Legislature(2003 - 2004)

04/05/2004 09:04 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SENATE FINANCE COMMITTEE                                                                                  
                         April 05, 2004                                                                                       
                            9:04 AM                                                                                           
SFC-04 # 69, Side A                                                                                                             
SFC 04 # 69, Side B                                                                                                             
SFC 04 # 70, Side A                                                                                                             
CALL TO ORDER                                                                                                               
Co-Chair Gary  Wilken convened the meeting  at approximately 9:04                                                               
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Senator Ben Stevens                                                                                                             
Also  Attending:  JOEL  GILBERTSON, Commissioner,  Department  of                                                             
Health  and Social  Services;  DORIS  ROBBINS, Volunteer,  Juneau                                                               
Clean Air and Tobacco Free  Kids; CHERYL FRESCA, Director, Office                                                               
of  Management   and  Budget,  Office  of   the  Governor;  BRUCE                                                               
TANGEMAN,  Fiscal Analyst,  Legislative  Finance Division;  LUCKY                                                               
SCHULTZ, Staff to Senator Fred Dyson                                                                                            
Attending  via  Teleconference:  From an  Offnet  Sites:  JOHANNA                                                             
BALES,  Program  Manager,  Cigarette   and  Tobacco  Excise  Tax,                                                               
Department of Revenue; JENNFIER  APP, Advocacy Director, American                                                               
Heart Association;  From Fairbanks: RUTHAMAE KARR,  Chair, Alaska                                                               
Tobacco Control Alliance; From Anchorage:  PAT LUBY, AARP Alaska;                                                               
MICHELLE  TOOHEY,  Director  of Public  Advocacy,  American  Lung                                                               
Association  of Alaska;  EMILY  NENON,  Alaska Advocacy  Manager,                                                               
American   Cancer   Society;   PATRICIA  SENNER,   Family   Nurse                                                               
Practitioner;    JOELLE   HALL,    Parent;   KATTARYNA    STILES,                                                               
Representative, Alaska Native Health Board                                                                                      
SUMMARY INFORMATION                                                                                                         
SB 368-TOBACCO TAX; LICENSING; PENALTIES                                                                                        
The  Committee heard  from the  Department of  Health and  Social                                                               
Services, the  Department of Revenue, and  took public testimony.                                                               
The bill was held in Committee.                                                                                                 
SJR 3-CONST AM: APPROPRIATION/SPENDING LIMIT                                                                                    
The  Committee  heard from  the  bill's  sponsor, the  Office  of                                                               
Management  and  Budget,  the Division  of  Legislative  Finance,                                                               
adopted  two conceptual  amendments, and  reported the  bill from                                                               
SB 351-APOC REPORTS BY NONELECTRONIC MEANS                                                                                      
This bill was scheduled but not heard.                                                                                          
HB 357-RESTITUTION                                                                                                              
This bill was scheduled but not heard.                                                                                          
HB 513-CSED NAME CHANGE/DRIVER'S LIC.SUSPENSION                                                                                 
This bill was scheduled but not heard.                                                                                          
     SENATE BILL NO. 368                                                                                                        
     "An  Act  relating  to  taxes   on  cigarettes  and  tobacco                                                               
     products; relating to tax stamps  on cigarettes; relating to                                                               
     forfeiture  of  cigarettes  and  of  property  used  in  the                                                               
     manufacture,   transportation,   or    sale   of   unstamped                                                               
     cigarettes;  relating to  licenses and  licensees under  the                                                               
    Cigarette Tax Act; and providing for an effective date."                                                                    
This was  the first hearing for  this bill in the  Senate Finance                                                               
Co-Chair  Wilken informed  the  Committee  that this  legislation                                                               
would increase the cigarette tax  from the current one-dollar per                                                               
20-cigarette pack to two dollars  per pack and would increase the                                                               
Other Tobacco Products tax from  75-percent to 100-percent of the                                                               
wholesale cost.  Furthermore, he  specified that  the legislation                                                               
would  allow  the  Department  of Public  Safety  "to  seize  and                                                               
dispose of  assets used  in cigarette  smuggling and  tax evasion                                                               
activities." Co-Chair  Wilken identified the bill  version before                                                               
the Committee as SB 368, Version 23-GS2116\A.                                                                                   
JOEL GILBERTSON,  Commissioner, Department  of Health  and Social                                                               
Services,  stated  that  this   legislation  would  increase  the                                                               
cigarette  tax  from one  dollar  to  two  dollars per  pack.  He                                                               
explained  that this  legislation  is  being introduced  "because                                                               
tobacco is the number one public  health threat" for the State in                                                               
that it  is the State's  "leading cause of death,  disability and                                                               
chronic illness."                                                                                                               
Commissioner  Gilbertson  avowed  that increasing  the  tax  levy                                                               
would  continue to  produce health  benefits to  Alaskans, as  he                                                               
noted, that since 1997 when the  current one dollar tax went into                                                               
effect,  tobacco  consumption  in  the  State  has  declined  30-                                                               
percent. He  informed that  increasing this  user tax  would have                                                               
the most  dramatic impact  on young  Alaskans, as  increasing the                                                               
unit  price on  tobacco "is  one of  the most  effective ways  of                                                               
preventing  that  population  from   ever  beginning  a  lifelong                                                               
addiction  to smoking."  He stated  therefore that  a substantial                                                               
increase  in the  tax would  insure  that Alaskans,  particularly                                                               
young  Alaskans,  with  limited  resources would  choose  a  more                                                               
healthy avenue in which to spend their money.                                                                                   
Commissioner Gilbertson  declared that anti-smoking  efforts have                                                               
been successful, as, he disclosed  that statistics developed from                                                               
a recent youth behavior survey  [copy not provided] indicate that                                                               
there  has been  a 50-percent  decline  in tobacco  use in  young                                                               
people. He declared that increasing  the tax, as proposed in this                                                               
bill, would continue that trend.                                                                                                
Commissioner  Gilbertson   remarked  that  the   State's  tobacco                                                               
enforcement  efforts  have  successfully lowered  the  number  of                                                               
underage  Alaskans  illegally   purchasing  tobacco  products  in                                                               
retail establishments  from 30.2  percent to  ten percent  in the                                                               
last year.  This action,  he shared, has  brought the  State into                                                               
compliance with  federal mandates. He asserted  that were tobacco                                                               
use to  further decline by 15  percent as result of  the proposed                                                               
tax,  "1,800 lives  would be  saved from  premature death  due to                                                               
Commissioner Gilbertson  declared that,  in addition  to lowering                                                               
tobacco  use in  young Alaskans,  the increased  tax would  be an                                                               
effective tool in changing behavioral  patterns and improving the                                                               
health of adults  in the State. He estimated that  a tax increase                                                               
"would  be  the direct  catalyst"  in  encouraging 3,500  Alaskan                                                               
adults to stop smoking, which  he shared would save approximately                                                               
800 lives. He noted that  in conjunction with other entities, the                                                               
Department provides  opportunities for  people to  participate in                                                               
tobacco cessation programs.                                                                                                     
Commissioner Gilbertson  pointed out that included  in the number                                                               
of  individuals  who would  cease  to  smoke would  be  expectant                                                               
mothers.  He  stated that  this  would  equate to  assisting  850                                                               
babies  from  maternal  tobacco exposure  within  the  next  five                                                               
Commissioner Gilbertson  reported that  the Alaskan  group having                                                               
the highest number of smokers,  44-percent verses the norm of 22-                                                               
percent, is  Alaska Natives. He  commented that while  the number                                                               
of Alaska Natives who smoke  continues, "to be disproportionately                                                               
higher"  than other  groups, there  has  been a  decrease in  the                                                               
number smoking since the one-dollar  tobacco tax was implemented.                                                               
He additionally  noted that Alaska  Native high school  youth are                                                               
four  times  more   likely  to  smoke  that   the  general  youth                                                               
Commissioner Gilbertson  informed that  the Campaign  for Tobacco                                                               
Free Kids  compiled an  analysis of  health costs  that indicates                                                               
that an  increased tobacco tax  would assist in  reducing smoking                                                               
related health expenses by $1.6  million over the next five years                                                               
as  a result  of fewer  smoking  related heart  attacks and  $1.8                                                               
million would be  saved from expenses associated  with stokes. He                                                               
shared  that  information  garnered  from  a  [unspecified]  1998                                                               
comprehensive   study  denoted   that  smoking   related  medical                                                               
expenses amounted to $133 million  in the State with $137 million                                                               
in lost  productivity due to  tobacco related  deaths. Additional                                                               
expenses,  he  shared,  were incurred  by  smoking  related  work                                                               
absences  and  such things  as  smoking  breaks. He  stated  that                                                               
smoking  related   expenses  have  an  "unfortunate"   and  "huge                                                               
economic impact on this State."                                                                                                 
Commissioner  Gilbertson   stated  that  "17   large  econometric                                                               
studies"  have  been  utilized  by the  Department  in  order  to                                                               
determine  how pricing  would affect  the consumption  of tobacco                                                               
products. He shared that all 17  studies reflect that there is "a                                                               
direct  correlation  between  increase  in tobacco  price  and  a                                                               
decline  in  smoking."  He  stated  that  he  would  provide  the                                                               
Committee  with  a  copy of  a  recently  completed  Department's                                                               
Division of  Public Health  report titled  "Tobacco in  the Great                                                               
Land: A  Portrait of Alaska's  Leading Cause of Death"  [copy not                                                               
provided]  which  substantiates  the Department's  position  that                                                               
"tobacco  is  the number  one  public  health threat  facing  the                                                               
State"  as it  is, he  reiterated,  the leading  cause of  death,                                                               
disability and  chronic illness in  the State. He  concluded that                                                               
increasing the  tobacco tax  by one  dollar per  pack would  be a                                                               
"prudent" thing to  do, as it would prevent  people from starting                                                               
to smoke and would assist in getting other to stop.                                                                             
JOHANNA BALES,  Program Manager,  Cigarette and  Tobacco Products                                                               
Excise Tax,  Department of Revenue, testified  via teleconference                                                               
from an  offnet site  and presented a  technical overview  of the                                                               
legislation in  that it,  in addition  to increasing  the current                                                               
cigarette  tax from  one dollar  per pack  to two  dollars, would                                                               
increase the  Other Tobacco Products  tax from 75 percent  to 100                                                               
percent  of the  wholesale  cost. She  informed  that New  Jersey                                                               
currently has  the highest cigarette  tax in the nation  at $2.05                                                               
per  pack, and  that Rhode  Island would  soon implement  a $2.45                                                               
cent per pack  tax. In addition, she communicated  that the state                                                               
of Washington has  the highest Other Tobacco Products  tax at 129                                                               
percent of the wholesale cost.                                                                                                  
Ms. Bales noted that other  provisions in the bill would increase                                                               
the annual  direct buying retail license  fee from $25 to  $50 in                                                               
order to  align these license  fees with those currently  paid by                                                               
distributors, as,  she contended,  these two entities  more often                                                               
than not,  "operate in  the same business."  She also  noted that                                                               
the bill includes technical corrections  that would eliminate the                                                               
double-taxation issue  that might arise were  in-State dealers to                                                               
purchase  from  out-of-state  dealers  who are  licensed  by  the                                                               
Ms. Bales continued  that the bill would  also allow distributors                                                               
dealing with recent manufacturers'  returned goods policy changes                                                               
to possess  unstamped cigarettes and  it would also  provide them                                                               
with  credits  for  stamped  cigarettes  sold  out-of-State.  She                                                               
clarified,  however, that  the distributor  must prove  they "are                                                               
properly licensed  in the other  state where the  cigarettes were                                                               
sold" before the credit would be issued.                                                                                        
Ms.  Bales noted  that, as  reviewed by  Commissioner Gilbertson,                                                               
the seizure  section in the bill  would allow the State  to seize                                                               
assets that are  in violation of the State's  cigarette stamp tax                                                               
laws.  She stated  that  this enforcement  tool  would assist  in                                                               
promoting compliance.                                                                                                           
Ms. Bales  noted that the bill  also includes "a floor  stock tax                                                               
provision" which  would require  all entities  selling cigarettes                                                               
in the  State to conduct an  inventory upon the enactment  of the                                                               
new tax, and  remit the difference between the old  and new stamp                                                               
tax rate  to the State within  30 days. She informed  the Members                                                               
that  approximately   200-million  cigarettes   were  stockpiled,                                                               
primarily  by retailers  and distributors,  prior to  the State's                                                               
last cigarette tax increase. She  estimated that scenario to have                                                               
resulted in approximately  $7 million dollars in  lost revenue to                                                               
the  State.  She also  noted  that  the State  received  numerous                                                               
consumer complaints  stating that they  were charged the  new tax                                                               
rate on the first day it was  enacted, "when in fact, none of the                                                               
distributors or retailers had actually paid that increase."                                                                     
Ms. Bales  shared that  the federal  government and  other states                                                               
commonly institute similar floor stock taxes.                                                                                   
Co-Chair  Wilken noted  that Ms.  Bales' written  testimony [copy                                                               
provided] is in the Members' packets.                                                                                           
Senator  Bunde  asked  the Departments'  positions  on  including                                                               
tobacco products such as smokeless tobacco in this bill.                                                                        
Ms. Bales  reminded that  the tax on  Other Tobacco  Products was                                                               
increased in 1997 from 25 percent  to 75 percent of the wholesale                                                               
cost. She noted  that this bill would increase that  level to 100                                                               
percent. However, she continued,  when the Department conducted a                                                               
study specifically  addressing chewing  tobacco products  such as                                                               
Copenhagen, for the Department of  Health and Social Services, it                                                               
was  determined  that despite  the  tax  increase implemented  in                                                               
1997, there  has been "a  fairly significant increase in  the use                                                               
of that product  in the State." One of the  problems, she pointed                                                               
out, is that,  currently, Other Tobacco Products  are not subject                                                               
to  tax  if  an  individual imports  that  product  for  personal                                                               
consumption.  She stated  that,  even with  the  tax increase  as                                                               
proposed   in  this   legislation,  individuals   purchasing  and                                                               
importing  other tobacco  products  into the  State through  such                                                               
avenues as  the Internet or  other out-of-State  purchases "would                                                               
not be subject to any of the tax, period."                                                                                      
Senator Bunde  ascertained that  this is  good reason  to include                                                               
those who import  for personal consumption into this  bill, as he                                                               
contended,  not  including  them  "would drive  business  out  of                                                               
Alaska and puts retailers at a disadvantage."                                                                                   
Ms. Bales  stated that  the Department  of Revenue  would support                                                               
Senator  Bunde's  suggestion  for  two  reasons:  one,  it  would                                                               
support  local business;  and  two, an  increase  in price  might                                                               
curtail use of the product.                                                                                                     
Senator Dyson understood that "the  demonstrable health risks" of                                                               
non-smoked  products  "are  significantly less"  than  the  risks                                                               
associated with those that are inhaled.                                                                                         
Commissioner Gilbertson  responded that, "it would  be correct to                                                               
say that the health risks  are not identical"; however, he stated                                                               
that,  "the Department  would not  support a  statement that  the                                                               
health risks are so reduced as  to be one that is diminished." He                                                               
shared that  the Department could  provide material  attesting to                                                               
the  health  risks  associated with  both  smokeless  and  smoked                                                               
tobacco products.                                                                                                               
Senator  Dyson  agreed;  however,  he  commented  that  smokeless                                                               
products pose  "no risk  to others from  secondhand smoke  and no                                                               
risk  to a  fetus from  oxygen  deprivation that  happens with  a                                                               
smoking mother." In  addition to stating that  its addiction rate                                                               
might  be similar  to that  of cigarettes,  he acknowledged  that                                                               
chewing  tobacco  products does  incur  such  things as  gum  and                                                               
throat cancer.  However, he continued,  its contribution  to lung                                                               
cancer is minimal.                                                                                                              
Senator Dyson  asked how the  legislation would affect  those who                                                               
roll their own  product from loose tobacco. He also  noted that a                                                               
Surgeon General  report, issued  approximately 15  years earlier,                                                               
stated  that pipe  tobacco health  risks  are significantly  less                                                               
than  manufactured  cigarettes.  He  pointed  out  that  not  all                                                               
tobacco products have  the same cost impact and  health risk and,                                                               
therefore, he attested they should not be treated the same.                                                                     
Commissioner Gilbertson declared  that, "varying tobacco products                                                               
have  varying risks."  He reiterated  that  the Department  could                                                               
provide  scientific study  information to  the Members.  He noted                                                               
that,  while he  was unfamiliar  with the  pipe tobacco  research                                                               
referred  to,  studies  support the  position  that  all  tobacco                                                               
products "carry  some health risks." Furthermore,  he voiced that                                                               
the Department  views all those  health risks as  negative health                                                               
risks, of which the State should discourage.                                                                                    
Senator  Dyson asked  whether the  aforementioned impacts  of the                                                               
tobacco  tax increase  on such  things as  mortality rates,  were                                                               
annual projections.                                                                                                             
Commissioner   Gilbertson  clarified   that  the   aforementioned                                                               
results would be the accumulative affect of this tax increase.                                                                  
Senator  Dyson  asked  whether   information  could  be  provided                                                               
regarding annual death rates and usage effects of the tax.                                                                      
Commissioner Gilbertson  replied that  the most  noticeable long-                                                               
term  health benefit  that  would result  from  the tax  increase                                                               
would be  a reduction in the  number of young Alaskans  who would                                                               
choose not to smoke. He  informed the Committee that the majority                                                               
of  long-term  tobacco addicts  partake  of  their first  tobacco                                                               
product before the age of 18.                                                                                                   
Senator  Dyson   voiced  that  there  is   public  discontentment                                                               
regarding how the money raised  from this tax has been allocated,                                                               
as there is general perception that  it should be used to promote                                                               
cessation and  prevention programs. He  asked for a recap  of how                                                               
the current  tobacco tax revenue  is allocated;  specifically the                                                               
amount spent  on cessation and  prevention programs,  and whether                                                               
this legislation would alter the current scenario.                                                                              
Commissioner Gilbertson  stated that  this legislation  would not                                                               
dedicate its  revenues for tobacco control  programs. Continuing,                                                               
he informed that the Department,  individually and in conjunction                                                               
with  the Tobacco  Control Alliance  partners, manages  a tobacco                                                               
control program.  Furthermore, he explained that  the majority of                                                               
the monetary support  for these programs is  supported by Tobacco                                                               
Master Settlement  money with  additional funding  generated from                                                               
licensure fees. He  noted that approximately $5  million would be                                                               
spent on these programs in FY 05.                                                                                               
Ms.  Bales disclosed  that currently  76-percent  of the  revenue                                                               
generated  from the  tobacco tax  is distributed  to the  State's                                                               
School Fund  and 24 percent  is deposited into the  general fund.                                                               
She explained that  increasing the per pack tobacco  tax from one                                                               
dollar to  two dollars  would generate  double the  revenue; and,                                                               
she attested that  even though this legislation  would reduce the                                                               
percentage  allocation for  the School  Fund to  38 percent,  the                                                               
money  generated would  remain constant.  Continuing, she  stated                                                               
that the amount  allocated to the general fund  would increase to                                                               
62 percent.                                                                                                                     
Ms. Bales  noted that 100  percent of the revenue  generated from                                                               
the  tax  on  Other  Tobacco Products  is  currently,  and  would                                                               
continue to be, deposited into the general fund.                                                                                
Ms.  Bales clarified  that there  is  no language  in the  Master                                                               
Tobacco Settlement agreement  specifying that it be  used to fund                                                               
such  things as  tobacco  cessation and  education programs.  She                                                               
voiced  the  understanding  that  the  money  could  be  used  to                                                               
reimburse the  State's general fund  for such things  as Medicaid                                                               
expenses. She concluded that it  is the Legislature's decision as                                                               
to how to spend that money.                                                                                                     
Senator  Olson asked  for  assurance that  language  in the  bill                                                               
pertaining to  the seizure of  assets as specified on  page five,                                                               
line three  and page  six, line eight  would not  jeopardize such                                                               
things  as aircraft  and vehicles  owned by  common carriers  who                                                               
might unknowingly transport cigarettes.                                                                                         
Ms. Bales  understood that the  forfeiture provisions  which were                                                               
drafted by the Department of  Law, would provide "innocent person                                                               
relief" in the case that  their property were unknowingly used by                                                               
a cigarette  tax violator. She  assured that provisions  are also                                                               
included  to  address  situations,  for  example,  in  a  village                                                               
wherein  "a  family's  sole source  of  transportation  would  be                                                               
protected from seizure."                                                                                                        
Ms. Bales reminded  that violations of the tobacco  tax would not                                                               
apply to personal cigarette consumption.                                                                                        
Senator  Olson asked  regarding the  scenario in  which a  common                                                               
carrier who, as a means of business, transports cigarettes.                                                                     
Ms. Bales clarified  that a violation would not  occur unless the                                                               
common  carrier  knowingly  transported illegal  cigarettes.  She                                                               
noted that she would confirm  this interpretation of the language                                                               
with the Department of Law.                                                                                                     
Co-Chair Wilken  asked Ms. Bales  to review comments  included in                                                               
an  April 4,  2004 letter  [copy on  file] he  had received  from                                                               
wholesale distributor,  Mike Elerding of Northern  Sales, as well                                                               
as  two proposed  amendments  that pertain  to  comments in  that                                                               
Ms.  Bales stated  that  she would  review  that information  and                                                               
provide a response at the next hearing on this bill.                                                                            
Senator Hoffman asked whether a  portion of the revenue generated                                                               
from  this tax  increase would  be used  to support  anti-smoking                                                               
advertising campaigns.                                                                                                          
Commissioner Gilbertson  responded that this bill  specifies that                                                               
the  revenue generated  by this  legislation  would be  deposited                                                               
into  the  general  fund.  He   reiterated  that  the  Department                                                               
operates   a  tobacco   cessation   and   education  program   in                                                               
conjunction with the Tobacco Alliance.                                                                                          
Senator   Hoffman  reminded   that  the   previous  tobacco   tax                                                               
legislation   required  funds   to  be   spent  on   anti-smoking                                                               
advertisements, and he attested  that that effort was responsible                                                               
for   a  downturn   in  cigarette   consumption.  Therefore,   he                                                               
questioned the  reason that a  similar effort is not  included in                                                               
this legislation.                                                                                                               
Commissioner  Gilbertson  replied  that  a price  increase  is  a                                                               
"tremendous deterrent"  in that  studies indicate that  for every                                                               
ten percent  price increase in  the cost of a  cigarette product,                                                               
there   is  a   corresponding  three-point-seven   (3.7)  percent                                                               
decrease  in consumption.  He concurred  that the  media campaign                                                               
was successful  and would  continue to  be effective  in reducing                                                               
general  tobacco  consumption;  however,   he  stated  that  this                                                               
legislation  does  not  allocate  funds toward  that  effort.  He                                                               
stated that the Governor could  propose and the Legislature could                                                               
fund those efforts.                                                                                                             
Senator Hoffman, referring to the  high number of Native smokers,                                                               
asked what  efforts would be  exerted to reduce tobacco  usage in                                                               
this group.                                                                                                                     
Commissioner  Gilbertson responded  that while  there is  a large                                                               
variety  of  health  disparities  in this  State,  the  disparity                                                               
between  cigarette  consumption  between  Native  and  non-Native                                                               
populations is an important issue.  He specified that the Tobacco                                                               
Control program  has dedicated funds  to target tobacco  usage in                                                               
Natives via outreach  efforts in conjunction with  such groups as                                                               
the  Alaska  Native  Tribal Health  Consortium.  Furthermore,  he                                                               
stated, the Native Health Board,  the Alaska Native Tribal Health                                                               
Consortium  and   other  public  health  consortiums   have  been                                                               
supportive of  this legislation and  have agreed  that increasing                                                               
the cost of tobacco products  would be an effective public health                                                               
tool. He also  noted that they have testified in  support of this                                                               
legislation.  He declared  that while  stronger efforts  could be                                                               
exerted, efforts have been made in this regard.                                                                                 
Senator Hoffman  understood therefore that this  legislation does                                                               
not contain specific  measures to address the  Native tobacco use                                                               
Co-Chair Green  communicated that  dedicated funds should  not be                                                               
an issue  "at this table."  On another note, she  asked regarding                                                               
the  success of  "sting  operation" efforts  in  urban and  rural                                                               
Commissioner Gilbertson  stated that tobacco  enforcement efforts                                                               
have  been successful  throughout  the State.  He explained  that                                                               
each  state  receives federal  alcohol  and  mental health  block                                                               
grant funds,  the amount  of which is  contingent on  the State's                                                               
successful implementation  of a  tobacco enforcement  program. He                                                               
defined  success  "as a  lower  than  20  percent sales  rate  to                                                               
underage minors  who attempt to purchase  tobacco products." Were                                                               
this level of  enforcement not obtained, he  continued, the State                                                               
could  loose up  to 40-percent  of  its block  grant funding.  He                                                               
shared that the State has  been non-compliant for last five years                                                               
in that its  compliant rate has exceeded 30 percent  per year. He                                                               
stated that  this is unacceptably high  and that as a  result the                                                               
State  has had  to dedicate  funds in  the form  of a  cumulative                                                               
penalty,  reaching approximately  one million  dollars in  recent                                                               
years, so as not to loose  the block grants in their entirety. In                                                               
the  meantime, he  communicated, the  Department has  worked with                                                               
retailers and  others to raise  awareness, improve  training, and                                                               
improve enforcement efforts  in this regard. He noted  that, as a                                                               
result  of these  efforts, the  illegal sales  rate has  recently                                                               
declined to ten percent.                                                                                                        
Senator   Olson   noted   that  the   graph   titled   "Cigarette                                                               
Importations FY  1996 - FY  2002 and Cigarette Stockpiling  in FY                                                               
1998" [copy  on file]  reflects a dramatic  decease in  1997 when                                                               
the cigarette tax was increased  to one dollar per pack. However,                                                               
he  noted  that  since  1997,  the  volume  of  cigarettes  being                                                               
purchased has  continued to increase.  He questioned  whether the                                                               
slope  of  the  increase  would  indicate  that  over  time,  any                                                               
positive  impact of  the  proposed two-dollar  a  pack tax  would                                                               
Commissioner Gilbertson  responded that  he could  not adequately                                                               
provide a  statistical answer; however,  he noted that  while the                                                               
number   of  cigarettes   being  imported   into  the   State  is                                                               
increasing, overall  it is  a minor  issue as  95 percent  of the                                                               
tobacco products consumed  in the State are  bought through local                                                               
licensed retailers in the State.                                                                                                
DORIS  ROBBINS,  Volunteer, Juneau  Clean  Air  and Alaskans  for                                                               
Tobacco Free Kids, noted that  the Governor has requested that 20                                                               
percent  of  the  Master  Tobacco Settlement  fund  be  spent  on                                                               
education  and cessation  efforts  in  FY 05.  On  behalf of  the                                                               
organizations  she   represents,  she  voiced  support   for  the                                                               
proposed tobacco tax increase, as,  she declared, it would assist                                                               
in  stopping a  large  number of  people,  primarily youth,  from                                                               
smoking.  Were  the  legislation passed,  she  approximated  that                                                               
9,100 kids would not start  smoking. She stated that the majority                                                               
of  smokers begin  to  smoke  when they  were  children, and  she                                                               
continued, were the  price to deter youth from  smoking, it would                                                               
serve  to reduce  the number  of "next  generation smokers."  She                                                               
stated that other  benefits would include a  reduction in smoking                                                               
affected  births;  would  save   lives  of  numerous  adults  who                                                               
currently smoke; and  would result in lowering  long term medical                                                               
expenses. She  noted that  in order  to adequately  cover today's                                                               
medical expenses, the tax level should  be $6.38 per pack, as she                                                               
shared  that $60  million  is required  annually  by Medicaid  to                                                               
provide  for  tobacco  related  illness  care.  She  stated  that                                                               
efforts are being  developed to educate children at  an early age                                                               
of  the health  dangers  associated with  tobacco  use. She  also                                                               
stated that it is "a myth"  that crewing tobacco would not affect                                                               
a baby. She recounted Doctor  Robert Urata's testimony to a House                                                               
of Representatives  committee in  which he declared  that tobacco                                                               
products are "so poisonous" that  were they would fail to receive                                                               
federal Food and Drug Administration  approval were they to apply                                                               
for authorization  today. She stated  that 82 percent  of Alaskan                                                               
voters are  very concerned about  the use of tobacco  products by                                                               
young people.  She urged the  Committee to pass  this legislation                                                               
and also consider supporting the  Governor's proposal to spend 20                                                               
percent  of the  Tobacco  Settlement money  on tobacco  education                                                               
programs. In  summary, she  noted that  the state  of Mississippi                                                               
spends more on tobacco prevention that the State of Alaska does.                                                                
JENNFIER  APP,  Advocacy  Director, American  Heart  Association,                                                               
testified  via teleconference  from  an offnet  site, and  shared                                                               
that  the  American  Heart Association's  mission  is  to  reduce                                                               
disabilities, cardiovascular  disease and stokes.  She reiterated                                                               
that tobacco use is the number  one preventable cause of death in                                                               
the  State,  and she  stated  that  it  is  also the  number  one                                                               
preventable  cause of  cardiovascular disease  in the  State. She                                                               
stated that  the Association  is in "very  strong support"  of an                                                               
increase in the  tobacco tax because, she attested,  as the price                                                               
increases, more adults attempt to quit.                                                                                         
SFC 04 # 69, Side B 09:51 AM                                                                                                    
Ms. App  continued that  most smokers  begin smoking  between the                                                               
ages of ten and twenty, and  she noted that the average smoker in                                                               
Alaska began  at the age of  14.5 years. She attested  that "this                                                               
is  also  the   age  group  that  is  most   sensitive  to  price                                                               
increases." Therefore, she stated  that this price increase would                                                               
result,  over the  long-term,  in  a decline  in  smokers in  the                                                               
State. Furthermore, she  attested that the tax  would also assist                                                               
in reducing the approximate $130  million a year the State spends                                                               
on direct costs associated  with smoking, including approximately                                                               
$60 million  the State pays  in support of the  Medicaid program.                                                               
She  affirmed that  Alaskan businesses  are losing  approximately                                                               
$130 million  annually in lost  productivity related  to smoking.                                                               
She calculated  that to cover  these expenses, the tax  should be                                                               
$6.38  per pack;  therefore,  she concluded  that  even with  the                                                               
implementation  of a  two-dollar per  pack tax,  the State  would                                                               
continue "to  be subsidizing these costs."  However, she stressed                                                               
that the  proposed tax would  be an improvement over  the current                                                               
situation and would  result "in a win/win situation"  as it would                                                               
assist in  saving lives by  deterring youth from smoking  and the                                                               
State  would also  save money  through the  reduction of  smoking                                                               
related expenses.                                                                                                               
RUTHAMAE  KARR, Chair,  Alaska Tobacco  Control Alliance  (ATCA),                                                               
testified  via  teleconference  from Fairbanks  and  shared  that                                                               
while   more  funding   would  be   appreciated,  the   ATCA  has                                                               
experienced  success in  the State  in  its efforts,  via a  good                                                               
media  campaign, to  publicize  the negative  affects of  smoking                                                               
such as  second hand  smoke. She affirmed  that Alaska  is ranked                                                               
"very  high" in  its  number  of tobacco  users,  and she  voiced                                                               
additional  concern  that  even  with  the  educational  efforts,                                                               
smokeless  tobacco rates  are increasing  because people  believe                                                               
smokeless  alternatives are  safer  than  cigarettes. She  agreed                                                               
that an increase in the  Other Tobacco Products prices would also                                                               
result  in  a decrease  in  young  smoker  use and  would  assist                                                               
people's  efforts to  quit  smoking. She  also  stated that  this                                                               
would  result in  a win/win  situation,  as it  would assist  the                                                               
State in  reducing smoking related  health expenses  and increase                                                               
revenues   for  the   State.  She   expressed  support   for  the                                                               
PAT  LUBY,   AARP  Alaska,  testified  via   teleconference  from                                                               
Anchorage and  stated that this  legislation is favored  by AARP.                                                               
He shared that  research supports the position that  a higher tax                                                               
would assist  in curbing youth  from smoking and  would encourage                                                               
existing  smokers  to stop.  He  shared  that grandparents  love,                                                               
support, and  enjoy their grandchildren  and are saddened  to see                                                               
them smoke.  Therefore, he stressed  that any program  that would                                                               
assist  in preventing  kids from  smoking would  be supported  by                                                               
AARP.  He  voiced  concern  regarding   the  information  in  the                                                               
Governor's transmittal  letter that denotes that  Alaska Natives,                                                               
and  particularly Alaska  Native  youth, are  smoking in  numbers                                                               
higher  than the  State's norm,  and he  urged that  some of  the                                                               
anticipated revenue from this tax  be used to address this issue.                                                               
He shared  that a recent  Medicare Trustees annual  report stated                                                               
that  the State's  health care  costs rose  "significantly beyond                                                               
expectations,"  primarily   as  a   result  of   smoking  related                                                               
illnesses.  Therefore,  he  surmised,  that were  fewer  kids  to                                                               
smoke,  the long-term  affect on  lowering Medicare  and Medicaid                                                               
expenses "would be significant."  He stated that this legislation                                                               
is both  "good economic policy  and good health policy,  it makes                                                               
sense and it's fair." On behalf  of AARP, he urged passage of the                                                               
Co-Chair  Wilken noted  that the  April 4,  2004 letter  [copy on                                                               
file] from AARP is included in Members' packets.                                                                                
MICHELLE  TOOHEY,  Director  of Public  Advocacy,  American  Lung                                                               
Association   of  Alaska,   testified  via   teleconference  from                                                               
Anchorage  and  addressed  Ms.   Bales'  comments  regarding  the                                                               
Tobacco Master Settlement Agreement (MSA)  by stating that "it is                                                               
true"  that  the  agreement  does   not  require  that  money  be                                                               
allocated  toward tobacco  prevention "because  Attorneys General                                                               
have no power of appropriation;  however, there was absolutely an                                                               
intent in the  settlement for these dollars to go  to programs to                                                               
prevent kids from smoking and  to help adults quit." Furthermore,                                                               
she  attested  that "this  commitment  was  stated publicly  when                                                               
Alaska   settled,  in   fact,  Alaska's   Attorney  General   was                                                               
successful in negotiating an extra  $200 million for our State in                                                               
consideration  of  the  vastness   of  Alaska  and  the  logistic                                                               
complications  associated with  administering tobacco  prevention                                                               
programs  in  Rural Alaska.  Further,  in  2001, the  Legislature                                                               
created  the Tobacco  Use  Education and  Cessation  Fund to  set                                                               
aside the  remaining non-securitized 20-percent of  the MSA funds                                                               
to provide  a source to finance  comprehensive smoking education,                                                               
tobacco   use   prevention,   and  tobacco   control   programs."                                                               
Therefore,  she  concluded  that  while the  agreement  does  not                                                               
specify  a  requirement  to  fund  prevention  programs,  "public                                                               
commitment has  been made from  the beginning to use  these funds                                                               
in this manner."                                                                                                                
Senator  Hoffman  commented  that  while there  might  have  been                                                               
"pubic commitment  to spend those  dollars," the  Commissioner of                                                               
the  Department of  Health and  Social Services  has communicated                                                               
that, "there  are no  additional dollars in  the budget  for that                                                               
effort."  Continuing,  he  calculated   that  20-percent  of  $40                                                               
million would  amount to  $8 million  in additional  funding that                                                               
should be specified for cessation efforts.                                                                                      
EMILY NENON,  Alaska Advocacy  Manager, American  Cancer Society,                                                               
testified  via teleconference  from Anchorage  that the  American                                                               
Cancer  Society (ACS)  "recognizes tobacco  taxes as  one of  the                                                               
most effective ways to reduce  youth smoking and save lives." She                                                               
stressed  that  both  State and  national  studies  support  this                                                               
claim.  She stated  that  the  mission of  ACS  "is to  eliminate                                                               
cancer as the major health  problem by preventing cancers, saving                                                               
lives,  and diminishing  suffering from  cancer." She  noted that                                                               
cancer is the second leading cause  of death for Alaskans and the                                                               
leading cause of death for  Alaska Natives, and she attested that                                                               
one-third of all  cancers are tobacco related.  She affirmed that                                                               
the  majority  of  tobacco users  become  addicted  as  children.                                                               
Therefore,  she supported  testimony that  increased taxes  would                                                               
discourage youth  from smoking.  She stressed  that this  bill is                                                               
unique  in  that,  in  addition to  having  a  tremendous  health                                                               
impact, it  has large  public support  throughout the  State. She                                                               
urged the Committee to support this bill.                                                                                       
PATRICIA  SENNER,   Family  Nurse  Practitioner,   testified  via                                                               
teleconference  from  Anchorage  in  support  of  increasing  the                                                               
tobacco  tax  in order  to  discourage  youth from  smoking.  She                                                               
agreed with  Senator Hoffman's comments  that money  be specified                                                               
for an anti-smoking  advertising campaign as she  attested that a                                                               
"two-pronged  approach"  must  be  taken to  address  the  issue.                                                               
Furthermore, she  informed that  Committee that  one of  the most                                                               
common requests she experiences  when working with homeless youth                                                               
is  the request  for assistance  in stopping  smoking. She  noted                                                               
that  Medicaid does  not provide  funding to  assist people  with                                                               
such cessation  aides as nicotine patches.  Therefore, she voiced                                                               
that access  to such  things would be  helpful in  this endeavor.                                                               
She  also  encouraged  the  Committee   to  address  the  illegal                                                               
bootlegging and importation of tobacco products.                                                                                
JOELLE HALL, Parent, testified  via teleconference from Anchorage                                                               
in support  of the tax.  She stressed that  no one has  more need                                                               
for  this bill  than "our  children." She  charged that  parents'                                                               
role is to  teach their children the dangers of  smoking and that                                                               
the Legislature's  role is  to promote  legislation such  as this                                                               
tobacco tax increase in order  to assist efforts to halting youth                                                               
from smoking. She  voiced that while she is glad  to have smokers                                                               
contribute via  paying a  tax toward  the expenses  incurred from                                                               
tobacco related expenses,  her primary reason for  support was to                                                               
discourage use. She  urged the Committee to report  the bill from                                                               
KATTARYNA  STILES, Representative,  Alaska  Native Health  Board,                                                               
testified  via teleconference  from Anchorage  in support  of the                                                               
bill,  as she  attested, it  "would  save lives  by reducing  and                                                               
preventing tobacco use." Echoing  Senator Hoffman's concerns, she                                                               
stated  that  the high  percent  of  Native  youth who  smoke  is                                                               
unacceptable.  She  stated  that  raising the  price  of  tobacco                                                               
products would  assist in the  endeavor of discouraging  youth to                                                               
smoke. She noted Commissioner Gilbertson's  comments that the tax                                                               
would also alter  smoking behaviors of adults.  She stressed that                                                               
efforts  to  discourage  pregnant  women from  smoking  would  be                                                               
important,  as she  noted that  in  western Alaska,  there is  an                                                               
"unacceptable" smoking  rate of  up to 67-percent  among pregnant                                                               
women.  She  stated  that  by  using  Tobacco  Master  Settlement                                                               
Agreement  Funds,  grants,  and   other  funds,  a  multitude  of                                                               
agencies are working  together to educate Native  Alaskans to the                                                               
dangers of smoking. She stated  that adoption of this legislation                                                               
would  only  increase  the  success   of  the  efforts  that  are                                                               
currently in place to prevent use of tobacco in Native Youth.                                                                   
Senator  Hoffman asked  whether  the Alaska  Native Health  Board                                                               
could  utilize   additional  dollars  to  assist   in  prevention                                                               
Ms.  Stiles replied  in the  affirmative; however,  she clarified                                                               
that the purpose of her testimony  today is to support this bill,                                                               
"not  for the  money, its  because the  goal of  the tobacco  tax                                                               
itself is to prevent use."                                                                                                      
Senator Bunde  questioned whether  any polls have  been conducted                                                               
to  gauge public  support for  this tobacco  tax; and  if so,  he                                                               
asked  whether  a   one-dollar  or  a  $1.50   tax  increase  was                                                               
Ms. Nenon responded that the  American Cancer Society conducted a                                                               
poll with  the result being equal  support for either a  $1.00 or                                                               
$1.50 increase.                                                                                                                 
Senator Bunde asked the level of support favoring an increase.                                                                  
Ms. Nenon relied that 67-percent  of those polled supported a tax                                                               
Senator Bunde  reiterated that an amendment  should be considered                                                               
to incorporate all tobacco products into the bill.                                                                              
Co-Chair  Wilken   suggested  that   Senator  Bunde   develop  an                                                               
amendment and present it at the bill's next Committee hearing.                                                                  
There  being no  further testimony,  Co-Chair Wilken  ordered the                                                               
bill HELD in Committee.                                                                                                         
AT EASE 10:14 AM / 10:16 AM                                                                                                     
     CS FOR SENATE JOINT RESOLUTION NO. 3(JUD)                                                                                  
     Proposing an amendment to the Constitution of the State of                                                                 
     Alaska relating to an appropriation limit and a spending                                                                   
This was  the tenth hearing for  this bill in the  Senate Finance                                                               
Co-Chair Wilken  specified that this legislation  would implement                                                               
a Constitutional spending limit.                                                                                                
Senator Dyson  moved to adopt  the committee  substitute, Version                                                               
23-LS0296\Z as the working document.                                                                                            
Senator  Hoffman  asked for  confirmation  that  the Version  "Z"                                                               
committee substitute encompasses previously adopted amendments.                                                                 
Senator Dyson responded affirmatively.                                                                                          
There being  no objection, the  Version "Z"  committee substitute                                                               
was adopted as the working document.                                                                                            
Senator Dyson, the bill's sponsor,  noted that the Administration                                                               
has  explained that  due to  four years  of "budget  restraints,"                                                               
there  is "an  artificial distortion  in the  application of  the                                                               
formula  in   the  out  years."  Therefore,   he  continued,  the                                                               
Administration  had requested  that  the base  years' numbers  be                                                               
adjusted "in order  to make the formulas smooth and  work for the                                                               
expected  and reasonable  expansion of  the budget."  He attested                                                               
that this  had been done.  Subsequent to that, he  continued, the                                                               
adoption  of Amendment  #12 at  the previous  meeting, "distorted                                                               
how  the  formula  works"  in that  it  exempted  all  University                                                               
receipts from the appropriations calculation.                                                                                   
CHERYL FRASCA, Director, Office  of Management and Budget, Office                                                               
of  the Governor,  noted that  the  action of  "amending out  the                                                               
University of Alaska's receipts had  the affect of removing" $150                                                               
million  of  spending  from  the   total  amounts  available  for                                                               
appropriation for  FY 04  and FY  05. Therefore,  she recommended                                                               
that $150  million be removed from  the appropriation calculation                                                               
formula base  years of FY 2004  and FY 2005 as  specified in Sec.                                                               
2, subsection Section 30 (1) and  (2) on page three, lines 21 and                                                               
22 in  Version "Z".  She specified that  this would  reduce these                                                               
numbers to $3,150,000,000 and $3,250,000,000, respectfully.                                                                     
Ms. Frasca also noted that  a grammatical correction should occur                                                               
in Section  1, subsections Section 16  (1) on page one,  lines 13                                                               
and 15,  and Section  16 (2) on  page two, line  3, in  which the                                                               
words  "second" and  "third"  should be  replaced  with the  word                                                               
"two." This language currently reads as follows.                                                                                
          (1) the percentage rate of change in the Consumer                                                                     
     Price  Index  for  all urban  consumers  for  the  Anchorage                                                               
     metropolitan area  compiled by  a federal agency  during the                                                               
     second and third calendar years  preceding the calendar year                                                               
     during which  the immediately  preceding fiscal  year began,                                                               
     but not to  exceed the percentage change  in personal income                                                               
     of  State residents  during the  second  and third  calendar                                                               
     years  preceding   the  calendar   year  during   which  the                                                               
     immediately preceding fiscal year begins; plus                                                                             
          (2) the percentage rate of change in the State                                                                        
     population  during  the  second  and  third  calendar  years                                                               
     preceding  the calendar  year during  which the  immediately                                                               
     preceding fiscal year began compiled by a State department.                                                                
Co-Chair Green  asked whether changing  this language  would have                                                               
an affect on the calculation formula.                                                                                           
Ms. Frasca responded that it would not.                                                                                         
Amendment  #13: As  a result  of exempting  University of  Alaska                                                               
receipts  from  the  appropriations calculation,  this  amendment                                                               
reduces  the  total  FY  04   and  FY  05  appropriation  amounts                                                               
reflected on page  three, lines 21 and 22  from $3,300,000,000 to                                                               
$3,150,000,000   and  from   $3,400,000,000  to   $3,250,000,000,                                                               
Co-Chair  Green  moved for  the  adoption  of Amendment  #13  and                                                               
objected for discussion.                                                                                                        
Co-Chair  Green asked  for a  review of  the calculation  formula                                                               
from  which the  original FY  04 and  FY 05  base year  levels of                                                               
$3,300,000,000 and $3,400,000,000 were derived.                                                                                 
BRUCE  TANGEMAN, Fiscal  Analyst,  Legislative Finance  Division,                                                               
informed  the Committee  that these  amounts  were determined  by                                                               
reviewing the  appropriation amounts  for several years  prior to                                                               
FY 2004,  as he informed,  the FY 2004  and FY 2005  amounts were                                                               
unavailable. He stated that the  resulting calculation provided a                                                               
base  to  which  a  growth  factor  was  applied.  Therefore,  he                                                               
concluded  that  the  formula  provided  "a  safe,  fairly  known                                                               
calculation for what's going to happen in 06."                                                                                  
Co-Chair  Green  understood   therefore,  that  this  methodology                                                               
provided a "floor" from which to determine future calculations.                                                                 
Senator Dyson  stated that Co-Chair  Green's comment  is correct.                                                               
Continuing, he clarified that this  legislation would establish a                                                               
"floor on the spending limit, not on our spending."                                                                             
LUCKY SCHULTZ,  Staff to Senator  Fred Dyson, noted  that another                                                               
consideration  in the  "adjusted  base year"  calculation was  to                                                               
determine  an   amount  that   would  provide   adequate  growth,                                                               
respectful of the funding reductions  that occurred over the past                                                               
several fiscal  years and of  how the "no ratchet  down provision                                                               
is  written."  He  continued  that  were  these  adjustments  not                                                               
incorporated, the end result would  have been a "no-growth limit"                                                               
for the  first several years  after the  legislation's enactment,                                                               
which, he attested, would have  resulted in a difficult situation                                                               
under which to operate.                                                                                                         
Co-Chair   Green  ascertained   therefore,   that,  rather   than                                                               
incorporating  two  formulas,  the calculation  was  adjusted  to                                                               
provide for FY 04 and FY 05.                                                                                                    
Senator  Dyson agreed  and noted  that this  is addressed  in the                                                               
bill via the term "transition."                                                                                                 
Senator  Hoffman  asked whether  a  chart  has been  provided  to                                                               
reflect the funding reductions proposed in this amendment.                                                                      
Mr. Tangeman  responded that  a corresponding  chart has  not, of                                                               
yet, been provided.                                                                                                             
Senator Dyson  pointed out that  the slope  of line would  be the                                                               
identical to that  depicted in the CS SJR 3  chart [copy on file]                                                               
except  that  the line  would  be  positioned approximately  $150                                                               
million lower on the graph. He  noted that an updated chart would                                                               
be provided.                                                                                                                    
Senator B.  Stevens asked  what constitutes  the $150  million in                                                               
University receipts.                                                                                                            
Ms. Frasca  responded that,  originally, the  University receipts                                                               
category  amounted to  approximately $200  million. She  reminded                                                               
that earlier  Committee action exempted the  University's tuition                                                               
revenue,  amounting  to  approximately   $50  million,  from  the                                                               
calculation.  Therefore,  she  stated, Amendment  #12  served  to                                                               
exclude the remaining $150 million balance.                                                                                     
Senator   Hoffman   inquired   whether   inflation-proofing   and                                                               
population  projections  attributed  to the  decision  to  exempt                                                               
University receipts from the calculation.                                                                                       
Ms. Frasca  responded that  she could not  provide an  answer, as                                                               
rather than  being an amendment  proposed by  the Administration,                                                               
the amendment was proposed by a Committee member.                                                                               
Co-Chair  Green  asked  for confirmation  that  the  University's                                                               
previous  years'  receipt revenues  had  been  excluded from  the                                                               
calculation used to determine the adjusted base year levels.                                                                    
Mr. Tangeman assured that they had been.                                                                                        
Senator   Dyson,  responding   to  Senator   Hoffman's  question,                                                               
characterized   the  University   receipts   being  excluded   as                                                               
"enterprise  activity" receipts  generated  from  such things  as                                                               
ticket proceeds  from hockey  programs or  book sales.  He viewed                                                               
these activities as  having "no impact on the  general fund," and                                                               
furthermore, he  stated, were the University's  economic analysis                                                               
to reflect that they should  or could charge more for activities,                                                               
the Legislature should not restrict them from doing so.                                                                         
Co-Chair Green  asked whether other State  entities might request                                                               
similar exemptions.                                                                                                             
Ms. Frasca responded  that no others had opted to  make a request                                                               
of  this nature  to the  Administration. Furthermore,  she stated                                                               
that the  Administration's "challenge"  is to  provide sufficient                                                               
"general  fund  dollars  to   support  core  responsibilities  of                                                               
government." Continuing,  she noted that several  State programs,                                                               
such  as the  Division of  Motor Vehicles,  generate receipts  in                                                               
excess of "what it costs  to perform their functions." Therefore,                                                               
she continued,  it would  be expected  that were  excess receipts                                                               
generated by  a program,  that program would  not be  entitled to                                                               
spending  the   excess  funds  as   some  contribution   to  core                                                               
government services, such as the  Department of Corrections which                                                               
does not generate  receipts, should be expected.  She stated that                                                               
a program's  ability to generate  revenues does not  signify that                                                               
the program has  "first claim," to spending  them. Therefore, she                                                               
concluded  that  every  program "should  compete  to  the  degree                                                               
that's appropriate" for general fund dollars.                                                                                   
Co-Chair Green  commented that general  fund monies  are annually                                                               
distributed based  on competing  needs via the  appropriation and                                                               
priority process.                                                                                                               
Ms. Frasca  agreed and stated  that a "scrutiny"  process evolves                                                               
from which  a determination  of expenditures  is made.  She noted                                                               
that  other legislation  is pending  that proposes  to reclassify                                                               
designated funds and deposit them into the general fund column.                                                                 
Co-Chair  Wilken reviewed  the effects  of the  amendment on  the                                                               
amounts detailed  in the  FY 04  D-24 component,  the FY  05 E-24                                                               
component,  the  FY  06  F-24  component,  and  the  FY  07  G-24                                                               
component of the  "SJR 3" chart [copy on file]  that was provided                                                               
by Legislative Finance.                                                                                                         
Mr. Tangeman replied that the FY  04 D-24 component and the FY 05                                                               
E-24 component on the aforementioned  chart would each be reduced                                                               
$150    million,    to   $3,150,000,000    and    $3,250,000,000,                                                               
respectfully;  the  FY 06  F-24  component  would be  reduced  to                                                               
approximately $3,330,000,000; and the  FY 07 G-24 component would                                                               
change to an undetermined amount.                                                                                               
Co-Chair Green removed her objection.                                                                                           
There being no further objection, Amendment #13 was ADOPTED.                                                                    
Conceptual  Amendment #14:  This  amendment  changes language  in                                                               
Section 1, subsections  Section 16 (1) on page one,  lines 13 and                                                               
15,  and Section  16 (2)  on page  two, line  three, in  that the                                                               
words  "second"  and "third"  would  be  replaced with  the  word                                                               
"two." This language would read as follows.                                                                                     
          (1) the percentage rate of change in the Consumer                                                                     
     Price  Index  for  all urban  consumers  for  the  Anchorage                                                               
     metropolitan area  compiled by  a federal agency  during the                                                               
     two calendar years preceding the  calendar year during which                                                               
     the  immediately preceding  fiscal  year began,  but not  to                                                               
     exceed  the percentage  change in  personal income  of State                                                               
     residents  during  the  two  calendar  years  preceding  the                                                               
     calendar year during which  the immediately preceding fiscal                                                               
     year begins; plus                                                                                                          
          (2) the percentage rate of change in the State                                                                        
     population  during  the  two calendar  years  preceding  the                                                               
     calendar year during which  the immediately preceding fiscal                                                               
     year began compiled by a State department.                                                                                 
Co-Chair Wilken moved to adopt Amendment #14.                                                                                   
There being no objection, Amendment #14 was ADOPTED.                                                                            
Co-Chair Wilken asked for further  information regarding the Fund                                                               
Code language that is included  as depicted in the handout titled                                                               
"Fund  Codes  Included in  Limit"  [copy  on file];  specifically                                                               
whether  the  reference  to  such things  as  the  Alaska  Marine                                                               
Highway (AMH), code  1076, would signify that an  increase in the                                                               
passenger fares  or ridership  would be  subject to  the spending                                                               
Mr. Tangeman confirmed that they would be.                                                                                      
Co-Chair Wilken questioned the rationale for this provision.                                                                    
Ms. Frasca theorized that an increase  in AMH revenue as a result                                                               
of increased  fares or  ridership might  result in  AMH requiring                                                               
fewer general  fund dollars  as those  monies would  be deposited                                                               
into  the   AMH  fund  to   fund  AMH  operation   expenses.  She                                                               
additionally noted that  this legislation is a  limit on spending                                                               
as opposed to limiting fund sources.                                                                                            
Co-Chair Wilken  asked whether  the $91  million denoted  for the                                                               
International  Airport Fund,  Code  1027, is  an enterprise  fund                                                               
comprised of such things as landing fees.                                                                                       
Ms. Frasca affirmed.                                                                                                            
Co-Chair  Wilken asked  the rationale  for its  inclusion, as  he                                                               
likened   it  to   "discretionary  funding   on  behalf   of  the                                                               
Ms. Frasca  noted that  the proceeds from  bonds that  were sold,                                                               
and whose the debt service  was paid by the International Airport                                                               
Fund,  are  excluded  in  the  Capital  Budget.  Continuing,  she                                                               
pointed  out  that  the  Fund Code  list  includes  several  fund                                                               
sources  that would  continue into  the future.  Furthermore, she                                                               
stated that  the question  is how much  would they  increase from                                                               
one year  to the next. She  exampled that were a  new terminal to                                                               
open  within the  next four  years  and result  in a  significant                                                               
increase in revenue, it might "cause some concern."                                                                             
Co-Chair   Wilken  asked   regarding   the  Alaska   Aeronautical                                                               
Development Corporation (AADC), Fund  Code 1101, whose "budget is                                                               
characterized by  feast or famine"  in that it might  receive ten                                                               
million dollars one year and zero the next.                                                                                     
Ms.  Frasca responded  that AADC  funding  primarily consists  of                                                               
federal  receipts, which  are exempt  from the  limit. She  noted                                                               
that revenue  from such  things as  contracts with  private firms                                                               
for certain services would also be exempt.                                                                                      
Mr. Tangeman also  noted that these fund  sources reflect current                                                               
funding conditions.  He noted  that were  this legislation  to be                                                               
adopted,  more  in-depth  analysis  would  be  conducted  on  the                                                               
components of  each fund source  as he exampled that  included in                                                               
the AADC Fund  Code 1101 might be a combination  of revenues such                                                               
as private contract revenue.                                                                                                    
Co-Chair   Wilken  asked   whether  the   sale  of   State  land,                                                               
specifically  Fund Code  1153, would  count  against the  general                                                               
fund spending limitation.                                                                                                       
Ms. Frasca responded that currently  it would. However, she noted                                                               
that  the  proceeds  from  those  sales  would  normally  support                                                               
functions within the Department  of Natural Resources. Continuing                                                               
she noted  that general  fund dollars  have been  supplanted with                                                               
the  State land  proceeds. She  reiterated that  this legislation                                                               
addresses  how  funds  are  spent   rather  than  how  funds  are                                                               
Ms.  Frasca further  noted that  the  International Airport  Fund                                                               
Code  might  consist  of  contractual  relationship  between  the                                                               
airlines and  the airport, which  she reiterated would  be exempt                                                               
from the limit.                                                                                                                 
Senator Dyson  commented that this  is an informative list  as it                                                               
"really is the delta between the  numbers that we see and what we                                                               
generally think of as general fund."                                                                                            
Co-Chair Wilken asked  the identity of the Fund Cod  1180 A/D P&T                                                               
Fd as listed on the list.                                                                                                       
Ms. Frasca identified  it as the Alcohol and  Drug Prevention and                                                               
Treatment Fund.                                                                                                                 
Co-Chair Wilken  asked regarding  Fund Code  1168 Tob  ED/CES and                                                               
Fund Code 1170 SBED RLF.                                                                                                        
Ms. Frasca,  Mr. Schultz, and Committee  Members identified those                                                               
Fund Codes  as the Tobacco  Education and Cessation Fund  and the                                                               
Small Business Economic Development Revolving Loan Fund.                                                                        
Senator B.  Stevens asked  whether any  Fund codes  were excluded                                                               
from the list.                                                                                                                  
Mr.  Tangeman replied  that the  Fund codes  not included  in the                                                               
list would be  those of the university; those  that are federally                                                               
funded; trust funds; and approximately 15 dedicated fund codes.                                                                 
Ms.  Frasca  stated that  approximately  20  fund codes  not  are                                                               
Senator  B. Stevens  asked for  confirmation that  the fund  code                                                               
identified as 1179 PFC is the Permanent Fund Corporation.                                                                       
Ms. Frasca replied that this  Fund code pertains to the operation                                                               
of the Corporation itself.                                                                                                      
Senator  B.  Stevens  asked  for  further  information,  such  as                                                               
whether this Code  pertains to billable amounts or  is the result                                                               
of a formula distribution.                                                                                                      
Ms. Frasca responded that it is based on the budget.                                                                            
SFC 04 # 70, Side A 10:42 AM                                                                                                    
Senator B.  Stevens asked for specific  information regarding how                                                               
the amount was determined.                                                                                                      
Ms. Frasca  responded that  in terms  of the  Corporation itself,                                                               
the number  is based on  the budget approved by  the Legislature.                                                               
Continuing,  she  noted  that  this  item  might  be  related  to                                                               
management  fees of  the Permanent  Fund. She  noted that  were a                                                               
large amount  being invested, "there  is the potential for  it to                                                               
be  extraordinary."  This  situation, she  stated  might  require                                                               
Legislative action.                                                                                                             
Co-Chair Wilken  stated that staff  has informed him  that rather                                                               
than Fund Code 1179 pertaining  to the Permanent Fund Corporation                                                               
it pertains to Passenger Facility Charges.                                                                                      
Mr.  Tangeman  concurred  that  Fund   Code  1179  is,  in  fact,                                                               
Passenger Facility  Charges [PFC]  and that  Fund Codes  1041 and                                                               
1105,  which  are  not  included  on the  list,  pertain  to  the                                                               
Permanent Fund Corporation.                                                                                                     
Senator B.  Stevens asked whether the  Passenger Facility Charges                                                               
Fund Code is  a component of the Alaska Marine  Highway System or                                                               
the Department of Transportation and Public Facilities.                                                                         
TRACI  CARPENTER,  Staff to  Senator  Green,  responded that  the                                                               
Passenger Facility Charges are airport fees.                                                                                    
Senator B.  Stevens questioned  therefore, whether  the inclusion                                                               
of this Fund  in the Appropriation Limit  would negatively affect                                                               
the spending limit  were an increase in  international or tourism                                                               
travel  to occur  as a  result  "of success  in a  non-government                                                               
Ms. Frasca responded that that could occur.                                                                                     
Senator  B. Stevens  asked, therefore,  that the  PFC component's                                                               
inclusion in the Limit be  further reviewed. Continuing, he asked                                                               
whether   "encouraging  non-government   enterprise  to   utilize                                                               
renewable  resources,"  such as  the  Timber  Receipts Fund  Code                                                               
1155,  for  example,  could  have  the same  result  as  the  PFC                                                               
Mr. Tangeman concurred that it would.                                                                                           
Senator   B.  Stevens   voiced   the   understanding  that   this                                                               
legislation  is a  limit on  spending as  opposed to  a limit  on                                                               
revenue. However,  he voiced concern  regarding the  process were                                                               
an increase in  revenue to occur. He asked  for verification that                                                               
the  revenues   generated  from  various  Fund   Codes  would  be                                                               
deposited into the general fund.                                                                                                
Ms. Frasca  responded that while  the revenue would  be deposited                                                               
into the general fund, it  would be allocated to these designated                                                               
Receipt Funds, which have been established by the Legislature.                                                                  
Senator  B. Stevens  surmised therefore  that  these Fund  Source                                                               
Codes are  established to fund  such things as the  Department of                                                               
Natural Resources "or some other mechanism."                                                                                    
Ms. Frasca  affirmed. She stressed  that the challenge is  how to                                                               
place a  limit on how  much the  State could spend  regardless of                                                               
where  the  funds  generated.  She attested  that  "this  is  the                                                               
spending side of the equation."                                                                                                 
Senator  Dyson   reminded  that,  in  the   State's  "foreseeable                                                               
future,"  what  would be  diminished  were  a spending  limit  in                                                               
place, would be  the amount spent from  the Constitutional Budget                                                               
Reserve (CBR).  Continuing, he stated that  rather than "limiting                                                               
new business and  new enterprises and growth" in  the future this                                                               
legislation would limit the amount  of money that the State would                                                               
have "to  borrow … while  significantly increasing  our financial                                                               
stability and our wealth."                                                                                                      
Co-Chair Wilken  asked, for clarification, whether  an "available                                                               
annual growth"  increase of  one million dollars  from the  FY 05                                                               
level of  $12.4 million  to an  FY 06 level  of $13.4  million in                                                               
Fund  Code 1179  PFC  would  decrease the  overall  FY 06  amount                                                               
available for appropriation by the same amount.                                                                                 
Mr. Tangeman responded  that this scenario might  not be accurate                                                               
as he noted that  while the FY 05 base is  $3.25 billion, it does                                                               
not mean that the entire  amount would be appropriated. He stated                                                               
that were the actual appropriation to  be less and were the FY 06                                                               
appropriation to  be to the  limit, then  the affect would  be an                                                               
increase above the  FY 05 limit of $86 million.  He reminded that                                                               
the FY  06 amount  is based  on estimates  for FY  04 and  FY 05.                                                               
Therefore, he  declared that the  FY 06 number would  be affected                                                               
by how much was actually appropriated in FY 04 and FY 05.                                                                       
Co-Chair Wilken  advanced, therefore,  to the  FY 09  fiscal year                                                               
limit specified on  the aforementioned CS SJR 3  chart, and noted                                                               
that the information depicts that  $95 million would be available                                                               
in  FY 09.  Continuing, he  asked  whether a  one million  dollar                                                               
increase in the PFD Fund Code in  FY 09 would serve to reduce the                                                               
$95 million to $94 million.                                                                                                     
Mr. Tangeman asked that the question be further clarified.                                                                      
Co-Chair Wilken  clarified that  it has  been experienced  in the                                                               
past, that  when the  State received  a grant  or when  the State                                                               
"increased the  cost of providing government  service directly to                                                               
the provider,"  a problem  arose in "that  that counted  as State                                                               
spending" with  the result being  that the State was  required to                                                               
reduce  State spending  "somewhere else  in the  budget an  equal                                                               
amount." Therefore, he restated his  question by asking whether a                                                               
one million dollar  increase in the PFC Fund would  require a one                                                               
million dollar reduction somewhere else  in the budget such as in                                                               
K-12 education.                                                                                                                 
Mr. Tangeman  responded that were  the State's spending to  be at                                                               
the appropriation limit, yes.                                                                                                   
Co-Chair Wilken understood, therefore, that  were any of the Fund                                                               
Code components  that are  included in the  Limit to  increase, a                                                               
dollar for  dollar decrease in  the amount available to  spend in                                                               
that fiscal year would be required.                                                                                             
Ms. Frasca  responded that  the assumption  is that  were another                                                               
dollar  raised,  another dollar  could  be  spent by  a  program.                                                               
However,  she continued,  "the  challenge is  to  say that  these                                                               
activities  don't necessarily  have first  claim on  every dollar                                                               
that they  bring in. It  could be that  they also have  a general                                                               
fund  subsidy that  is supporting  the  program." Therefore,  she                                                               
stated, that general  fund subsidy dollar could  be replaced with                                                               
the  excess  money raised  by  the  Fund,  and the  general  fund                                                               
subsidy could be  used, for instance, to  support another program                                                               
such as K-12  education. That, she attested, is  the balance that                                                               
could be applied.                                                                                                               
Senator  Hoffman  stated,  "therein  lies  the  problem,"  as  he                                                               
exampled that were a Legislature's  majority party to not support                                                               
a certain department's budget, rather  than supporting one of the                                                               
department's  program   with  excess  money   the  aforementioned                                                               
scenario might  produce, whatever  is determined by  the majority                                                               
"to be  a priority  area" would  be the  area that  would receive                                                               
that additional funding. This he declared "is a key problem."                                                                   
Senator   Dyson  reiterated   that   for   the  four-years   this                                                               
legislation would be  in effect, the money that  would be reduced                                                               
is  the money  that  would  be withdrawn  from  the  CBR, and  in                                                               
addition, he stressed,  State debt would be  reduced. He declared                                                               
that both  he and Senator B.  Stevens desire that the  money that                                                               
has been  withdrawn from the  CBR should  be repaid in  order "to                                                               
rebuild that  bridge to the  future, and be promise  keepers." He                                                               
stressed that "the focus" should  be that any additional revenues                                                               
from these  Fund Code  sources should "be  going to  build fiscal                                                               
stability,  reduce  our  borrowing,   and  repay  our  Rainy  Day                                                               
accounts. " He declared that, "this  is very, very important to a                                                               
State that depends so much on  the sale of natural resources that                                                               
are sold on a world commodity market."                                                                                          
Senator Bunde  announced that this legislation  "would not result                                                               
in  a problem  that does  not  already exist,"  as a  Legislative                                                               
majority  could   increase  or  "attempt  to   control  spending"                                                               
regardless of whether a spending  limit were in effect. He stated                                                               
that  were  the  CBR  unavailable  then  more  control  might  be                                                               
exerted, based on "philosophical points of view."                                                                               
Senator  Hoffman responded  that "therein  lays the  argument for                                                               
having a spending limit."                                                                                                       
Senator Hoffman  asked how a one-time  emergency or extraordinary                                                               
circumstance would  be addressed  were this  legislation enacted,                                                               
as  he remarked  that  it is  unclear  whether the  appropriation                                                               
language    pertaining   to    emergencies   and    extraordinary                                                               
circumstances,  as identified  in Section  16, subsection  (2)(d)                                                               
and (e)  located on page  two, line  27 through page  three, line                                                               
five, would be considered a component of the base.                                                                              
Mr. Shultz pointed out that language  in Section 16, on page one,                                                               
lines six  through ten  "is meant  to indicate"  that emergencies                                                               
and  extraordinary   circumstances  would  be  exempt   from  the                                                               
establishment of  a base, and that  the base would be  the amount                                                               
appropriated the previous year.                                                                                                 
Senator  Hoffman asked  whether "the  substantial changes"  being                                                               
made  this year  to the  education budget  to address  the Public                                                               
Employees  Retirement System  (PERS) /Teachers  Retirement System                                                               
(TRS) and  the student base  foundation funding formula  would be                                                               
considered a component of the base  or would, on an annual basis,                                                               
be addressed as an extraordinary circumstance.                                                                                  
Mr.  Shultz responded  that were  the expenditure  to exceed  the                                                               
appropriation limit, then  it would be required  to be considered                                                               
as an extraordinary circumstance.                                                                                               
Co-Chair Wilken  referred to the  aforementioned chart  and asked                                                               
whether an approximate $50 million  dollar PERS/TRS obligation is                                                               
included in  the FY 06  appropriation limit of  approximately $86                                                               
million, as identified in Cell (f) (25) of the chart.                                                                           
Mr. Shultz responded that the  base year numbers would allow some                                                               
"headroom" for the PERS/TRS obligation for FY 06 and FY 07.                                                                     
Co-Chair Wilken noted that a  $50 million TRS obligation would be                                                               
expected for  several forthcoming fiscal years.  He asked whether                                                               
this has been accounted for in the chart.                                                                                       
Mr. Shultz responded in the  affirmative. He noted, however, that                                                               
the  FY  06 number,  rather  than  being  the actual  number,  is                                                               
elevated as it is based on an adjusted base year.                                                                               
Senator Bunde  moved to report  the committee substitute  for SJR
3,  Version  "Z,"  as amended,  from  Committee  with  individual                                                               
recommendations and accompanying fiscal notes.                                                                                  
Co-Chair Wilken objected for discussion.                                                                                        
Senator  Hoffman objected.  He characterized  the Legislature  as                                                               
being fugal,  as it has  not budgeted to an  established spending                                                               
limit in the past. Furthermore,  he stated that as priorities are                                                               
determined, the  Legislature would  budget accordingly.  While he                                                               
understood  that this  legislation  would  establish a  four-year                                                               
spending limit  that would  be reviewed;  he declared,  "that the                                                               
current system is working quite well." He removed his objection.                                                                
Co-Chair Wilken  stated that  an updated  chart and  a population                                                               
change analysis would be forthcoming  to accompany the bill as it                                                               
Senator Dyson voiced  that it would be useful to  have "a general                                                               
graph"  developed  to  reflect  how  current  spending  would  be                                                               
portrayed  were a  spending limit  in place.  He voiced  that the                                                               
graph should  start in the early  1970's in order to  reflect the                                                               
boom years the  State underwent with its oil  wealth. However, he                                                               
noted  that  this  suggestion has  been  characterized  as  being                                                               
difficult to produce.                                                                                                           
Co-Chair  Green  asserted  that this  chart  would  be  "woefully                                                               
difficult"  to  develop  as  every   piece  of  legislation  that                                                               
affected  the  budget  would require  analysis.  She,  therefore,                                                               
remarked that the current information is adequate.                                                                              
Co-Chair Wilken  remarked that this  request would  be considered                                                               
by Legislative Finance staff.                                                                                                   
Senator  Hoffman  recalled  that  when  the  State  had  a  large                                                               
quantity of  "extraordinary income,"  and a tremendous  amount of                                                               
money was available, most votes to use discretionary funds for                                                                  
such things, as capital projects were unanimous.                                                                                
Co-Chair Wilken removed his objection.                                                                                          
There being no further objection, CS SJR 3 (FIN) was REPORTED                                                                   
from Committee with a new $1,500 fiscal note from the Division                                                                  
of Elections, dated January 28, 2004.                                                                                           
[NOTE: SJR 3 was referred back to the Finance Committee on April                                                                
13, 2004. No further hearing on it was conducted.]                                                                              
Co-Chair Gary Wilken adjourned the meeting at 11:02 AM                                                                          

Document Name Date/Time Subjects