Legislature(2003 - 2004)

05/05/2003 09:02 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     SENATE FINANCE COMMITTEE                                                                                 
                           May 05, 2003                                                                                       
                              9:02 AM                                                                                         
SFC-03 # 75,  Side A                                                                                                            
SFC 03 # 75,  Side B                                                                                                            
SFC 03 # 76,  Side A                                                                                                            
CALL TO ORDER                                                                                                               
Co-Chair Gary Wilken convened  the meeting at approximately 9:02 AM.                                                            
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Lyda Green, Co-Chair                                                                                                    
Senator Con Bunde, Vice Chair                                                                                                   
Senator Ben Stevens                                                                                                             
Senator Donny Olson                                                                                                             
Senator Donny Hoffman                                                                                                           
Senator Robin Taylor                                                                                                            
Also Attending: REPRESENTATIVE  NORM ROKEBERG; SENATOR GARY STEVENS;                                                          
JEFF  OTTESEN,  Acting Director,  Division  of  Statewide  Planning,                                                            
Department of Transportation  and Public Facilities; JOHN MACKINNON,                                                            
Deputy Commissioner  of Highways & Public Facilities,  Department of                                                            
Transportation  and  Public  Facilities;   JOHANNA  BALES,  Auditor,                                                            
Department   of  Revenue;   RICK   URION,  Director,   Division   of                                                            
Occupational  Licensing,   Department  of  Community   and  Economic                                                            
Development;  CHUCK HARLAMERT, Juneau  Section Chief, Tax  Division,                                                            
Department of Revenue                                                                                                           
Attending via  Teleconference: From Anchorage: JENNIFER  APP, Alaska                                                        
Advocacy Director, American  Heart Association; From Ketchikan: MIKE                                                            
ELERDING, Owner, Northern Sales Company                                                                                         
SUMMARY INFORMATION                                                                                                         
SB 100-APPROP: CAPITAL PROJECTS                                                                                                 
The   Committee   continued   discussion    on   a   Department   of                                                            
Transportation  and Public  Facilities amendment,  and the  bill was                                                            
held in Committee.                                                                                                              
HB 9-HOME INSPECTORS/CONTRACTORS                                                                                                
The  bill  heard  from  the  sponsor  and  reported  the  bill  from                                                            
SB 168-CIGARETTE SALE/DISTRIBUTION                                                                                              
The Committee  heard from  the sponsor, the  Department of  Revenue,                                                            
the industry, and took  public testimony. One amendment was adopted,                                                            
and the committee substitute was reported from Committee.                                                                       
SB 114-INCREASE BUSINESS LICENSE FEE                                                                                            
The Committee  heard from the sponsor,  the Department of  Community                                                            
and Economic Development, and the bill was held in Committee.                                                                   
HB 90-TAX CREDIT: SALMON DEVELOPMENT/UTILIZATION                                                                                
The Committee heard from  the sponsor and the Department of Revenue.                                                            
A  committee  substitute  was adopted,  and  the  bill was  held  in                                                            
SB 177-PERS/TRS COLA FOR ACTIVE DUTY MILITARY                                                                                   
The  Committee heard  from  the sponsor  and  the bill  was held  in                                                            
     SENATE BILL NO. 100                                                                                                        
     "An  Act making capital  appropriations  and reappropriations;                                                             
     capitalizing a fund;  making appropriations under art. IX, sec.                                                            
     17(c),   Constitution  of  the   State  of  Alaska,   from  the                                                            
     constitutional   budget reserve  fund;  and  providing  for  an                                                            
     effective date."                                                                                                           
This was  the twelfth hearing  for this bill  in the Senate  Finance                                                            
Amendment #8:  This amendment is outlined in a memorandum  from Mike                                                            
Barton,  Commissioner,  Department   of Transportation   and  Public                                                            
Facilities  to Cheryl  Frasca, Director,  Office  of Management  and                                                            
Budget dated May 2, 2003, which reads as follows.                                                                               
     The Department of Transportation and Public Facilities is                                                                  
     requesting amendments to the capital budget bills (HB 150 and                                                              
     SB 100) before the Legislature.                                                                                            
     Rural Airport Projects                                                                                                     
     The  Department is requesting  the following  changes  to rural                                                            
     airport capital projects:                                                                                                  
     Chevak: Snow Removal Equipment Building                                                                                    
          Increase from $50,000 to $200,000 federal receipt                                                                     
     authority. The cost  to build this structure has increased over                                                            
     previous estimates.  This amount is needed in addition to an FY                                                            
     03  appropriation   to  bring  the  total  estimated   cost  to                                                            
     Scammon Bay: Airport Snow Removal Equipment Building                                                                       
          $100,000 federal receipts. Reflects revised Airport                                                                   
     Improvement  Program  request. This  project  will upgrade  the                                                            
     Scammon Bay Snow Removal Equipment Building.                                                                               
     Statewide: Various Airport Snow Removal Equipment                                                                          
          $4,300,000 federal receipts. This was inadvertently                                                                   
     omitted  from the Department's  original  request. The  project                                                            
     provides federal authority  to purchase new or replacement snow                                                            
     removal equipment at several rural airports.                                                                               
     Surface Transportation Projects                                                                                            
     The  Department's current  AMATS [Anchorage  Metropolitan  Area                                                            
     Transportation  Study] and Surface Transportation  requests are                                                            
     $68,734,000 and $416,092,600.                                                                                              
     The  following  reductions   are  being  requested  to  various                                                            
     highway projects:                                                                                                          
          ($39,906,000) - Over the past year there has been a                                                                   
     decrease in the amount  of federal fuel tax revenues collected,                                                            
     which  have caused  a corresponding  reduction  in the  highway                                                            
     construction  program.  A  reduction  in specific  projects  is                                                            
     being requested to  reflect delays due to the decreased federal                                                            
          ($48,125,000) - This amendment requests project                                                                       
     reductions  where the Department  has determined that  adequate                                                            
     project  authority already exists  to continue work  through FY                                                            
          ($1,205,000) - Also being requested is a reduction in                                                                 
     TRAAK  [Trails and Recreation  Access  for Alaska] projects  to                                                            
     reflect a program allocation decrease.                                                                                     
     The following additions are being requested:                                                                               
          $55,416,000 - New or increased federal project authority                                                              
     is  being requested  where  scope changes,  funding  breakdown,                                                            
     updated estimates or priorities have changed.                                                                              
          $21,700,000 - Project authority is needed for earmarks                                                                
     contained   within   the   recently   approved   congressional                                                             
     appropriation bill.                                                                                                        
     Finally,  the amendment contains the elimination  of individual                                                            
     pavement and bridge  projects and combines them into regionwide                                                            
     allocations.  This  will  provide the  regions  flexibility  in                                                            
     determining  their  greater need,  pavement  or bridge  repair.                                                            
     Similar  adjustments  are  taking  place  for AMATS  and  FMATS                                                            
     [Fairbanks  Metropolitan Area  Transportation Study]  projects.                                                            
     The  net  effect   of  these  amendments  is   a  reduction  of                                                            
     $12,220,000   to   the   AMATS   and  Surface   Transportation                                                             
     appropriation  requests.  A  spreadsheet  with the  changes  is                                                            
     attached [copy on file].                                                                                                   
This amendment  was initially discussed  at the May 2, 2003  hearing                                                            
on this bill.                                                                                                                   
Co-Chair Wilken  informed that the projects identified  in Amendment                                                            
#8 are  included in  the updated  Department  of Transportation  and                                                            
Public Facilities spreadsheet [copy on file], dated May 2, 2003.                                                                
Senator  B. Stevens  stated  that lines  78  through 80  of the  new                                                            
spreadsheet   specify   that   the   total   pavement   and   bridge                                                            
refurbishment  expense  would  be $46  million.  He noted  that  the                                                            
components  comprising  this amount  are: lines  ten through  twelve                                                            
that total  $14 million;  lines 36 and 37  that total approximately                                                             
$10.5  million;  and  lines  48 and  49  that  total  $6.1  million.                                                            
However, he pointed out  that the $6.1 million total of lines 48 and                                                            
49 is included in each  of the two aforementioned totals. Therefore,                                                            
he  argued that  the total  of  these three  items  should be  $30.6                                                            
million rather  than the $46 million  reflected on the spreadsheet.                                                             
He puzzled as to how the total was calculated.                                                                                  
JEFF  OTTESEN,  Acting Director,  Division  of  Statewide  Planning,                                                            
Department of  Transportation and Public Facilities  shared that one                                                            
of  the  major  difficulties  the  Department   has  experienced  in                                                            
preparing its capital budget  request is that the Department has had                                                            
"to guess  what the new  formula will be  in the reauthorization  of                                                            
the [federal]  transportation  bill," as he  explained, the  federal                                                            
formula  might  not  be finalized   until the  spring  of  2004.  He                                                            
expressed  that  this  lack  of  finality   has  resulted  in  "much                                                            
uncertainty"  in  the  budget.  He  reminded  that  numerous  FY  03                                                            
preventative  maintenance activities  were  eliminated because  of a                                                            
decrease in federal funds  "late in the year." Continuing, he voiced                                                            
the Department's desire  to provide the various regions of the State                                                            
with the flexibility  to use any excess  federal aid the  Department                                                            
might receive,  to "catch up" on preventive  maintenance  activities                                                            
and other necessary projects.                                                                                                   
Senator B. Stevens noted  that the budget for the Central region has                                                            
increased  from $14  million to $20  million and  that the  Northern                                                            
region's budget  has increased from  $10 million to $20 million.  In                                                            
addition, he  reiterated that the  newly created Southeast  region's                                                            
$6 million  proposed budget,  as specified  on lines  48 and  49, is                                                            
incorporated  into the  total budget  three times.  He continued  to                                                            
voice confusion regarding how the budget was calculated.                                                                        
Co-Chair Wilken  asked the Department to provide the  Committee with                                                            
a summary sheet to further define the total expense.                                                                            
Mr. Ottesen clarified  that rather than attempting  "to be the exact                                                            
sum of  the old lines,"  the revised  lines in  the spreadsheet  are                                                            
intended to  include the old lines  "plus the extra authority"  that                                                            
might be forthcoming from the federal government.                                                                               
Co-Chair Wilken  understood that the federal funding  in question is                                                            
specific  to the Anchorage  Metropolitan  Area Transportation  Study                                                            
(AMATS)  and the Fairbanks  Metropolitan  Area Transportation  Study                                                            
Mr. Ottesen clarified that  the federal funding would have a region-                                                            
wide effect.                                                                                                                    
Co-chair  Wilken   asked  the  Department   to  provide   a  revised                                                            
spreadsheet to clarify the funding.                                                                                             
Senator  B. Stevens  noted that,  were Amendment  #8 adopted,  FMATS                                                            
projects would be reduced  approximately $545,000 and AMATS projects                                                            
would be reduced  $12.3 million for an AMATS total  of $54.2 million                                                            
as compared to its original budget proposal of $66.5 million.                                                                   
Senator B. Stevens additionally  asked for an explanation of the new                                                            
Metropolitan Planning Organization  (MPO) item on line 74 as well as                                                            
a clarification  as to whether Anchorage's  University and  Illinois                                                            
Avenues,  as identified  on  line  21 in  the new  spreadsheet,  are                                                            
considered part of the MPO road system or are classified as State-                                                              
owned roads.                                                                                                                    
Mr.  Ottesen explained  that  University  and Illinois  Avenues  are                                                            
considered State-owned roads.                                                                                                   
Senator B. Stevens opined,  therefore, that they are included in the                                                            
National Highway System (NHS).                                                                                                  
Mr. Ottesen replied  no. He explained that although  these are State                                                            
roads, their  location within a MPO  mandates that their  funding be                                                            
included  in the  MPO  budget. He  noted  that roads  designated  as                                                            
National  Highway  System  routes would  be  the exception  to  this                                                            
Senator  B.  Stevens  declared  that  his  AMATS  and  FMATS  budget                                                            
reduction   calculations    and   percentages   differ    from   the                                                            
Department's, and he remarked  that his primary concern is the $12.3                                                            
million  reduction  in  AMATS  funding.  He  communicated  that  the                                                            
proposed  FMATS  and AMATS  $12.7  million  total  budget  reduction                                                            
equates to 16.1 percent  of the total budget reduction. He asked the                                                            
Department to  identify similar levels of reductions  in other areas                                                            
in the  State, as he asserted  that rather  than AMATS carrying  the                                                            
brunt  of total budget  reduction,  the entirety  of the  components                                                            
should reflect  a 16-percent Community Transportation  Program (CTP)                                                            
Co-Chair Wilken asked the  Department to provide a reconciliation of                                                            
the numbers.                                                                                                                    
Mr. Ottesen affirmed that further information would be provided.                                                                
Mr.  Ottesen   reviewed   the  Department's   funding  approach   by                                                            
explaining that  in November 2002, the Department  projected a total                                                            
funding  level of  $205 million  for CTP  and Trail  and  Recreation                                                            
Access in Alaska (TRAAK).  He communicated that these two categories                                                            
fund MPO  allocations.  Continuing,  he noted  that current  non-MPO                                                            
funding  is estimated  to total  "only" $94  million. Therefore,  he                                                            
explained  that the  revised  FY 04 spreadsheet  "is  an attempt  to                                                            
restart"  funding  allocations   to produce   "equality  across  the                                                            
board," between the MPOs and the non-MPOs in the State.                                                                         
Mr.  Ottesen reminded  the  Committee  that  previous "transitional                                                             
funding" levels authorized  for Illinois Avenue and University Drive                                                            
upgrades were  at the 100 percent level; however,  due to a downturn                                                            
in available  funding, the transitional  funding specified  for them                                                            
in  FY 04  is at  the  50-percent  level.  He explained  that  these                                                            
transitional funds are  in addition to the regular funding mechanism                                                            
for these avenues, and  he noted that this type of extra funding has                                                            
occurred  frequently over  time. He  expressed  that other  projects                                                            
have received  additional  funding in  this manner,  and he  assured                                                            
that the extra  funding has been provided "judiciously  and for good                                                            
Co-Chair  Wilken announced  that the  Department  would continue  to                                                            
work with Senator B. Stevens to address his concerns.                                                                           
Senator  Hoffman noted  that the revised  FY 04  budget totals  $350                                                            
million  as opposed  to the original  budget  of approximately  $450                                                            
million.  He  asked  the  Department  to  identify  which  Statewide                                                            
Transportation   Improvement  Program  (STIP)  projects   have  been                                                            
eliminated due to the funding reduction.                                                                                        
Mr. Ottesen explained that  the red line denoted on the budget chart                                                            
accompanying the revised  spreadsheet indicates the original federal                                                            
funding level  that was estimated for FY 03 through  FY 06 while the                                                            
yellow line  on the chart reflects  the current anticipated  federal                                                            
funding level  reduction of approximately  $75 million per  year. He                                                            
noted  that the  federal and  State match  funding  levels are  also                                                            
Senator Hoffman asked which projects would be affected.                                                                         
Mr. Ottesen stated that the reduction would be all encompassing.                                                                
Senator Hoffman  surmised therefore  that the project reductions  in                                                            
their entirety would equate  to approximately $75 to $80 million per                                                            
Mr. Ottesen  clarified that  the net affect  would be approximately                                                             
$160 million,  as the  downturn in  federal funds  would affect  the                                                            
current  year's  funding  in  addition  to  the FY  04  funding.  He                                                            
affirmed that  the issue is complex  because the total includes  the                                                            
new SHAKWAK funding  category that is limited in its  scope of usage                                                            
and is excluded from the regular federal funding formula.                                                                       
In response to a question  from Senator Hoffman, Mr. Ottesen replied                                                            
that  the Department  was  unaware  of some  of  the federal  FY  03                                                            
funding reductions until  approximately four weeks prior. He assured                                                            
that the Department  is currently revising both the  FY 03 and FY 04                                                            
budgets  in an  attempt to  re-schedule  and/or delay  projects.  He                                                            
communicated that  this is the first time in fifteen  years that the                                                            
Department has faced a downturn in federal funding.                                                                             
Senator Taylor  questioned the methodology  used to determine  which                                                            
projects were selected  for funding reductions; specifically whether                                                            
such things as  the elimination of $1.4 million in  federal receipts                                                            
designated  for the Saxman  ferry terminal  occurred because  of the                                                            
Department's  knowledge  that the delivery  of the  ferry was  being                                                            
JOHN   MACKINNON,  Deputy   Commissioner   of   Highways  &   Public                                                            
Facilities,  Department  of Transportation  and  Public Facilities,                                                             
stated  that the  Department's three  regional  directors and  staff                                                            
worked  to make "cuts  proportionately"  and to  reach agreement  on                                                            
which projects  could  be delayed  "with minimum  impact" or  with a                                                            
determination  that  a  project's  funding authority  would  not  be                                                            
included because  the project was behind its projected  timeline. He                                                            
clarified that  rather than jeopardizing a project,  its delay would                                                            
appropriately  reflect  the project's  current  situation. He  noted                                                            
that these projects  might be behind schedule due  to such things as                                                            
right-of-way conflicts,  utility delays, or construction  schedules.                                                            
Senator  Taylor voiced  concern regarding  two big  projects in  his                                                            
district; specifically  the $6 million Gravina Island  access bridge                                                            
to  the  airport  project  and  the  $1.9  million   Tongass  Avenue                                                            
resurfacing project.                                                                                                            
Mr. MacKinnon  referred  the Committee  to the  spreadsheet as  it's                                                            
comment section  specifies that sufficient money would  be available                                                            
in the proposed budget to continue those projects through FY 04.                                                                
Senator  Taylor  requested   that  some  assurance  be  provided  to                                                            
substantiate that the projects  would be adequately addressed in the                                                            
FY 05 budget proposal.                                                                                                          
Mr.  MacKinnon  assured  that these  projects  would  be  furthered,                                                            
provided that sufficient federal funding becomes available.                                                                     
Senator  Taylor  asked  whether  this  assurance  is  based  on  the                                                            
historical level or the projected level of federal funding.                                                                     
Mr. MacKinnon  clarified that it is  based on the anticipated  level                                                            
of federal  funding, which,  he characterized  "as a more  realistic                                                            
level" of what the funding would be.                                                                                            
Senator  Taylor asked  regarding the  deletion of  the $6.5  million                                                            
Prince of Wales  Coffman Cove Road  from the FY 04 budget.  He asked                                                            
for assurance  that this project would move forward  even though the                                                            
accompanying  comment section specifies  that the its funding  would                                                            
not be required until FY 05.                                                                                                    
Mr. MacKinnon  responded that the Coffman Cove project  is a federal                                                            
forest  service project  that has  been bid and  is currently  being                                                            
awarded. He assured that  the project would be included in the FY 05                                                            
budget, as its funding would not be required until August 2004.                                                                 
Senator  Taylor  declared  therefore,  that  the  project  would  be                                                            
addressed in the FY 05 budget.                                                                                                  
Mr. MacKinnon concurred.                                                                                                        
Senator B. Stevens asked  whether the ferry system projects on lines                                                            
65 and 67 of the revised  budget were included in a recently adopted                                                            
amendment pertaining to SHAKWAK designated funds of $68 million.                                                                
Senator Taylor  interjected that the  funding for these projects  is                                                            
separate from the $68 million SHAKWAK amendment.                                                                                
Mr. MacKinnon concurred.                                                                                                        
Co-Chair  Wilken  reiterated  that  the  Department   would  provide                                                            
information to  the Committee regarding questions  that arose during                                                            
this meeting.                                                                                                                   
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
     SENATE CS FOR CS FOR HOUSE BILL NO. 9(L&C)                                                                                 
     "An  Act  relating  to  the  registration  of  individuals  who                                                            
     perform   home   inspections;   relating   to   regulation   of                                                            
     contractors;   relating  to registration   fees  for  specialty                                                            
     contractors,  home inspectors,  and associate home inspectors;                                                             
     relating to home inspection  requirements for residential loans                                                            
     purchased   or   approved  by   the  Alaska   Housing   Finance                                                            
     Corporation;  relating  to civil  actions by  and against  home                                                            
     inspectors  and to civil actions arising from  residential unit                                                            
     inspections; repealing  a law that limits liability for damages                                                            
     based  on a  duty  to inspect  a residential  unit  to  damages                                                            
     caused  by  gross negligence  or  intentional  misconduct;  and                                                            
     providing for an effective date."                                                                                          
This  was the third  hearing  for this  bill in  the Senate  Finance                                                            
REPRESENTATIVE   NORM   ROKEBERG,   the   bill's   sponsor,   voiced                                                            
appreciation to the Committee  for the thorough discussions that the                                                            
Committee has conducted on this legislation.                                                                                    
Co-Chair Wilken clarified  that SCS CS HB9 (FIN) Version 23-LS0029\U                                                            
with three adopted amendments is before the Committee.                                                                          
Co-Chair  Green moved to  report the committee  substitute for  HB 9                                                            
from  Committee with  individual  recommendations  and accompanying                                                             
fiscal notes.                                                                                                                   
Senator Taylor objected.                                                                                                        
AT EASE 9:31 AM / 9:32 AM                                                                                                       
Co-Chair Wilken  clarified that Amendment  23-LS0029\U.1,  Amendment                                                            
23-LS0029\U.2, and Amendment  23-LS0029\U.4, were previously adopted                                                            
and  would   be  incorporated   into  the   Version  "U"   committee                                                            
Senator Taylor  voiced concern that "the shifting  of the statute of                                                            
limitations  to one year" would modify  the "normal civic  system to                                                            
provide a different  standard for  one group of people."  He puzzled                                                            
as to the  reason that  a one-year statute  of limitations  would be                                                            
specifically  identified   for  the home  inspector   profession  as                                                            
opposed to the standard  three-year statute of limitations for other                                                            
construction related entities such as plumbers and electricians.                                                                
Representative  Rokeberg responded that the intent  of this language                                                            
is to prevent  "the shift  of liability from  one element of  a real                                                            
estate  transaction  to a  home  inspector  without due  cause."  He                                                            
continued  that the one-year  statute of  limitations timeframe  has                                                            
been identified  for home inspectors  for several reasons  including                                                            
the fact that  while liability insurance  is available for  Existing                                                            
Home  Inspectors,  it  is  unavailable  for  New  Home inspections.                                                             
Furthermore, he noted that the liability is limited to $350.                                                                    
Representative  Rokeberg explained that in a new home  construction,                                                            
the responsibility  for a  defect would be,  as first recourse,  the                                                            
contractor or other construction  entities. However, he attested, in                                                            
an existing  home inspection,  were  a defect to  surface after  one                                                            
year from  the date  of the home  inspection  report, other  factors                                                            
such as  owner neglect,  natural  disasters, the  weather, or  other                                                            
unforeseen  events  could be  responsible  for the  defect. In  this                                                            
situation, he  noted that the seller or the real estate  agent might                                                            
not have disclosed pertinent information.                                                                                       
Senator Taylor  asked for further clarification regarding  available                                                            
insurance coverage.                                                                                                             
Representative  Rokeberg reaffirmed that insurance  is not available                                                            
to home  inspectors for  new construction;  however, he stated  that                                                            
insurance  is available to  the building  contractor. He noted  that                                                            
the cost  of that  insurance has  increased  dramatically in  recent                                                            
Senator  Taylor  stated  that  the  home  inspector's  report  is  a                                                            
"critical element" in the  new home construction process and without                                                            
that report,  financial and construction  requirements could  not be                                                            
finalized.  He argued that the effect  of this legislation  would be                                                            
that, after  one year, were  it determined  that the home  inspector                                                            
was  the  negligent  party,  the home  owners  would  not  have  any                                                            
recourse as  the home inspector would  be exempt from a lawsuit.  He                                                            
declared that the unavailability  of insurance coverage for new home                                                            
construction  for home  inspectors should  not dictate  a change  in                                                            
State policy.                                                                                                                   
Senator Taylor  asked how  a real estate  transaction occurring  six                                                            
months after a  home inspection was completed would  fare under this                                                            
legislation, specifically  whether the liability would be limited to                                                            
the remaining six months.                                                                                                       
Representative Rokeberg  responded that provisions in the bill limit                                                            
the validity of a home  inspection report to 180 days. He noted that                                                            
the one-year  timeframe would  allow the dwelling  to be exposed  to                                                            
the  various   seasonal  weather-related   elements  to   test  "the                                                            
integrity"  of  the   structure.  He  asserted  that   the  one-year                                                            
timeframe  is  sufficient  as  that  "it would  be  unfair  to  have                                                            
liability  attached"   to  a  home  inspector  who  "only   charges"                                                            
approximately  $350  for  a  visual  report,  after  that  timeframe                                                            
because any defeats should become apparent in that year.                                                                        
Senator  Olson asked  whether  the sponsor  would be  opposed to  an                                                            
amendment that would change the statute of limitations.                                                                         
Representative Rokeberg  reminded that Amendment #4 changed the two-                                                            
year statute of  limitations for new home construction  liability to                                                            
Senator  Taylor asked  the location  of the  language regarding  the                                                            
validity dates of the home inspection report in the bill.                                                                       
Representative  Rokeberg stated  that this  language is included  in                                                            
Section 7(d) on page six,  line 16. He opined that permitting a home                                                            
inspection report to be valid for 180 days is too long.                                                                         
A roll call was taken on the motion.                                                                                            
IN FAVOR: Senator Olson, Senator Bunde, Co-chair Green, and Co-                                                                 
chair Wilken                                                                                                                    
OPPOSED: Senator Taylor and Senator Hoffman                                                                                     
ABSENT: Senator B. Stevens                                                                                                      
The motion PASSED (4-2-1)                                                                                                       
SCS HB 9 (FIN) was REPORTED  from Committee with zero fiscal note #1                                                            
from  the Department  of  Revenue;  zero  fiscal  note #2  from  the                                                            
Department of Law; zero  fiscal note #3 from the Department of Labor                                                            
and Workforce  Development;  and  fiscal note  #4 in  the amount  of                                                            
$66,100 from the  Division of Occupational Licensing,  Department of                                                            
Community and Economic Development.                                                                                             
     CS FOR SENATE BILL NO. 168(L&C)                                                                                            
     "An  Act relating to  issuance and revocation  of licenses  for                                                            
     the  importation,   sale,  distribution,   or  manufacture   of                                                            
     cigarettes  and tobacco products;  relating to a tax  refund or                                                            
     credit   for  unsaleable,   returned,   or  destroyed   tobacco                                                            
     products;  relating   to restrictions   on  and  penalties  for                                                            
     shipping  or  transporting  cigarettes;   relating  to  records                                                            
     concerning   the  sale  of  cigarettes;  amending   and  adding                                                            
     definitions  relating  to  cigarette  taxes;  relating  to  the                                                            
     payment  of cigarette taxes;  relating to penalties  applicable                                                            
     to  cigarette   taxes;  relating  to  the  definition   of  the                                                            
     wholesale  price of  tobacco products;  relating to payment  of                                                            
     cigarette  taxes  through  the  use of  cigarette  tax  stamps;                                                            
     relating  to provisions  making certain  cigarettes  contraband                                                            
     and  subject to  seizure and  forfeiture;  relating to  certain                                                            
     crimes,  penalties, and interest  concerning tobacco  taxes and                                                            
     stamps;  relating  to cigarette  sales;  and providing  for  an                                                            
     effective date."                                                                                                           
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-chair Wilken explained  that this legislation addresses cigarette                                                            
sales and distribution  by mandating that a tax stamp  be applied to                                                            
each pack of  cigarettes sold in the  State thereby signifying  that                                                            
the tobacco tax has been paid.                                                                                                  
Senator  Bunde,  the  bill's  sponsor,  expressed  that "this  is  a                                                            
tobacco distributor-friendly  bill" as it would impede  "the gray or                                                            
black"  marketing of  cigarettes  in the  State that  is  negatively                                                            
impacting  legitimate  businesses  that pay  the one  dollar a  pack                                                            
State tax. He noted that  requiring the State stamp to be affixed to                                                            
each pack  of cigarettes  would assure that  the State tax  would be                                                            
paid. He  informed that  this legislation  was prompted  by a  radio                                                            
advertisement  he heard for an out-of-state tobacco  distributor who                                                            
claimed  that, by  purchasing  cigarettes  from him,  the  purchaser                                                            
would avoid paying  the State tax. Upon hearing that  advertisement,                                                            
Senator Bunde  checked with  the Department  of Revenue and  learned                                                            
that  numerous  out-of-state   purchases  are  being  made  and  are                                                            
circumventing the current dollar-a-pack tax.                                                                                    
Senator Bunde  informed that the State must establish  a State stamp                                                            
program in  order to qualify for a  federal law that specifies  that                                                            
it would  be illegal for  an entity to sell  cigarettes without  the                                                            
affixed  stamp were  a State  stamp required.  He  stated that  this                                                            
would address  the out-of-State distributor  issue. He communicated                                                             
that  Alaskan  distributors   support  this  legislation  as  it  is                                                            
intended  to address  those  entities  that  receive an  unfair  tax                                                            
advantage by not paying the State tax.                                                                                          
Furthermore, Senator Bunde  explained that this legislation provides                                                            
a minimum  price provision  for wholesalers  and retailers  based on                                                            
the wholesale  list  price provided  by the  tobacco manufacturers.                                                             
This minimum price, he  attested, would create a level playing field                                                            
for competition in the  State. He noted that higher cigarette prices                                                            
might also deter young people from smoking.                                                                                     
SFC 03 # 75, Side B 09:50 AM                                                                                                    
Senator Bunde stated that  while the Department of Revenue estimates                                                            
that the  stamp tax could  increase State  revenue by approximately                                                             
$500,000,  the exact  amount of  money that  this legislation  might                                                            
raise  is  speculative.  He  pointed  out  that  Hawaii   vigorously                                                            
enforces its tax  stamp program and has increased  its cigarette tax                                                            
revenue by  fifty percent. In contract,  he noted that Michigan  has                                                            
not vigorously  enforced its program  and has increased its  revenue                                                            
approximately ten percent.                                                                                                      
Senator  Olson  asked  whether  the  industry   has  indicated  that                                                            
compliance with this legislation would present a hardship.                                                                      
Senator  Bunde  stated   that  industry  representatives   would  be                                                            
presenting testimony.                                                                                                           
Co-Chair  Wilken stated  that the  tobacco tax  currently  generates                                                            
approximately  $40 million  annually.  He calculated  that were  the                                                            
State to collect an additional  ten percent of that amount, it would                                                            
generate four  million dollars for the general fund  and the tobacco                                                            
tax school fund.                                                                                                                
Senator  Bunde  explained  that the  tobacco  tax revenue  could  be                                                            
dedicated toward  the school fund because these appropriations  were                                                            
"grandfathered in" as existing policy.                                                                                          
Co-chair Wilken  expressed that 70  percent of the revenue  would be                                                            
dedicated  to the  school  fund with  24  percent dedicated  to  the                                                            
general fund. He stated that this would be significant money.                                                                   
JENNIFER APP, Alaska Advocacy  Director, American Heart Association,                                                            
testified via  teleconference from Anchorage in support  of the bill                                                            
on  behalf of  Alaska's  tobacco-free  kids.  She stated  that  this                                                            
legislation would decrease  "the ability of people and businesses to                                                            
illegally  avoid the tax,"  and it would  assist in keeping  tobacco                                                            
"out of  the hands  of youth."  She attested  that non-face-to-face                                                             
sales such  as websites  and mail orders  account for approximately                                                             
14-percent  of all sales  to youth. Furthermore,  she asserted  that                                                            
these sales  are detrimental to efforts  to reduce youth  smoking as                                                            
no proof of  age is required in these  transactions and the  ability                                                            
to avoid  paying the State  tobacco tax allows  purchase to  be less                                                            
expensive.  She  attested  that  this  legislation   would  prohibit                                                            
Internet and  mail order distributors  from avoiding the  State tax.                                                            
She stated  that the proof  of age issue is  also addressed  in this                                                            
bill,  as it requires  that  all shipments  must be  delivered  to a                                                            
person  licensed  under  Sec.  43.50.105   or  to other   identified                                                            
entities specified in Section 9 of the bill.                                                                                    
Co-chair  Wilken  asked  whether  the  American  Heart  Association                                                             
supports this legislation.                                                                                                      
Ms. App responded in the affirmative.                                                                                           
Senator Bunde  acknowledged the work conducted by  the Department of                                                            
Revenue in this endeavor.                                                                                                       
JOHANNA  BALES, Revenue  Auditor and  Program  Manager, Cigarette  &                                                            
Tobacco  Products Excise  Tax, Department  of  Revenue informed  the                                                            
Committee that  the Department is in favor of this  tax stamp as she                                                            
expressed  that tax enforcement  efforts are  currently hampered  by                                                            
the  absence  of  a  stamp.  Moreover,  she  attested  that  "it  is                                                            
virtually impossible" to  determine whether the tax has been paid on                                                            
any given  pack of cigarettes  as tracking  via retailer invoice  is                                                            
impossible  as  no   pack  is  distinguishable  from   another.  She                                                            
explained to the  Committee that prior to the one-dollar-a-pack  tax                                                            
legislation, approximately  53 million packs of cigarettes were sold                                                            
annually; however,  she noted that  the annual amount has  decreased                                                            
to approximately  42 million packs. She stated that  the Department,                                                            
in its attempts  to enforce the tax,  uncovered approximately  1,000                                                            
individuals  who are  purchasing cigarettes  via  the Internet.  She                                                            
stated that  these individuals attest  that were a stamp  program in                                                            
place, they would have  known whether the tax was or was not paid by                                                            
the  vendor.  She   stated  that  the  Department  calculates   that                                                            
approximately   $600,000  was   not  collected   due  to   Internet,                                                            
distributor, or mail order activities over a 13-month period.                                                                   
Ms.  Bales stated  that  once the  State enacts  a  State stamp  tax                                                            
program,  the federal  Contraband  Cigarette Trafficking  Act  would                                                            
assist in the  enforcement of tax. She affirmed that  46 states have                                                            
tax  stamp  programs, including  the  program  recently  enacted  in                                                            
Hawaii,  which has  a "very  aggressive"  eleven-member enforcement                                                             
Co-Chair  Green  asked whether  language  in  the bill  addresses  a                                                            
situation wherein a person,  while traveling out of state, purchases                                                            
tobacco for  his or her own personal  consumption and transports  it                                                            
back to the State.                                                                                                              
Ms.  Bales  clarified  that  this  legislation  proposes  to  change                                                            
existing tobacco  law by implementing a stamp tax.  Furthermore, she                                                            
stated that  because no exemption  for the transport of tobacco  for                                                            
personal  consumption   currently  exists,  the  individual   should                                                            
currently be  paying the State tax.  However, she stated  that while                                                            
this scenario  "is impossible to enforce,"  the Department  does not                                                            
consider it to be a "huge problem."                                                                                             
Co-Chair Wilken stated  therefore that "the trip wire" would be when                                                            
an individual  distributes  the cigarettes  for profit  or for  some                                                            
manner other than personal use.                                                                                                 
Ms. Bales  responded  that current  statute specifies  that  persons                                                            
transporting  cigarettes  into  the  State  should  be  licensed  to                                                            
transport the  cigarette, should pay  the cigarette tax,  and should                                                            
file  a  monthly  report.  She stated  that  the  statute  does  not                                                            
differentiate  between personal  and non-personal  consumption.  She                                                            
stated  that individuals  who  have  been detected  of transporting                                                             
goods  into the  State  for personal  use  have been  treated  "very                                                            
Co-Chair Green  asked whether the transport of cigarettes  is viewed                                                            
with "the same sort of standard" as the transport of liquor.                                                                    
Ms. Bales  responded that  "there is a very  big difference"  as the                                                            
tax on alcohol  is applicable at the  point of purchase.  Therefore,                                                            
she informed that because  the tax is paid at point of purchase, the                                                            
alcohol could be legally  transported, with the exception being that                                                            
federal  law  prohibits  the  mailing  of  alcohol.   Therefore  she                                                            
concluded  that  the alcohol  tax  "is not  as problematic"  as  the                                                            
cigarette tax.                                                                                                                  
Co-Chair Wilken asked for  further information regarding the sale of                                                            
cigarettes bought via the Internet.                                                                                             
Senator Bunde  noted that the Internet  seller does not require  the                                                            
purchaser to prove that they are of legal purchasing age.                                                                       
Co-chair Wilken asked how  this legislation would enforce the tax in                                                            
this case.                                                                                                                      
Ms. Bales responded that  this legislation would require a purchaser                                                            
to  apply to  the Department  of  Revenue for  a license,  and  upon                                                            
receipt of  the license,  they could make  a purchase. Furthermore,                                                             
she  explained  that shipping  cigarettes  through  the  mail to  an                                                            
unlicensed individual  is prohibited. In addition,  she relayed that                                                            
fines  would  be  levied  upon  the  common  carrier   shipping  the                                                            
cigarettes  were  the receiver  of  the  cigarettes  unlicensed.  In                                                            
conclusion,  she stated that  the intent of  the bill is to  curtail                                                            
all shipment of  cigarettes via interstate commerce  unless it would                                                            
be shipped to someone who is licensed and who is paying the tax.                                                                
Co-Chair  Wilken surmised  therefore  that rather  than placing  the                                                            
onus on the seller, the  State would require the individual "sitting                                                            
at home" making  the purchase to be licensed. However,  he attested,                                                            
this  would be  difficult  to enforce  because  the  State would  be                                                            
required to become aware of the action.                                                                                         
Ms.  Bales expounded  that  the federal  Jenkins  Act requires  that                                                            
anyone  conducting interstate  commerce  by shipping  cigarettes  to                                                            
someone who  is not a licensed distributor  must notify the  state's                                                            
Department  of  Commerce   of that   shipment.  She  stated  that  a                                                            
violation  of this Act  would result  in a  misdemeanor charge.  She                                                            
continued that  were this law violated under the federal  Contraband                                                            
Cigarette  Act it  would result  in a  felony charge.  However,  she                                                            
reiterated   that  the  Contraband   Cigarette  Act  would   not  be                                                            
applicable until the State incorporates a stamp tax.                                                                            
Co-Chair  Wilken  asked whether  the  Internet  seller  would ask  a                                                            
purchaser for his or her license number.                                                                                        
Ms. Bales  responded that  this information  would be required  were                                                            
the stamp tax legislation enacted.                                                                                              
Ms. Bales  continued that,  in addition,  private carriers,  such as                                                            
Federal  Express, who  might ship  cigarettes would  be required  to                                                            
verify that the person  receiving the package be of legal age and be                                                            
Senator  Bunde  pointed  out  that   rather  than  the  State  being                                                            
responsible for the enforcement,  charges at the federal level could                                                            
be levied.  He stated  that cigarette  suppliers  in the  "sovereign                                                            
nations,  the  Indians  [indiscernible]  are  potentially  going  to                                                            
ignore it."                                                                                                                     
Co-Chair  Green asked whether  a person,  with cigarettes and  doing                                                            
interstate travel, would  be required to follow these same licensing                                                            
Ms. Bales  stated that  it depends  on the  individual state's  law;                                                            
however,  she continued,  were that  a state's law  similar to  this                                                            
legislation, the  person should pay the state's tax.  She noted that                                                            
some  states allow  a  person to  transport  a specified  number  of                                                            
cigarettes for personal consumption without penalty.                                                                            
Co-Chair Wilken  exampled a scenario wherein a business  might order                                                            
cigarettes  via the Internet,  and upon receipt  of the cigarettes,                                                             
would sell them  at the going market value and "pocket  the tax." He                                                            
asked whether this type of activity occurs.                                                                                     
Ms. Bales declared  that this does happen. She further  exampled the                                                            
difficulty of  enforcing the current State cigarette  tax by sharing                                                            
that a licensed distributor  could present the State examiner with a                                                            
legitimate  invoice on  which the  State tax is  reflected as  being                                                            
paid. However,  she continued that without a stamp  being affixed to                                                            
each packet  of cigarettes, the examiner  has no method by  which to                                                            
identify the packs of cigarettes  on which a tax has been or has not                                                            
been paid.                                                                                                                      
Co-Chair Wilken  asked who is authorized  to apply the stamp  to the                                                            
Ms. Bales clarified  that generally the distributor  would affix the                                                            
stamp  to  the  pack;  however,  the  retailer  could  purchase  the                                                            
equipment and the stamp from the Department and affix the stamp.                                                                
Senator Taylor  asked for the amount of the total  current State tax                                                            
on cigarettes.                                                                                                                  
Ms. Bales  explained that  the State tobacco  tax is currently  five                                                            
cents per cigarette or one dollar per pack of twenty cigarettes.                                                                
Senator Taylor  asked whether, according to State  statute, he would                                                            
be required  to remit  to the State  of Alaska  97-cents were  he to                                                            
purchase  a  pack  of cigarettes,  for  example  in  Kentucky  which                                                            
charges a three-cent per pack cigarette tax.                                                                                    
Ms. Bales  clarified that  the State  of Alaska  would not credit  a                                                            
purchaser  for  the  amount  of tax  they  paid  in  another  state;                                                            
therefore, she  stated that the State tax of one dollar  per pack of                                                            
cigarettes  should be  remitted to  the State.  However, she  stated                                                            
that Kentucky  would issue  a credit to an  Alaskan distributor  for                                                            
the Kentucky  tax,  were the cigarettes  purchased  in Kentucky  for                                                            
resale in  Alaska. Additionally  she noted  that Kentucky would  not                                                            
require the Kentucky  stamp to be affixed to packs  being shipped to                                                            
Alaska for consumption.                                                                                                         
Co-Chair  Wilken referred  the Committee  to the  "State Tax  Guide"                                                            
comparison  chart, dated  January 1,  2003 [copy  on file] that  was                                                            
supplied by Senator Bunde.  He noted that Kentucky, with a cigarette                                                            
tax  of   three  cents   per  pack,   has  the   lowest  tax   while                                                            
Massachusetts,  with the highest  state tax,  charges $1.50  tax per                                                            
MIKE  ELERDING,   Owner,  Northern  Sales  Company,   testified  via                                                            
teleconference  from  Ketchikan,  and stated  that  his company  and                                                            
other  Alaska-based  wholesale  tobacco  distributors  support  this                                                            
legislation. He avowed  that the stamp tax would enable the State to                                                            
collect  a ten-dollar  per  carton  cigarette  excise  tax on  every                                                            
carton  of cigarettes  imported  into  the  State. In  addition,  he                                                            
attested   that  the   legislation   would   provide  Alaskan-based                                                             
distributors with  the ability "to compete on a level  playing" with                                                            
out-of-state  distributors. He urged  the Committee to support  this                                                            
Senator  Olson asked  whether  there  are concerns  regarding  stamp                                                            
Ms.  Bales  confirmed  that  counterfeit  stamps  are  a  nationwide                                                            
problem.  She  continued that  stamp  manufacturers  are  diligently                                                            
addressing  this issue and are producing  stamps that are  difficult                                                            
to  counterfeit.   She   announced   that,  as   specified  in   the                                                            
Department's  fiscal note, the State  is proposing "to purchase  the                                                            
most expensive  stamps which  have the  most up-to-date counterfeit                                                             
measures" including special inks.                                                                                               
Co-Chair  Wilken   commented  that  the  Members'  backup   material                                                            
addresses  the  counterfeit  issue and  includes  information  about                                                            
Meyercord, a stamp manufacturer.                                                                                                
Co-chair  Wilken  asked  the  distributor  to  explain  the  process                                                            
whereby the State stamp is affixed to each pack of cigarettes.                                                                  
Mr.  Elerding  explained  that  wholesale  distributors,  who  order                                                            
cigarettes  directly from manufacturers,  would be required  to have                                                            
stamping equipment  in their facility  and would affix the  stamp on                                                            
each pack  at that  location. He  stated that  his company would  be                                                            
required to centralize  the stamping operation at  a single location                                                            
rather than conducting  it at each of its five distribution centers.                                                            
Co-Chair Wilken asked for  clarification that each pack, rather than                                                            
each carton, would require a stamp.                                                                                             
Mr. Elerding verified  that while the stamp must be  affixed to each                                                            
pack, the automated  stamping equipment  would provide an  efficient                                                            
stamping process. He communicated  that the legislation provides for                                                            
a  State  "reimbursement  to  the  distributors  that  is  close  to                                                            
covering  the  cost   of  the  stamp  operation."  Nonetheless,   he                                                            
communicated  that the process  would be an  expense and that  small                                                            
distributors  could  not amortize  the  expense  as well  as  larger                                                            
distributors.  He noted  however,  that the Unfair  Cigarette  Sales                                                            
Measure,  defined in  Article 6  of Section  17 of  the bill,  would                                                            
assist distributors in  offsetting the additional expense associated                                                            
with the stamping process.                                                                                                      
Co-Chair  Wilken   asked  whether  a  uniform  State   stamp  or  an                                                            
individual distributor stamp would be used.                                                                                     
Mr. Elerding clarified  that the State stamp would be the only stamp                                                            
Co-chair  Wilken  asked  the  amount  the  distributor  anticipates                                                             
spending on this project.                                                                                                       
Mr. Elerding stated that,  in addition to the cost of the equipment,                                                            
the company would  be required to locate adequate  space in which to                                                            
conduct  the  stamping  procedure  and must  provide  the  necessary                                                            
labor. He estimated the  total expense to be approximately $75,000 a                                                            
year, with  $50,000 of that being  reimbursed by the State  by means                                                            
of a discount on the purchase of the stamps.                                                                                    
Senator  Taylor   understood  that  Canada  has  experienced   "huge                                                            
problems" with bootlegging,  hijacking, and counterfeiting since the                                                            
nation increased its cigarette  taxes. He asked whether the State of                                                            
Alaska  has  experienced  an  increase   in bootlegging   or  black-                                                            
marketing since  the cigarette tax was raised to one  dollar a pack.                                                            
Ms. Bales responded  that the State  has experienced an increase  in                                                            
these activities;  particularly, in  "gray market" activities  where                                                            
cigarettes  manufactured for other  countries are finding  their way                                                            
to the United States. She  noted that while the State might be aware                                                            
of this  situation, there  are no current  provisions in Alaska  law                                                            
that would  allow these cigarettes  to be seized. She asserted  that                                                            
enacting a stamp tax would address this situation.                                                                              
Senator  Olson  asked  the  projected  costs   associated  with  the                                                            
enforcement of this legislation.                                                                                                
Ms. Bales  responded that  while the  Department of  Law has  a zero                                                            
fiscal  note  attached  to  this  legislation,   the  Department  of                                                            
Revenue's $251,700 fiscal  note would provide for three positions to                                                            
handle the  purchase, sale, administration,  and enforcement  of the                                                            
new tax stamp program and cigarette shipping restrictions.                                                                      
Senator  Olson  asked  whether  this  tax  stamp  legislation  would                                                            
encompass all types of tobacco.                                                                                                 
Ms. Bales responded  that the tax would be limited  to cigarettes as                                                            
it would be impossible  to automate a stamp process  for the various                                                            
packaging or variety of product sizes.                                                                                          
Senator Olson  asked whether  the intent of  this legislation  is to                                                            
penalize transporters of cigarettes.                                                                                            
Ms. Bales responded  yes, that private  carriers would be  penalized                                                            
were  they  to knowingly  deliver  cigarettes  to  an  underage  and                                                            
unlicensed individual.                                                                                                          
Senator Olson voiced concern  that transporters would be responsible                                                            
for enforcing this legislation.                                                                                                 
Senator Bunde  voiced the importance of noting that  the key element                                                            
regarding   the  responsibility   of   transporters   is  the   term                                                            
Senator  Olson furthered  that  "the last  thing" on  a small  rural                                                            
transporting  company's  mind  would  be  to monitor  each  pack  of                                                            
cigarettes.   He   continued   to  voice   concern   regarding   the                                                            
transporting issue.                                                                                                             
Amendment #1:  This amendment inserts a new subsection  into Section                                                            
43.50.849 Definitions.  of the bill on page 21, line  28 as follows.                                                            
     (12) "trade  discount" means a price reduction  that is offered                                                            
     by a cigarette  manufacturer on the date of sale,  is reflected                                                            
     on  the invoice  as a deduction  from the  manufacturer's  list                                                            
     price  and is fully  earned and determininable  on the  date of                                                            
Senator Bunde moved for the adoption of Amendment #1.                                                                           
Co-Chair Wilken objected for explanation.                                                                                       
Senator  Bunde stated  that, at  the request  of distributors,  this                                                            
amendment would  define the term "trade  discount" which  is a price                                                            
reduction offered  by a cigarette manufacturer on  the date of sale.                                                            
He explained  that the discount  would be  reflected on the  invoice                                                            
and would be a  factor in the "minimum markup" determination  of the                                                            
retail price  of the cigarettes.  He stated  that the Department  of                                                            
Revenue does not object to the amendment.                                                                                       
Ms. Bales clarified  that the intent  of the amendment is  to assure                                                            
that cigarettes  could not be sold below "cost" which  is defined as                                                            
the price paid less the discount.                                                                                               
Co-chair Wilken  surmised that this  amendment, rather than  address                                                            
concerns  regarding   the  tax  stamp,   addresses  industry   trade                                                            
Senator Bunde voiced that it addresses minimum price concerns.                                                                  
Co-chair Wilken removed his objection.                                                                                          
There being no further objection, Amendment #1 was adopted.                                                                     
Senator  Taylor  moved  to  report  the  bill  from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
Senator  Taylor   then  objected  to  his  motion.   He  voiced  his                                                            
continuing  objection  to  taxation  legislation;  specifically  tax                                                            
legislation   that  would   result  in   expenses  and  enforcement                                                             
difficulties  to  the  State.  He  reminded   Members  of  testimony                                                            
indicating  that the cigarette tax  has resulted in bootlegging  and                                                            
other  illegal activities,  and  he  worried that  this legislation                                                             
would  further  those  activities.  He  voiced  that  while  Alaskan                                                            
retailers  and wholesalers  have  legitimate concerns,  the  expense                                                            
associated  with   this  legislation  is  "far  greater"   than  its                                                            
projected benefit.                                                                                                              
Senator Taylor removed his objection.                                                                                           
There being no further  objection, CS SB 168 (FIN) was REPORTED from                                                            
Committee  with fiscal note  #1 in the amount  of $251,700  from the                                                            
Department  of Revenue and zero fiscal  note #2 from the  Department                                                            
of Law.                                                                                                                         
     CS FOR SENATE BILL NO. 114(L&C)                                                                                            
     "An Act relating to the fee for a state business license; and                                                              
     providing for an effective date."                                                                                          
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-chair  Wilken informed  that the Senate  Rules Committee,  at the                                                            
request of the  Governor, is sponsoring this legislation.  He stated                                                            
that this bill  would increase the annual business  license fee from                                                            
$25 to $100  for sole proprietorship  businesses and $300  for other                                                            
business  categories.  He  specified  that the  Labor  and  Commerce                                                            
version of the bill is before the Committee.                                                                                    
RICK   URION,  Director,   Division   of   Occupational   Licensing,                                                            
Department  of Community  and Economic Development,  testified  that                                                            
this legislation would  align the business license fees with current                                                            
operational  expenses  as  the current  fee  structure  has been  in                                                            
affect since  1949. He  mentioned that,  originally, the  discussion                                                            
allocated a  $200 flat fee across  the board, but he stated  that it                                                            
has evolved to a two-tier  approach. He noted that there has been no                                                            
opposition to the bill  from organized business groups. He urged the                                                            
Committee  to adopt the legislation  "as it  is a good measure"  and                                                            
would generate a "substantial" amount of revenue for the State.                                                                 
Senator Bunde  noted that  Senator Ralph Seekins,  who is a  private                                                            
businessman,  contributed substantially  to the development  of this                                                            
legislation. He  continued that while the fee structure  proposed in                                                            
the Labor and Commerce  version of the bill has altered from that of                                                            
the original bill, it is a good compromise.                                                                                     
Mr. Urion informed  that, under this legislation,  business licenses                                                            
would  be issued annually  rather  than bi-annually,  as is  current                                                            
practice.  However,  he  noted that  the  Committee  should  address                                                            
existing  statutes   concerning  the  1,256  businesses   that  have                                                            
business  licenses  with tobacco  endorsements  as  the endorsement                                                             
language specifies that  the endorsement is valid "for the term of a                                                            
business license."  The new language  being proposed, he  explained,                                                            
would inadvertently  increase  the fee for  tobacco endorsements  to                                                            
$100 annually rather than $100 biennially, as intended.                                                                         
Senator  Taylor  asked  for  further  clarification   regarding  the                                                            
tobacco endorsement fee.                                                                                                        
SFC 03 # 76, Side A 10:38 AM                                                                                                    
Mr. Urion  stated  that were  this legislation  adopted  as is,  the                                                            
annual fee for the tobacco endorsement would increase to $100.                                                                  
Co-Chair  Wilken  stated  that  this issue  would  be  addressed  in                                                            
separate legislation.                                                                                                           
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
     CS FOR HOUSE BILL NO. 90(FIN)                                                                                              
     "An Act relating to a salmon product development tax credit                                                                
     and a salmon utilization tax credit under the Alaska fisheries                                                             
     business tax; and providing for an effective date."                                                                        
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-chair  Wilken  stated  that  this  legislation  is  sponsored  by                                                            
Senator Gary Stevens,  and is endorsed by the Salmon  Task Force. He                                                            
continued  that  this bill  would  provide  tax credits  for  salmon                                                            
product  development  and salmon  utilization,  with  the intent  of                                                            
"encouraging industry  to invest in new value-added  salmon products                                                            
to improve marketability."                                                                                                      
Co-Chair Green  moved for the adoption of SCS CS HB  90, Version 23-                                                            
LS0525\W as the working document.                                                                                               
There being  no objection,  Version "W" was  adopted as the  working                                                            
Co-chair Wilken ordered  the bill SET ASIDE until the bill's sponsor                                                            
could present it.                                                                                                               
[HB 90 was re-addressed later in the meeting.]                                                                                  
     SENATE BILL NO. 177                                                                                                        
     "An  Act  relating  to  cost-of-living   benefits  for  retired                                                            
     members  in the  public employees'  retirement  system and  the                                                            
     teachers'  retirement system who are called to  active military                                                            
     duty; and providing for an effective date."                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-chair   Wilken   explained  that   this   legislation   addresses                                                            
situations  wherein a retired public  employee, residing  in Alaska,                                                            
might be  called to active  military duty  outside of the State.  He                                                            
stated  that  this service  could  thereby  jeopardize  the  retired                                                            
employee's  receipt of the  Alaska cost-of-living  allowance  (COLA)                                                            
Senator B.  Stevens, the  bill's sponsor,  explained that this  bill                                                            
would  address  "the unexpected  call  to  active duty"  of  retired                                                            
military and military  reserve units. He shared the  experience of a                                                            
retired  Vietnam  veteran/retired  teacher  who, as  a  member of  a                                                            
reserve  unit, has been  called to  active military  duty and  would                                                            
serve in this  capacity outside of  the State. As a result  of being                                                            
on active duty  outside of the State,  Senator B. Stevens  explained                                                            
that this individual  would lose his COLA adjustment  as it would be                                                            
cancelled because current  regulations specify that an individual in                                                            
a retirement  system could not be  absent from the State  for longer                                                            
than 90 days without  a medical or family-illness  waiver. He stated                                                            
that this  simple change  would not  incur a fiscal  note and  would                                                            
impact approximately ten people.                                                                                                
Senator B.  Stevens informed the Committee  that an amendment  might                                                            
be forthcoming  as the result of the  incorporation of separate  but                                                            
similar  legislation,  being  proposed  by Senator  Kim  Elton  that                                                            
addresses non-state employees being called to active duty.                                                                      
Co-Chair Wilken  ordered the bill HELD in Committee  to provide time                                                            
to coordinate the two pieces of legislation.                                                                                    
     CS FOR HOUSE BILL NO. 90(FIN)                                                                                              
     "An Act relating to a salmon product development tax credit                                                                
     and a salmon utilization tax credit under the Alaska fisheries                                                             
     business tax; and providing for an effective date."                                                                        
[Note: This bill was heard earlier in the meeting.]                                                                             
SENATOR  GARY STEVENS,  the sponsor  of the bill,  stated that  this                                                            
legislation  would  allow tax  credits  to be  issued  to assist  an                                                            
industry that is "in crisis."  He stated that the Salmon Task Force,                                                            
which is chaired  by Senator Ben Stevens,  has identified  this bill                                                            
as one  of its highest  priorities  because it  would encourage  new                                                            
investments in  the salmon processing industry to  further diversify                                                            
salmon products.                                                                                                                
Senator Bunde  asked how these tax  credits would generate  a return                                                            
on the investment.                                                                                                              
Senator  G. Stevens  responded that  the intent  of the legislation                                                             
would be to raise  the viability of the entire industry  and provide                                                            
more jobs and "keep fishermen"  and "processors active." He reminded                                                            
the Committee  that similar tax credits  were awarded to  the bottom                                                            
fish industry  a few years prior and "proved to be  very effective."                                                            
Senator Bunde  commented that  the goal is  "laudable;" however,  he                                                            
voiced that an  investment of State money should be  rewarded with a                                                            
monetary return to the general fund.                                                                                            
Senator G. Stevens specified  that a vibrant industry would generate                                                            
"more  money going  into  State treasury"  by  means  of the  Salmon                                                            
Fisheries Tax.                                                                                                                  
Senator  B.  Stevens  referred  the Committee  to  a  Department  of                                                            
Revenue Tax  Division spreadsheet  [copy on  file], dated April  24,                                                            
2003 that depicts  the Fisheries Business  Tax revenue generated  by                                                            
the  various fisheries.  He  pointed out  that the  Salmon  industry                                                            
generated $11.2  million in tax during calendar year  2000; however,                                                            
he noted  that  the 2002  calendar year  revenue  decreased to  $5.6                                                            
million.  Therefore, he  stated that  the goal  of this legislation                                                             
would  be to  attract and  encourage  additional  investment in  the                                                            
industry;  and thereby  "increase  the taxable  contribution to  the                                                            
general fund."                                                                                                                  
Co-chair  Wilken   asked  regarding  the  Department   of  Revenue's                                                            
indeterminable fiscal note.                                                                                                     
Senator  Stevens stated  that the  fiscal note  is indeterminate  at                                                            
this time because the number  of processors who might take advantage                                                            
of  the proposed  tax  credit is  unknown.  He estimated  that  this                                                            
legislation  would cost the State  $2.8 million in tax credits  were                                                            
the total amount  of the 2002 Salmon  Fisheries Tax revenue  of $5.6                                                            
million invested by the 84 processors paying that tax.                                                                          
Co-Chair Wilken surmised  therefore that were half of the processors                                                            
to invest in projects, it would cost the State $1.4 million.                                                                    
Senator B. Stevens  clarified that the credit would  depend on which                                                            
processors  invested, as large processors  account for the  majority                                                            
of the total Fisheries Business Tax.                                                                                            
Co-Chair Wilken  asked the Department of Revenue to  further explain                                                            
the fiscal note.                                                                                                                
CHUCK HARLAMERT,  Juneau Section Chief, Tax Division,  Department of                                                            
Revenue,  informed the Committee  "that the  majority of the  tax is                                                            
paid by  a relatively small  group of large  processors." He  stated                                                            
that  the overall  time frame  of the  credit program  would be  six                                                            
years as the  credit incentive would  accumulate based on  the total                                                            
of three  years of  paid taxes with  the amount  being applied  as a                                                            
credit for up to three years.                                                                                                   
Co-Chair Wilken  asked whether the  State's maximum credit  exposure                                                            
would be $1.4  million provided that  42 of the total 84  processors                                                            
Mr.  Harlamert responded  that  the credit  amount  would depend  on                                                            
which  half  invested,  as he  reiterated  that  a small  number  of                                                            
processors  pay the  majority  of the tax.  He explained  that  full                                                            
participation  by a dozen of the larger  processors would  affect up                                                            
to 90 percent of the tax.                                                                                                       
Senator B.  Stevens expressed  that the tax  incentive would  not be                                                            
spread equally as it is  credited based on a participant's Fisheries                                                            
Business Tax  volume. He furthered  that the larger the volume,  the                                                            
higher  the  tax  a  processor  pays.  He  communicated  that  eight                                                            
processors account for up to 90 percent of the tax.                                                                             
Co-Chair Wilken  asked for clarification  as to whether $100,000  is                                                            
the maximum credit allowed per processor, regardless of volume.                                                                 
Senator  B. Stevens  responded  no, that  some processors  might  be                                                            
entitled to  more, some to less, as  the credit is dependent  on the                                                            
amount of tax each processor paid.                                                                                              
Co-Chair Wilken acknowledged.                                                                                                   
Senator  Taylor reminded  that the Fisheries  Business Tax's  income                                                            
stream is divided  with the State  receiving half and the  qualified                                                            
communities receiving half.  He voiced support for the tax incentive                                                            
concept, but he  reminded the Committee that the State  has used its                                                            
portion of the  tax to fund the Division of Commercial  Fisheries in                                                            
the Department of Fish  and Game. Therefore, he asserted, the impact                                                            
on the  funding of  that Division  would need  to be addressed  were                                                            
this legislation adopted.                                                                                                       
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
Co-Chair Gary Wilken adjourned the meeting at 10:59 AM.                                                                         

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