kelly, Senator Loren Leman, Senator Randy                                                                          
Phillips, Senator Gary Wilken.                                                                                                  
                                                                                                                                
Also Attending:                                                                                                                 
                                                                                                                                
GABRIELLE LAROCHE, Acting Director, Division of                                                                                 
Governmental Coordination, Office of Management and Budget,                                                                     
Office of the Governor; KERRY HOWARD, Project Review                                                                            
Coordinator, Division of Governmental Coordination, Office                                                                      
of Management and Budget, Office of the Governor; REX                                                                           
BLAZER, Division of Governmental Coordination, Office of                                                                        
Management and Budget, Office of the Governor; KEN TAYLOR,                                                                      
Director, Division of Habitat and Restoration, Department                                                                       
of Fish and Game; WILSON CONDON, Commissioner, Department                                                                       
of Revenue; DEBORAH VOGT, Deputy Commissioner, Department                                                                       
of Revenue; WENDY REDMOND, Vice President, University                                                                           
Relations, University of Alaska; MURRAY WALSH, Planning and                                                                     
Development Consultant;                                                                                                         
                                                                                                                                
Attending via Teleconference: From Anchorage: JOHN BAKER,                                                                       
Assistant Attorney General, Natural Resources Section,                                                                          
Civil Division, Department of Law; JANE ANGVIK, Director,                                                                       
Division of Land, Department of Natural Resources; NANCY                                                                        
MICHAELSON; From Barrow: JOHN DUNHAM, Planning Department,                                                                      
North Slope Borough; From Dillingham: JOHN EASTON, Coastal                                                                      
Service Manager, Bristol Bay Coastal Resource Service Area;                                                                     
From Kodiak: LINDA FREED, Kodiak Island Borough; From Mat-                                                                      
Su: BILL EASTHAM; KATHY WELLS, Creator, Hatcher Pass                                                                            
Management Plan; KAROL KOLEHMAINEN, Program Coordinator,                                                                        
Aleutians West Coastal Resource Service Area; From Nome:                                                                        
ROBBIE FAGERSTROM, Co-Chair, Alaska Coastal Policy Council;                                                                     
                                                                                                                                
SUMMARY INFORMATION                                                                                                             
                                                                                                                                
SB 140-COASTAL ZONE MANAGEMENT TO DNR                                                                                           
                                                                                                                                
The committee heard from the sponsor, the Division of                                                                           
Governmental Coordination and the Department of Law. Public                                                                     
testimony was taken. A committee substitute, Version "N",                                                                       
was adopted as a Workdraft. The bill was held in committee.                                                                     
                                                                                                                                
SB  67-GOVERNOR'S INC TAX:INDIVID/EST/TRUSTS                                                                                    
                                                                                                                                
The committee heard from the Department of Revenue. The                                                                         
bill was moved from committee.                                                                                                  
                                                                                                                                
(Senator Dave Donley wanted to know if there was a proposed                                                                     
CS for the Power Cost Equalization bill.  Co-Chair John                                                                         
Torgerson there was proposed but it needed funding                                                                              
sources.)                                                                                                                       
                                                                                                                                
                                                                                                                                
CS FOR SENATE BILL NO. 140(RES)                                                                                                 
"An Act relating to the powers and duties of the                                                                                
Department of Natural Resources, modifying that                                                                                 
department's power to control and manage land within                                                                            
the Hatcher Pass Public Use Area, and authorizing                                                                               
municipal selection of that land, and relating to the                                                                           
Alaska coastal management program; and providing for                                                                            
an effective date."                                                                                                             
                                                                                                                                
                                                                                                                                
BRUCE CAMPBELL, staff to Senator Randy Phillips, testified.                                                                     
SB 140 was a mission alignment bill. It also changed                                                                            
statutory adjustment needed to allow for the budget                                                                             
allocation to the Department of Natural Resources.                                                                              
                                                                                                                                
The statutory adjustments for Department of Natural                                                                             
Resources would make the planning and classification                                                                            
process more flexible, optional or more permissive.                                                                             
"Shall" was replaced with "may" in many places in the first                                                                     
ten pages of the bill. This would allow flexibility in the                                                                      
classifications land planning process.                                                                                          
                                                                                                                                
The land planning process was not the only process the                                                                          
department engaged in. It was one of the steps prior to                                                                         
getting to a land sale.  Land planning classification                                                                           
usually preceded a best interest finding, which also had a                                                                      
public review and public notice.  It also preceded sales or                                                                     
leases, each of which had its own public notice, public                                                                         
hearings, findings and determinations that were generally                                                                       
preformed in a specific order. This change would perhaps                                                                        
lower litigation cost, according to Bruce Campbell.                                                                             
                                                                                                                                
The second half of the bill, beginning on page eleven,                                                                          
would move the Division of Governmental Coordination and                                                                        
its associated coastal management program into the                                                                              
Department of Natural Resources.                                                                                                
                                                                                                                                
[Pause on the record to determine the location of the                                                                           
language in the bill.]                                                                                                          
                                                                                                                                
Bruce Campbell explained where the language defining the                                                                        
Alaska Coastal Policy Council was located.                                                                                      
                                                                                                                                
The intent was to move the process with no major policy                                                                         
changes or alterations to the program that would disturb                                                                        
the on-going process.  The individuals themselves would not                                                                     
physically move.                                                                                                                
                                                                                                                                
The Division of Governmental Coordination currently did not                                                                     
have a director.  Efficiencies would be realized by the                                                                         
savings of eliminating this position through merging the                                                                        
division with the Department of Natural Resources.                                                                              
                                                                                                                                
Co-Chair John Torgerson wanted to know if the witness still                                                                     
anticipated a saving in the maintenance of efforts from                                                                         
combining the two agencies. Would more federal funding be                                                                       
captured? Bruce Campbell had spoken to the National                                                                             
Oceanographic and Atmospheric Administration and was told                                                                       
the funding would probably not change. The programs had                                                                         
reached a funding cap. US Representative Don Young was                                                                          
working on obtaining more funding, but Bruce Campbell did                                                                       
not anticipate an increase in federal funding.                                                                                  
                                                                                                                                
Current state funds allocated to the Division of                                                                                
Governmental Coordination were fairly low and functioned                                                                        
under the Office of Management and Budget, Office of the                                                                        
Governor.                                                                                                                       
                                                                                                                                
Senator Al Adams asked if the merger would create any                                                                           
potential conflict with the regulation of state land use or                                                                     
with activities on private or public lands.  Bruce Campbell                                                                     
replied that he did not see any and detailed. Federal law                                                                       
expressly requested that the governing state agency have                                                                        
the power to direct state land and water use planning and                                                                       
regulations, which the Office of Management and Budget did                                                                      
not have but the Department of Natural Resources did have.                                                                      
Federal law required that the entity that operated the                                                                          
coastal zone program shall have the power to approve or                                                                         
disapprove, after public notice, specific permits or                                                                            
actions. The Division of Governmental Coordination assumed                                                                      
that through a peripheral relationship to Department of                                                                         
Natural Resources, Department of Environmental Conservation                                                                     
and Department of Fish and Game.                                                                                                
                                                                                                                                
The specific mission alignments affected both the structure                                                                     
in which federal code was built and in the agency's impact                                                                      
on that.                                                                                                                        
                                                                                                                                
Co-Chair John Torgerson wanted to know what the changes in                                                                      
the proposed committee substitute would do.  Bruce Campbell                                                                     
replied that it added language to the provision of the                                                                          
merger. It also added language in the planning process                                                                          
portion to allow it to become optional. He showed where on                                                                      
page two line 28 "may" was inserted, and was "shall"                                                                            
deleted.  This was repeated in other areas of the bill.                                                                         
This stipulated that the commissioner "may" engage in a                                                                         
planning process to determine among other things whether                                                                        
there were sufficient funds to do the project. Currently,                                                                       
statute stated that the planning process was required.                                                                          
Without the change the ability to sell and lease lands                                                                          
would be difficult for the department.                                                                                          
                                                                                                                                
Co-Chair John Torgerson asked what changes were made in                                                                         
Section 23. Bruce Campbell answered this was an add-on made                                                                     
by the Senate Resources Committee and included the shift on                                                                     
page ten lines 20, 24 and 25 that excluded specific tracts                                                                      
of land that were included in municipal lease. This                                                                             
amounted to 939 acres of land where there was overlap                                                                           
between the Legislatively created public use area and the                                                                       
contract happening in the Hatcher Pass area. This involved                                                                      
an agreement to construct a ski resort.                                                                                         
                                                                                                                                
Bruce Campbell continued with other changes made on page                                                                        
eight to allow the use of electronic technologies for                                                                           
public notices.  This could result in savings and if                                                                            
successful, the department would be expected to build upon.                                                                     
The department had asked to remove a coordinating body from                                                                     
the public notice provision. They felt that was not a                                                                           
useful function.                                                                                                                
                                                                                                                                
Senator Gary Wilken noted the multitude of fiscal notes and                                                                     
wanted to know which applied to the committee substitute.                                                                       
Co-Chair John Torgerson answered that probably none applied                                                                     
since the CS had not been adopted.                                                                                              
                                                                                                                                
Senator Gary Wilken noted a Coastal Policy Council                                                                              
Resolution.  It was not included in the packet and he                                                                           
wanted it distributed for member's consideration.                                                                               
                                                                                                                                
Senator Randy Phillips moved to adopt CS SB 140 Version "N"                                                                     
as a Workdraft.  Without objection, it was adopted.                                                                             
                                                                                                                                
GABRIELLE LAROCHE, Acting Director, Division of                                                                                 
Governmental Coordination, Office of Management and Budget,                                                                     
Office of the Governor and Program Coordinator, Alaska                                                                          
Coastal Management Program, testified in opposition to the                                                                      
bill.                                                                                                                           
                                                                                                                                
The sixteen-member policy council, who had prepared the                                                                         
resolution opposing the legislation that Senator Gary                                                                           
Wilken spoke of, was comprised of nine locally elected                                                                          
governmental officials. Also, she noted that no one who had                                                                     
testified before the Senate Resources Committee was in                                                                          
favor of the bill.                                                                                                              
                                                                                                                                
The sponsor staff stated that this was a mission alignment                                                                      
and efficiency bill. In response, she had three points that                                                                     
disproved that. First, the missions of the two agencies                                                                         
were different. Second, no savings to the state general                                                                         
fund could be identified with this legislation. Finally,                                                                        
previous legislative audits found the Division of                                                                               
Governmental Coordination was the most appropriate agency                                                                       
for administering the Alaska Coastal Management Program.                                                                        
                                                                                                                                
She spoke to the conflict of interest in the missions and                                                                       
mandates of the Division of Governmental Coordination and                                                                       
the Department of Natural Resources. One of the main                                                                            
functions of the DGC was to make determinations and provide                                                                     
conflict resolutions between the Department of Natural                                                                          
Resources, Department of Environmental Conservation,                                                                            
Department of Fish and Game, developers and other                                                                               
interested parties.                                                                                                             
                                                                                                                                
The bill could result in increased start-up costs when                                                                          
combining the agencies. Although there would be savings in                                                                      
the elimination of the director position, it would be                                                                           
offset by other costs such as position reclassifications                                                                        
and hiring procedures associated with the transfer.                                                                             
                                                                                                                                
Short-term inefficiencies were also anticipated. A                                                                              
changeover of the lead agency would require an amendment to                                                                     
the federal program approval. She described the steps                                                                           
required in this process. Delays or decreases in federal                                                                        
funding would not only impact state agency functions, but                                                                       
also pass-through dollars provided to coastal districts and                                                                     
communities in the state.                                                                                                       
                                                                                                                                
Gabrielle LaRoche told the committee that the director's                                                                        
position, which was proposed to be assigned to the Division                                                                     
of Land, would not qualify for full federal funding since                                                                       
the position would have other duties beside the coastal                                                                         
management program. The difference would have to be made                                                                        
up.                                                                                                                             
                                                                                                                                
She repeated her argument that the Office of the Governor                                                                       
was the best location for the Alaska Coastal Management                                                                         
Program.                                                                                                                        
                                                                                                                                
JANE ANGVIK, Director, Division of Lands, Department of                                                                         
Natural Resources, testified via teleconference from                                                                            
Anchorage. She opposed the bill and had two points to make.                                                                     
The first was that the Division of Governmental                                                                                 
Coordination and the Department of Natural Resources were                                                                       
very different and performed different functions.                                                                               
                                                                                                                                
The Division of Lands functioned as the owner of the state                                                                      
lands and made decisions on how to best use the state's                                                                         
resources. The Division of Governmental Coordination on the                                                                     
other hand was a permitting agency that attempted to                                                                            
resolve conflicts between parties whether they affected                                                                         
state, federal or private lands.                                                                                                
                                                                                                                                
Secondly, she believed the intention was to make the                                                                            
planning process optional for the Division of Lands. She                                                                        
disagreed that funding for the planning functions could be                                                                      
eliminated since the process would no longer be required.                                                                       
She also disagreed that with the elimination of the                                                                             
planning positions, the functions could be taken over by                                                                        
the personnel from the current Division of Governmental                                                                         
Coordination. Neither of those perceptions would be                                                                             
accurate because, she warned.                                                                                                   
                                                                                                                                
She talked about the language addressing the planning                                                                           
requirements and explained that it still required the                                                                           
division to go through a reasoning process before making                                                                        
decisions. With no funding or staff to perform that                                                                             
function, that could not be done.                                                                                               
                                                                                                                                
She stressed that this legislation would not achieve the                                                                        
objectives of mission alignment stated by the sponsor. She                                                                      
detailed the different missions of the two agencies.                                                                            
                                                                                                                                
JOHN BAKER, Assistant Attorney General, Natural Resources                                                                       
Section, Civil Division, Department of Law, testified via                                                                       
teleconference from Anchorage. He addressed the                                                                                 
implications of Title 38. He characterized the Department                                                                       
of Law's concerns with the dispersion as constitutionally                                                                       
based. The department did not believe that these changes                                                                        
would make the bill, as written, unconstitutional. However,                                                                     
he did want to point out that there were constitutional                                                                         
implications in how the courts would likely construe the                                                                        
legislation.  That would have a direct effect on whether                                                                        
the legislation would achieve its objective to produce cost                                                                     
and efficiency savings. Those comments were directed mainly                                                                     
at Sections 4, 10, 11, 13 and 14 of Version "N" that made                                                                       
the planning functions optional.                                                                                                
                                                                                                                                
The court under Alaska law would construe all legislation                                                                       
as avoiding a constitutional conflict whenever possible. To                                                                     
do that, it would interpret the legislation with its own                                                                        
view of what the constitution required. The department                                                                          
believed that the court would view the constitution as                                                                          
requiring some record of the decision making for all                                                                            
disposals of land and other state resources in order to                                                                         
make public participation in that process meaningful. The                                                                       
department anticipated that the court would require the                                                                         
Department of Natural Resources to continue to engage in a                                                                      
process described in Title 38. The legislation could change                                                                     
the name of the process.                                                                                                        
                                                                                                                                
If the goal were to reduce the workload in the planning and                                                                     
classification functions, this bill would not accomplish                                                                        
that.                                                                                                                           
                                                                                                                                
He deferred to Gabrielle LaRoche's comments on the Coastal                                                                      
Management Program implications.                                                                                                
                                                                                                                                
Senator Al Adams had a question on the constitutionality of                                                                     
the bill. Was that because the constitution specifically                                                                        
stated that the government needed a reasonable approach to                                                                      
land management and that the public was entitled to a due                                                                       
process?  John Baker replied that there were several                                                                            
sections of Article 8 of the constitution that required                                                                         
public notice and pointed out the linkage to the                                                                                
classification and planning process. In a nutshell, the                                                                         
linkage should be described as that which a record of                                                                           
decision making was produced.  The court required not only                                                                      
public notice, but meaningful public notice that the public                                                                     
was able to participate in.                                                                                                     
                                                                                                                                
JOHN DUNHAM, Planning Department, North Slope Borough.                                                                          
Testified via teleconference from Barrow to the items in                                                                        
the bill relating to the Coastal Management Program.  He                                                                        
was concerned that the move was unneeded and that there                                                                         
would be no net savings. He was concerned how the Division                                                                      
of Governmental Coordination activity would integrate                                                                           
administratively into the Department of Natural Resources.                                                                      
He talked about the change in employment status from exempt                                                                     
positions and how that might affect the impartiality or the                                                                     
expertise of the decision-makers.                                                                                               
                                                                                                                                
He then referred to the land planning process. He detailed                                                                      
the unfulfilled municipal entitlement situation. He noted                                                                       
that the North Slope Borough was not the only municipality                                                                      
in this position and felt this bill would have a larger                                                                         
impact than the committee realized.                                                                                             
                                                                                                                                
The Division of Lands and the Division of Governmental                                                                          
Coordination were completely different agencies. He closed                                                                      
by saying there were no simple answers.                                                                                         
                                                                                                                                
JOHN EASTON, Program Director, Bristol Bay Coastal Resource                                                                     
Service Area, testified via teleconference from Dillingham                                                                      
testified against the bill. This would affect the Bristol                                                                       
Bay Area Plan that included state land classifications and                                                                      
designations. This plan and others had gone through a full                                                                      
public process to find the best use.                                                                                            
                                                                                                                                
The Division of Governmental Coordination served its                                                                            
mission. SB 140 would remove a network system that worked                                                                       
quite well.                                                                                                                     
                                                                                                                                
LINDA FREED, Community Development Director, Kodiak Island                                                                      
Borough testified via teleconference from Kodiak. She had                                                                       
serious concerns with the state land planning functions.                                                                        
She felt the bill was short sighted.                                                                                            
                                                                                                                                
The Kodiak Island Borough was opposed to the Coastal                                                                            
Management Program portions of the bill and did not see the                                                                     
savings in merging the office with the Department of                                                                            
Natural Resources. She did not feel that by eliminating the                                                                     
director's position was advantageous. The director position                                                                     
played an important part in the process, often as an                                                                            
arbitrator.                                                                                                                     
                                                                                                                                
BILL EASTHAM, President, Mat-Su Motor Mushers, testified                                                                        
via teleconference from Mat-Su in opposition to the Senate                                                                      
Resources Committee version of the bill.  He felt the                                                                           
Hatcher Pass community would have no control over the area.                                                                     
                                                                                                                                
KATHY WELLS, Creator, Hatcher Pass Management Plan,                                                                             
testified via teleconference from Mat-Su in opposition to                                                                       
the bill. She did not want the Mat-Su Borough to acquire                                                                        
the land arguing that it did not have the capacity to                                                                           
properly manage it. She was concerned with the poor public                                                                      
notice process with this bill.                                                                                                  
                                                                                                                                
KAROL KOLEHMAINEN, Program Coordinator, Aleutians West                                                                          
Coastal Resource Service Area, testified via teleconference                                                                     
from Mat-Su. She spoke to the concerns of the CRSA with the                                                                     
bill. She did not support the merging of the two agencies                                                                       
or the elimination of the planning process requirement. She                                                                     
also had concerns about funding for the CRSA.                                                                                   
                                                                                                                                
ROBBIE FAGERSTROM, Co-Chair, Alaska Coastal Policy Council,                                                                     
testified via teleconference from Nome. He requested the                                                                        
committee members be provided with two letters to use when                                                                      
making their decisions regarding this bill.                                                                                     
                                                                                                                                
He referenced a Legislative Audit Report that found the                                                                         
Division of Governmental Coordination was the most                                                                              
appropriate location for the coastal policy functions.                                                                          
                                                                                                                                
                                                                                                                                
Tape # 117 Side B   9:57 AM                                                                                                     
                                                                                                                                
                                                                                                                                
Robbie Fagerstrom continued.                                                                                                    
                                                                                                                                
NANCY MICHAELSON testified via teleconference from                                                                              
Anchorage regarding the Hatcher Pass Public Use Area. She                                                                       
told of the area and the many recreational activities her                                                                       
family and thousands of other South-central Alaskans                                                                            
enjoyed there. She pointed out that the borough was not                                                                         
bound by the limitation agreement and was more interested                                                                       
in developing the land.                                                                                                         
                                                                                                                                
MURRAY WALSH, Planning and Development Consultant testified                                                                     
in Juneau. He felt the provisions in SB 140 would not                                                                           
accomplish the goals of the permitting process. The only                                                                        
defense his permit applicants had was the Division of                                                                           
Governmental Coordination, which served as a referee.                                                                           
                                                                                                                                
Co-Chair John Torgerson ordered the bill held in committee.                                                                     
                                                                                                                                
                                                                                                                                
SENATE BILL NO. 67                                                                                                              
"An Act relating to taxation, including taxation of                                                                             
income of individuals, estates, and trusts; and                                                                                 
providing for an effective date."                                                                                               
                                                                                                                                
The Senate Rules Committee at the request of the Governor                                                                       
introduced the bill.                                                                                                            
                                                                                                                                
WILSON CONDON, Commissioner, Department of Revenue                                                                              
testified. This bill was part of a package of bills that                                                                        
the Governor had requested with respect to his proposal to                                                                      
address the long-range financial plan the Legislature and                                                                       
Governor had been focused on this session.                                                                                      
                                                                                                                                
The Governor included a broad-based tax in his proposed                                                                         
financial plan because he believed it was needed to fulfill                                                                     
one of the five key principles that he urged should apply                                                                       
to any long-range financial plan.  That principal was to                                                                        
maintain and protect a healthy permanent fund dividend.                                                                         
Both Alaska families and Alaska businesses were in some                                                                         
way, dependent on the continuation of a healthy permanent                                                                       
fund dividend program.                                                                                                          
                                                                                                                                
Wilson Condon restated the four main elements of the                                                                            
Governor's plan.  One was to transfer $4 billion from the                                                                       
permanent fund earnings account into the Constitutional                                                                         
Budget Reserve (CBR) and use earnings from the CBR to pay                                                                       
for public services. The second key was to invest the CBR                                                                       
more aggressively. Third was a broad-based tax that would                                                                       
raise approximately $300-350 million. Finally, for the plan                                                                     
to continue, another transfer to the CBR would be needed                                                                        
around 2010.                                                                                                                    
                                                                                                                                
In the plan presented following the State of the Budget                                                                         
address, the permanent fund dividend would average slightly                                                                     
under $1500 a year over the next fifteen years. The                                                                             
Governor had made it clear that he would be flexible on a                                                                       
financial plan with respect to the fund in which the money                                                                      
would be transferred. He was open to more aggressive                                                                            
investment of the earnings and he was flexible a different                                                                      
tax than what was proposed in SB 67. However, he believed                                                                       
that without any additional revenue, the maximum                                                                                
sustainable permanent fund dividend would be about $800-900                                                                     
per year no matter how the plan was structured. To use of                                                                       
the permanent fund to pay for public services and to                                                                            
continue to pay dividends over $1000, there would need to                                                                       
be a broad-based tax.                                                                                                           
                                                                                                                                
He did the addition to find that $60 million in additional                                                                      
revenue had the effect of raising the per capita by about                                                                       
$100 per person a year.                                                                                                         
                                                                                                                                
With respect to a broad-based tax, there was one other                                                                          
general public policy reason that should be considered. The                                                                     
Commonwealth North committee that looked at the management                                                                      
of the state's financial resources, pointed out that there                                                                      
was an "Alaska disconnect". That was defined as economic                                                                        
development in areas other than the oil and gas industries;                                                                     
such as mining, timber or investments in transportation,                                                                        
were activities that made the private sector of the economy                                                                     
more prosperous, but did not bring more public revenues                                                                         
that paid for public services. People who moved to the                                                                          
state and participated in those public service activities                                                                       
required these.                                                                                                                 
                                                                                                                                
Wilson Condon repeated the comment that the Governor was                                                                        
willing to consider any form of broad-base tax.  This could                                                                     
include an income tax, sales tax, motor fuel tax, etc. The                                                                      
reason Governor Knowles specifically proposed an income tax                                                                     
were that it would reach out-of-state workers. Also, state                                                                      
income tax was deductible on federal income tax where sales                                                                     
tax was not. Finally, the income tax was progressive. It                                                                        
required more from those who had the ability to pay more                                                                        
and as some believed, benefited more from the public                                                                            
services.                                                                                                                       
                                                                                                                                
The Alaska Credit featured in the tax added to the                                                                              
progressivity of the tax by making the tax rate a                                                                               
percentage of the federal tax. In terms of the public                                                                           
reaction to that, Wilson Condon thought it added to much                                                                        
progressivity. The public reaction had been that the way                                                                        
the tax was structured, too few people would pay the tax.                                                                       
Therefore, the Governor was open to proposals to change the                                                                     
structure of that tax so that it would address those                                                                            
perceived difficulties.                                                                                                         
                                                                                                                                
A number of the people Wilson Condon talked to                                                                                  
misunderstood the thirty-one percent rate. They thought it                                                                      
was a thirty-one percent tax rate, when it really was                                                                           
thirty-one percent of one's federal income tax. His own tax                                                                     
rate was twenty-eight percent on his taxable income.                                                                            
Thirty-one percent of that twenty-eight equaled a rate of                                                                       
taxation of 8.6 percent of his taxable income. If the                                                                           
Alaska Credit feature were removed, which removed the size                                                                      
of the tax base and introduced the elevated progressivity,                                                                      
the tax would be lowered to 5.9 percent.                                                                                        
                                                                                                                                
He returned to his main point that a broad-based tax of                                                                         
some type was necessary if a health dividend was to be                                                                          
preserved. It was a balance. It was possible to cover the                                                                       
budget deficit entirely from the permanent fund earnings.                                                                       
However, that would eliminate the dividend. On the other                                                                        
hand, it was probably not possible to cover the entire                                                                          
budget deficit with taxes. It was too large.                                                                                    
                                                                                                                                
It was a matter of fairness and was a political judgement                                                                       
that balanced the question of who paid to close the budget                                                                      
gap, according to Wilson Condon. The Governor believed the                                                                      
fairest way to do that was to preserve a dividend in the                                                                        
range that went with his proposal and to put in place a                                                                         
broad-based tax.  This was a fair way of distributing the                                                                       
burden of balancing the budget.                                                                                                 
                                                                                                                                
He again stressed that the Governor was flexible.                                                                               
                                                                                                                                
Co-Chair John Torgerson asked how long this tax plan would                                                                      
protect the dividend and the state's savings account.                                                                           
Wilson Condon used the oil production figures set forth by                                                                      
the Department of Revenue's Spring forecast for the next                                                                        
five years and the Fall revenue forecast for the period                                                                         
thereafter. The projections for a flat-line budget over the                                                                     
next fifteen years, without taking some other action,                                                                           
showed the CBR depleted by 2014.                                                                                                
                                                                                                                                
Senator Loren Leman had questions on the Governor's tax                                                                         
proposal.  He remembered the rate on the previous personal                                                                      
income tax was sixteen percent. Wilson Condon didn't                                                                            
believe that was correct. He thought it was fourteen                                                                            
percent.                                                                                                                        
                                                                                                                                
Senator Loren Leman said that he had paid the income tax                                                                        
and he certainly was not in the higher income categories at                                                                     
the time.                                                                                                                       
                                                                                                                                
DEBORAH VOGT, Deputy Commissioner, Department of Revenue                                                                        
said the rates had been graduated starting at three-percent                                                                     
and went up to 14.5 percent. The highest rate applied to a                                                                      
taxpayer who was single and with an income over $150,000                                                                        
annually. She clarified that that was a percentage of the                                                                       
federal tax.                                                                                                                    
                                                                                                                                
Senator Loren Leman then voiced concern with the creation                                                                       
of another bureaucracy to collect and audit the tax. There                                                                      
was also a similar administration to distribute the                                                                             
permanent fund dividend.  This did not make sense to him.                                                                       
He noted that some felt there was a social benefit of                                                                           
taking from producers of income and redistributing to those                                                                     
who did not produce incomes.                                                                                                    
                                                                                                                                
One goal of the Legislature was to have as lean and                                                                             
efficient a government as possible.                                                                                             
                                                                                                                                
He asked for response to the dual mechanism.                                                                                    
                                                                                                                                
Wilson Condon said the answer was both very simple and very                                                                     
complex.  It was a policy choice whether to have both                                                                           
programs. If there were both, there would need to be                                                                            
administration for both.  It was a question of what people                                                                      
felt was fair.                                                                                                                  
                                                                                                                                
Senator Pete Kelly had a question on comments made about                                                                        
the fairness issue. The argument the witness gave was that                                                                      
a tax on higher income was justified because it was                                                                             
believed those people were the ones who most benefited from                                                                     
government services. Senator Pete Kelly didn't think those                                                                      
people were the ones who mostly used the programs of the                                                                        
Department of Health and Social Services, the Department of                                                                     
Public Safety or the Power Cost Equalization program.                                                                           
                                                                                                                                
Wilson Condon said there was not a true answer to who                                                                           
benefited.  He felt he had as much or more of a stake in                                                                        
government services. He did not pay as much for what he got                                                                     
from roads, airports, etc. He had a big stake in the                                                                            
economy having a well-educated workforce. It was important                                                                      
to have a state park system where he could go camping. He                                                                       
saw himself as having a tremendous stake in Alaska's future                                                                     
than people of lesser means. More possibilities were made                                                                       
available to him as a consequence of his having a higher                                                                        
income. Others would evaluate that differently and he                                                                           
didn't think there was a right answer.                                                                                          
                                                                                                                                
When talking about fairness in the tax system, there were                                                                       
four considerations. One was whether taxes should be                                                                            
collected on an ability to pay basis. There was the matter                                                                      
of collecting taxes on the use of services. He noted there                                                                      
were many services he received that he did not pay for. The                                                                     
third consideration was that of horizontal equality. This                                                                       
was the determination of whether individuals in the same                                                                        
situation paid comparable amounts. The final consideration                                                                      
addressed whether those who could pay more should pay more.                                                                     
There were no true answers to any of those debates but they                                                                     
were value choices that the Legislature had to make when                                                                        
deciding how to pay for public services.                                                                                        
                                                                                                                                
Senator Pete Kelly noted that most of the services the                                                                          
witness mentioned were paid by federal funds: roads,                                                                            
airports, public education and parks.  When talking about                                                                       
fairness, it was a different debate in paying for use of                                                                        
services. He detailed his argument on fairness. He believed                                                                     
people should not be taxed for the reason that they                                                                             
benefited more from general fund dollars if in fact they                                                                        
didn't.                                                                                                                         
                                                                                                                                
Senator Gary Wilken asked if S-Corps were treated as                                                                            
individual incomes in this proposal.  He wanted to know                                                                         
that if a S-Corp had before-tax earnings of $1 million and                                                                      
if thirty-one percent of the thirty-nine percent federal                                                                        
tax rate was taken the S-Corp would then pick up an                                                                             
$120,000 obligation.  Wilson Condon said if it was a solely                                                                     
owned S-Corp, it would.  Senator Gary Wilken was afraid                                                                         
that would be the answer.  Wilson Condon qualified that the                                                                     
affect of the Alaska Credit feature would have the affect                                                                       
of raising the rate by about 40-50 percent on the remaining                                                                     
tax base. This was because the S-Corp itself would not be                                                                       
receiving a permanent fund dividend.                                                                                            
                                                                                                                                
Deborah Vogt clarified that the S-Corp would not pay this                                                                       
tax, the individual to whom the income was distributed                                                                          
would.  That person would probably be eligible for the                                                                          
credit.                                                                                                                         
                                                                                                                                
Senator Gary Wilken noted discrepancies on the additional                                                                       
positions requested in the handouts. The Governor's Tax                                                                         
Plan on page 13 showed an increase of 56.7 positions while                                                                      
page 12 appeared to be 87 positions. Wilson Condon was                                                                          
unsure about that.  Co-Chair John Torgerson asked for the                                                                       
correct information to be provided.                                                                                             
                                                                                                                                
Senator Sean Parnell wanted to know how many people would                                                                       
be paying the tax on an annual basis for the first five                                                                         
years.  Deborah Vogt did not have the exact figures.  She                                                                       
estimated it would not be less than 75,000.                                                                                     
                                                                                                                                
Senator Sean Parnell wanted to know how much of that                                                                            
revenue would come from out-of state workers.  The                                                                              
department did not have that information prepared. Wilson                                                                       
Condon only had a table that broke down the tax revenue by                                                                      
income. Senator Sean Parnell asked what the department was                                                                      
attempting to estimate. Wilson Condon answered they wanted                                                                      
to determine both the number of taxpayers and the                                                                               
proportion of the tax that would be raised by the various                                                                       
brackets of federal taxable income.                                                                                             
                                                                                                                                
Senator Sean Parnell wanted to know how much of the $350                                                                        
revenue would be paid by out-of-state residents.  Wilson                                                                        
Condon said it would be between $35 and $50 million.                                                                            
Senator Sean Parnell calculated that Alaskan residents                                                                          
would then pay about $300 million.                                                                                              
                                                                                                                                
Senator Sean Parnell returned to the term "broad-based                                                                          
tax."  No matter how he looked at it, less than one-sixth                                                                       
of the population and less than one-third of the wage                                                                           
earners would pay the tax. This estimation was based on all                                                                     
the information provided not just today's testimony. Wilson                                                                     
Condon answered that the Alaska Feature narrowed the base                                                                       
considerably. As he testified, if the Legislature were to                                                                       
impose a tax, it would need to have a broader base.                                                                             
                                                                                                                                
Senator Sean Parnell wanted to know the economic impact.                                                                        
Wilson Condon said the tax imposed would have the effect of                                                                     
taking money out of the economy the same as reductions in                                                                       
PFD dividends.                                                                                                                  
                                                                                                                                
Senator Sean Parnell asked if it would result in higher                                                                         
paying jobs going elsewhere and a decrease in higher paying                                                                     
jobs. Wilson Condon did not know. Senator Sean Parnell                                                                          
asked if that was because research had not been done or the                                                                     
research was unable to determine.  Wilson Condon said it                                                                        
was because it was not yet done. He did not know of a                                                                           
reason why there would be a greater loss of jobs at the                                                                         
high end of the income spectrum. Senator Sean Parnell                                                                           
thought there was intent to create higher income jobs. He                                                                       
wondered if this tax was counter to that goal.                                                                                  
                                                                                                                                
Senator Lyda Green said it appeared that this plan would                                                                        
allow broad-scale use of personal information from one                                                                          
agency to another. This would be intermingled with the                                                                          
permanent fund. She wanted to know if when the permanent                                                                        
fund was created, was there any implication that the                                                                            
information gathered would be protected.                                                                                        
                                                                                                                                
Deborah Vogt answered that there was a list of agencies                                                                         
that had access to PFC information to some extent. Some                                                                         
restrictions on the data were statutory and some were                                                                           
regulatory. Some came about only at the advice of the                                                                           
Attorney General. All the names and addresses were public                                                                       
information. Social security number and other information                                                                       
was fairly limited. The permanent fund program was in Title                                                                     
43, the tax program, and was subject to the same                                                                                
confidentiality as the tax information. She therefore                                                                           
concluded that the two agencies were close enough that                                                                          
there could be a sharing of information.                                                                                        
                                                                                                                                
Senator Lyda Green asked if the same held true for child                                                                        
support programs. Deborah Vogt responded that the Child                                                                         
Support Enforcement Division had access to almost all of                                                                        
the information on the dividend application.                                                                                    
                                                                                                                                
Senator Lyda Green referred to cross-match employer                                                                             
quarterly report filings to the Department of Labor and                                                                         
wanted to know if that to obtain information of the number                                                                      
of people a corporation was hiring. Deborah Vogt answered                                                                       
that it was not. She explained that the employer                                                                                
withholding funds would go through the Department of Labor.                                                                     
The employee paycheck would have funds withheld for state                                                                       
tax just as it did for federal tax.                                                                                             
                                                                                                                                
                                                                                                                                
Tape: SFC - 99 #118, Side A    10:44AM                                                                                          
                                                                                                                                
                                                                                                                                
Co-Chair John Torgerson pointed out that the savings,                                                                           
except for the corpus of the permanent fund would run out                                                                       
in the year 2014. He wanted to know what was the plan for                                                                       
after the year 2014. Wilson Condon disagreed with the                                                                           
assumption. He predicted the CBR would be empty by 2014.                                                                        
However, if that were true, and there was no other                                                                              
additional revenue, other steps would be necessary. More                                                                        
transfers to the CBR would be required based on the                                                                             
projections the department was currently doing.                                                                                 
                                                                                                                                
Senator Sean Parnell offered a motion to move SB 67 from                                                                        
committee with individual recommendations.  He noted this                                                                       
proposal reflected a very different view of financing                                                                           
government than he had.  Senator Dave Donley commented he                                                                       
disagreed with the bill and did not think it should move                                                                        
from committee without a statement of "no recommendation."                                                                      
                                                                                                                                
Senator Pete Kelly felt a statement in opposition should be                                                                     
made on the Senate floor.                                                                                                       
                                                                                                                                
Senator Pete Kelly wanted to vote to move the bill from                                                                         
committee because he wanted to make a statement on the                                                                          
Senate floor in opposition to it. There were a lot of                                                                           
discussions across the state about different sources of                                                                         
revenue. The Governor had proposed an income tax and he was                                                                     
willing to let it go to the whole Senate to get the                                                                             
reaction of all the Senators.                                                                                                   
                                                                                                                                
Senator Loren Leman had not heard a compelling argument for                                                                     
income tax.  He would not oppose moving from committee but                                                                      
would cast a no vote on in Senate Chambers.                                                                                     
                                                                                                                                
Senator Al Adams would vote against moving the bill from                                                                        
committee. His reasons were because he believed the long-                                                                       
range plan was still being worked on and should be drafted                                                                      
before the income tax options were eliminated.                                                                                  
                                                                                                                                
AT EASE 10:48 AM / 10:50 AM                                                                                                     
                                                                                                                                
Senator Sean Parnell amended the motion to move SB 67 from                                                                      
committee with a committee recommendation of "do not pass."                                                                     
Senator Al Adams noted this was the last committee of                                                                           
referral and the uniform rules requiring at least one "do                                                                       
pass" from a committee must be followed. Co-Chair John                                                                          
Torgerson suggested the uniform rules could be suspended on                                                                     
the Senate floor.                                                                                                               
                                                                                                                                
There was no objection and the bill moved from committee                                                                        
with a "do not pass" recommendation.                                                                                            
                                                                                                                                
                                                                                                                                
ADJOURNED                                                                                                                       
                                                                                                                                
Senator Torgerson adjourned the meeting at 10:52 AM.                                                                            
SFC-99  (1) 5/3/99                                                                                                              

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