Legislature(2015 - 2016)SENATE FINANCE 532
04/03/2015 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB86 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 86 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
April 3, 2015
9:35 a.m.
9:35:20 AM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 9:35 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Erin Shine, Staff, Senator Anna MacKinnon; Larry Semmens,
Staff, Senator Peter Micciche; Douglas Mertz, Prince
William Sound Regional Citizens Advisory Council; Vince
O'Shea, Pacific Seafood Processors Association, Juneau;
Kristin Ryan, Director, Division of Spill Prevention and
Response, Department of Environmental Conservation.
PRESENT VIA TELECONFERENCE
Kara Moriarty, President and Chief Executive Officer,
Alaska Oil and Gas Association; Ken Alper, Director, Tax
Division, Department of Revenue.
SUMMARY
SB 86 REFINED FUEL SURCHARGE; MOTOR FUEL TAX
SB 86 was HEARD and HELD in committee for further
consideration.
SENATE BILL NO. 86
"An Act relating to a refined fuel surcharge; relating
to the motor fuel tax; relating to a qualified dealer
license; and providing for an effective date."
9:36:10 AM
Vice-Chair Micciche MOVED to ADOPT the committee substitute
for SB 86, Work Draft 29-LS0675\F (Nauman, 4/1/15).
Co-Chair MacKinnon OBJECTED for discussion.
ERIN SHINE, STAFF, SENATOR ANNA MACKINNON, explained the
three changes in the committee substitute. She looked at
page 2, line 11, which removed 0.008 and was replaced with
0.0095. She looked at page 2, line 4, which had a new
number 4 and read, "aviation fuel." She pointed to page 5,
line 7, which removed "aviation facilities" and replaced
with "capital or operating cost of airports."
Senator Olson asked for a restatement of the second change.
Ms. Shine replied that page 2, line 4 had a new number 4
and read, "aviation fuel." The line previously stated,
"fuel sold for use in jet propulsion aircraft operating in
flights to a foreign country, or that continue from foreign
countries."
Senator Olson addressed page 2, line 15, and wondered what
affect that would have on the aviation community. Ms. Shine
deferred to Vice-Chair Micciche.
Vice-Chair Micciche explained that it restated the existing
tax, so the surcharge exempted aviation fuels, but limited
the existing taxes.
Senator Olson wondered if anyone had spoken against the
committee substitute. Vice-Chair Micciche replied that
there was some difficulty with the Federal Aviation
Administration (FAA) regulations, because all surcharges
must return to the airport. He felt that there was adequate
funding for aviation fuel related spills, so it was decided
to not collect from the segment of refined fuels.
Senator Olson queried if there was anyone, outside of
aviation, who had spoken in favor or against the proposed
the committee substitute changes. Vice-Chair Micciche
replied that the department had voiced comments. The
department was concerned how to manage the funds with the
inclusion of aviation fuels. He stated that the department
was in favor of the changes in the committee substitute.
Senator Dunleavy wondered if there was a difference between
"aviation fuel" and "aviation gasoline." Vice-Chair
Micciche did not know the answer. He deferred to the
Department of Environmental Conservation (DEC) and
Department of Revenue (DOR).
Senator Olson explained that aviation fuel would include
aviation gasoline.
Senator Dunleavy remarked that there may be two separate
items: gasoline and fuel.
9:41:08 AM
Senator Hoffman looked at page 1, line 11, and wondered
what was anticipated with the 0.008 scenario, and whether
it was the $7.5 million. He further queried what was
anticipated under the new number of 0.0095. Vice-Chair
Micciche stated that the amount was essentially the same.
He explained that the increase was due to the aviation
exemption.
Ms. Shine furthered that there were forthcoming fiscal
notes that would update the numbers to reflect the 0.0095.
She stated that there would be a slight adjustment, because
of the aviation fuel exemption and increase in percentage.
Co-Chair MacKinnon REMOVED her OBJECTION. There being NO
further OBJECTION, the proposed committee substitute was
adopted.
9:42:34 AM
AT EASE
9:43:20 AM
RECONVENED
9:43:30 AM
Vice-Chair Micciche explained the legislation. The Oil and
Hazardous Substance Release Prevention and Response Fund
(Response Fund) was created to provide a reliable source of
funding for the Department of Environmental Conservation's
(DEC) activities related to oil spill response and
prevention. The Response Fund has been financed with a five
cent per-barrel surcharge on oil produced. Decreasing oil
production has resulted in a decline of revenue available
to pay for spill prevention and cleanup work. The
prevention account which receives $.04 cents per barrel, no
longer has enough revenue to cover essential activities
resulting in the need for an immediate solution that fixes
the problem for future years as well. A variety of
industries and individuals spill oil and hazardous
substances, including private homeowners, mines, fuel
shippers, boat owners, village tank farms and the aviation
industry to name a few. The majority of spills the State
responds to are refined fuels. For example, in fiscal year
2014, of the 2,028 spills reported, 1,525 were refined fuel
spills. According to Kristin Ryan, the Director for the
Division of Spill Prevention and Response, 75-80 percent of
active contaminated sites in Alaska are also the result of
refined fuel spills. This bill distributes prevention and
response costs across all users of refined fuel that are
causing these response and cleanup efforts. This bill
proposes a surcharge of .8 cent per gallon on refined fuels
distributed in the state. Fuel distributors already file
and pay taxes on motor fuels each month. This bill
anticipates that the surcharge will be collected from the
same distributors and reported on the same forms, reducing
implementation costs and maximizing efficiency for both the
payers and the State. All funds collected will be deposited
in the Response Fund's Prevention Account.
9:51:45 AM
LARRY SEMMENS, STAFF, SENATOR PETER MICCICHE, introduced
himself.
Senator Hoffman noted that there were currently separate
tax rates for different products. He recalled that there
were reasons for the different levels of taxation. He
wondered if the bill included heating fuel, and asked why
there was a flat tax rather than a graduated tax structure.
Vice-Chair Micciche replied that the intention was to
simplify the system. He stated that the tax was essentially
a user fee. The bill was intended to place the costs where
the spills occur. He furthered that DOR may be able to
answer more detailed questions regarding aviation fuel. He
stressed that there was an attempt to apply the surcharge
to the individuals who were causing the spills.
Senator Hoffman queried equity in the new tax structure.
Vice-Chair Micciche replied that there was a hope that the
cost did not trickle down to the consumer. He stated that
the average family would see an additional $4 or $5 per
year in total. He felt that the state should not be
required to cover the cost of the fuel spills in the
current economic climate.
Senator Hoffman felt that charging the tax on a per gallon
basis made more sense than a percentage of price basis.
Senator Bishop wondered if there were discussions with
common carriers about increasing insurance premiums for
tankers. Vice-Chair Micciche replied in the affirmative.
Senator Dunleavy asked if there would be a review of the
fiscal note. Vice-Chair Micciche responded that the fiscal
note discussion would occur when the bill moved from
committee.
Senator Dunleavy wondered if he could ask a question about
this fiscal note. Co-Chair MacKinnon replied in the
negative.
Senator Olson commented that there seemed to be a push to
move to natural gas rather than heating fuel.
9:56:21 AM
AT EASE
9:57:13 AM
RECONVENED
9:58:03 AM
KARA MORIARTY, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
ALASKA OIL AND GAS ASSOCIATION (via teleconference), (AOGA)
stated that AOGA represented the majority of oil and gas
producers, explorers, refiners, transporters, and
marketers. She stated that her testimony had the unanimous
consent from all of the AOGA member companies. She shared
that, in addition to the millions of dollars invested each
year by the industry in Alaska to prevent, prepare, and
respond to the release of hazardous substances, AOGA had
long supported a fair and equitable effort to ensure that
Alaska was financial prepared to respond to a spill. She
shared that the state had only collected a surcharge on the
oil and gas industry to pay for the spill response fund
since 1989. She stressed that the industry had contributed
more than $350 million through the surcharge for the fund.
Vice-Chair Micciche announced that he worked for
ConocoPhilips. He clarified that the bill was not related
ConocoPhilips, and explained that ConocoPhilips was not a
member of AOGA.
10:02:29 AM
DOUGLAS MERTZ, PRINCE WILLIAM SOUND REGIONAL CITIZENS
ADVISORY COUNCIL, testified in support of the legislation.
He shared that there was a history of his council working
to structure an oil spill prevention and response capacity.
He shared that there was an acknowledgement that prevention
was the most important factor in spill response. He
stressed that only approximately 10 percent of the spills
were cleaned, so there were ongoing costs for many people.
He remarked that the response costs for a major spill was
enormous. He stated that ExxonMobil spent over $2.5 billion
on the Exxon Valdez oil spill. He remarked that the state
potentially faced enormous costs for each major spills, as
well as the ongoing costs for dealing with the smaller
spills.
10:06:41 AM
VINCE O'SHEA, PACIFIC SEAFOOD PROCESSORS ASSOCIATION,
JUNEAU, remarked that he was in support of the legislation.
He agreed with the value of prevention. He expressed
concern with the 30 percent collection rate under
Department of Environmental Conservation (DEC). He urged
the committee to examine the transparency of DEC, and
whether fund repayment was necessary.
Co-Chair MacKinnon CLOSDED public testimony.
Co-Chair MacKinnon wondered if there was lack in
transparency is collections accounting. She also queried
the 30 percent collection rate reference that Mr. O'Shea
referred.
10:11:01 AM
KRISTIN RYAN, DIRECTOR, DIVISION OF SPILL PREVENTION AND
RESPONSE, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, stated
that Mr. O'Shea was referring to a cost recovery
percentage. In FY 14, the recovery rate was 30 percent of
what was billed. She explained that many of the cost
recovery efforts spanned many years. She stated that large
contaminated sites had billed the Koch Industries $4
million to recover some state costs associated with the
cleanup of Flint Hills. She stressed that the issue was
currently in court to attempt to reimburse some of those
costs. She remarked that it was difficult, on an annual
basis, to show an immediate recovery of costs.
Co-Chair MacKinnon wondered if the billing occurred
annually. She queried the availability of the history of
acting on behalf of the people of Alaska to recover the
costs from the federal government and private companies.
Ms. Ryan responded that there was work to improve the day
to day cost recovery. She shared that there was a recent
implementation of automated billing. She shared that there
was a time tracking system in order to determine the
timeliness of the billing of services.
Co-Chair MacKinnon announced that she wants further
documentation of those efforts. She queried the checks and
balances for the general public to have confidence that the
department was managing outstanding debt appropriately. Ms.
Ryan replied that the new time tracking system would ensure
that there was a better sense of how individuals were
tracking time. The time was charged to a specific code, so
the management could see the occurrence of cost recovery.
She remarked that approximately 30 to 40 percent of the
work was prevention oriented, so those costs were
unrecoverable.
10:16:28 AM
Co-Chair MacKinnon queried the date of the finalization of
the cost recovery regulations for the public. Ms. Ryan
replied that it was in draft form, so she could not
guarantee a date. She hoped that it would be available in
one year from the current date.
Co-Chair MacKinnon encouraged a conversation with the
commissioner, and remarked that she would follow up via
email.
Senator Hoffman looked at the effective date of July 1, and
wondered if there would be adequate time to implement the
tax. Ms. Ryan replied that the goal was to generate revenue
for 2016.
Senator Hoffman wondered if it was more reasonable to have
a January 1 effective date for implementation of the tax.
Ms. Ryan deferred to DOR.
Senator Hoffman wondered how other states would be pay for
this type of problem. Ms. Ryan replied that the other
states used a variety of tactics. She hoped that there
would be future legislation that may charge a fee for
leaving contamination in the ground. She asserted that it
depended on the type of industry in those states, and the
types of occurring spills. She stressed that Alaska had a
large oil industry.
Senator Hoffman wondered how Texas paid for their spill
prevention and response. Ms. Ryan agreed to provide that
information.
10:19:57 AM
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE
(via teleconference), (DOR) introduced himself. In response
to a question from Senator Hoffman, he stated that the bill
was attached to the existing motor fuel tax form.
Senator Bishop commented that diesel fuel was 60 percent of
the issue, and would like to make the intent zero percent.
Senator Dunleavy wondered if the SPAR fund was used to
clean up spills like batteries in a parking lot or septic
system spills. Ms. Ryan replied that the fund restricted
the use for cleanup of oil or hazardous substances. She
furthered that batteries may fall into that category, but
sewage did not fall into that category.
Co-Chair MacKinnon recalled that there was a question about
gasoline, and Senator Olson was discussing the difference
between that and aviation fuel. She wondered if there
should be a conversation about that differentiation, and
how it affected the bill.
Senator Dunleavy explained that he was curious as to
whether the bill sponsor saw any differentiation between
gasoline and aviation fuel.
Senator Olson wanted the department to comment on the
difference between aviation fuel and gasoline. Ms. Ryan
deferred to Mr. Alper. She stated that aviation fuel
included all fuel used at airports, but DOR would be able
to speak to the motor fuels tax.
Co-Chair MacKinnon noted that the committee substitute had
language which separated motor fuel and refined fuel in
order to create clarity when collecting tax. She queried
the difference between aviation fuel and gasoline. Mr.
Alper replied that DOR was currently collecting tax on
aviation fuel and jet fuel, and they were considered
separate categories of taxable fuel within the existing
motor fuel tax. The general aviation fuel was taxed at 4.7
cents per gallon, and the jet fuel was taxed at 3.2 cents
per gallon. The exclusion that was added in the committee
substitute would remove that set of fuel, which had a sum
total of 150 million gallons of fuel per year. He stated
that Section 5 amended existing language that related to
how the state used the existing motor fuel tax for
aviation, and the change was made to conform more closely
to some FAA federal guidelines.
10:26:23 AM
Senator Olson surmised that jet fuel and aviation gasoline
were exempted from the bill. Mr. Alper replied that the
term "aviation fuel" may not be precisely defined in
statute.
Vice-Chair Micciche discussed the fiscal notes.
Senator Hoffman recalled that there would be a new fiscal
note to reflect the changes in the committee substitute.
Co-Chair MacKinnon agreed, and stated that there was a
pending fiscal note.
Senator Hoffman wondered if the revised fiscal note would
have any changes from the current version. Co-Chair
MacKinnon replied that there would be changes, but the
change was subject to change.
10:28:56 AM
AT EASE
10:29:16 AM
RECONVENED
10:29:25 AM
Co-Chair MacKinnon asked for clarification of the fiscal
note. Mr. Alper explained that the pending fiscal note
would reflect two changes: 1) the reduction in the tax base
related to the restriction of aviation fuel; and 2) rate
increased from 0.008 to 0.0095. It was expected that those
two changes would balance each other out. He stated that
the draft fiscal note showed $7.6 million in the first
year, which was a $100,000 difference. He remarked that it
was an estimate, because it was unknown how much fuel would
arrive under the surcharge in the following year.
Senator Hoffman wanted to see the calculations by product.
Mr. Alper replied that Section 3 was conforming language
that described the existing motor fuel tax on various types
of fuel, and which aviation and jet fuel were captured. He
pointed to line 12, which added the surcharge.
Senator Dunleavy looked at a fiscal note that was prepared
on 4/2/15, so he wondered if that fiscal note would be
revised. Co-Chair MacKinnon indicated in the affirmative.
Senator Dunleavy wondered if the analysis about the
arbitrary numbers in the fiscal note would carry to the new
fiscal note. Co-Chair MacKinnon replied in the affirmative.
Senator Hoffman commented that he supports the legislation,
and stated that he would be willing to get the information.
SB 86 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
10:35:21 AM
The meeting was adjourned at 10:35 a.m.
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