Legislature(2005 - 2006)SENATE FINANCE 532

04/13/2005 09:00 AM FINANCE

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Scheduled But Not Heard
Moved SJR 14 Out of Committee
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Scheduled But Not Heard
                     SENATE FINANCE COMMITTEE                                                                                 
                          April 13, 2005                                                                                      
                             9:06 a.m.                                                                                        
CALL TO ORDER                                                                                                               
Co-Chair Green convened the meeting at approximately 9:06:37 AM.                                                              
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice-Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Also Attending:   SENATOR  CHARLIE HUGGINS;  SENATOR RALPH  SEEKINS;                                                          
DEBBIE  GRUNDMANN, Staff  to Senator  Charlie  Huggins; STEVE  BOYD,                                                            
Alaska Chapter  of National Electrical Contractors  Association; ROB                                                            
BENTZ, Deputy  Director, Division of Sport Fish, Department  of Fish                                                            
and Game; GORDON GARCIA,  Department of Fish and Game; DOUG VINCENT-                                                            
LANG,  Assistant Director,  Division  of Sport  Fish, Department  of                                                            
Fish and Game;                                                                                                                  
Attending  via  Teleconference:    From  an  offnet  location:  MIKE                                                          
WILLIAMS,  Auditor,  Tax  Division,   Department  of  Revenue;  From                                                            
Fairbanks: BUKI WRIGHT, General Manager, Aurora Energy                                                                          
SUMMARY INFORMATION                                                                                                         
SJR 14-REPEAL FEDERAL ESTATE TAX                                                                                                
The Committee heard from  the sponsor, the Department of Revenue and                                                            
a union representative.  The resolution was reported from Committee.                                                            
SB 147-SPORT FISHING FACILITY REVENUE BONDS                                                                                     
The Committee  heard from  the sponsor, the  Department of  Fish and                                                            
Game and a power producing  company. The bill was held in Committee.                                                            
SB 158-MUNI TAX ON STATE CONSTRUCTION CONTRACTS                                                                                 
The  Committee  heard  from   the  sponsor,  the  City  of  Nome,  a                                                            
subcontractor and a union representative. The bill was held in                                                                  
SB  16-POWERS/DUTIES DOTPF/TRANSPORTATION PLAN                                                                                  
This bill was scheduled but not heard.                                                                                          
SB  70-CRIMES INVOLVING CONTROLLED SUBSTANCES                                                                                   
This bill was scheduled but not heard.                                                                                          
9:07:16 AM                                                                                                                    
     SENATE JOINT RESOLUTION NO. 14                                                                                             
     Urging  the United  States Congress  to amend  the tax code  to                                                            
     permanently  repeal the federal estate and generation-skipping                                                             
     transfer tax.                                                                                                              
This was the first hearing for this resolution in the Senate                                                                    
Finance Committee.                                                                                                              
DEBBIE GRUNDMANN, Staff for Senator Charlie Huggins, read testimony                                                             
into the record as follows.                                                                                                     
     Before  you is Senate Joint Resolution  14 - Urging  the United                                                            
     States  Congress to amend  the tax code  to permanently  repeal                                                            
     the federal estate and generation-skipping transfer tax.                                                                   
     The estate  of a deceased individual  is required to  pay a tax                                                            
     to  the federal  government commonly  known  as the death  tax.                                                            
     This tax is on assets  that have been previously taxed and then                                                            
     requiring  the survivors  to pay  taxes on  those assets  again                                                            
     through an  inheritance tax. In 2005 the top  tax is 47% with a                                                            
     1.5 million dollar exclusion.                                                                                              
     This is a tax that is                                                                                                      
          1. Bad on economic growth - disincentive to start small                                                               
          or family owned businesses, build a family farm or ranch                                                              
          with the goal of passing it on to your children.                                                                      
          2. May give little incentive to save and invest                                                                       
          3. This tax hurts families at a very fragile time.                                                                    
     In 2001  Congress enacted bipartisan  legislation to  phase out                                                            
     and eventually  repeal the death  tax until 2010. Therefore  in                                                            
     2010 the  estate tax is repealed;  however, it springs  back to                                                            
     life  in 2011 at  its old rate  of up to  55 percent and  at an                                                            
     exemption level of only $1 million.                                                                                        
     President Bush has  included the permanent repeal of the estate                                                            
     tax in  his Fiscal Year 2006  budget proposal. Legislation  has                                                            
     also been  introduced this year  in the US Senate and  US House                                                            
     to  permanently   repeal  the  estate  tax.  The  US  House  is                                                            
     scheduled  to  vote  on  permanent  repeal of  the  estate  tax                                                            
     legislation this week.                                                                                                     
     With passage  of this resolution  we will offer our  support to                                                            
     Congress  to act this  year ending this  tax on work,  savings,                                                            
     job creation  and the American dream. I encourage  your support                                                            
     of this legislation.                                                                                                       
9:09:22 AM                                                                                                                    
SENATOR  CHARILE HUGGINS  remarked this resolution  "falls  into the                                                            
'right thing to do' category."                                                                                                  
9:10:14 AM                                                                                                                    
Senator Stedman  supported this resolution,  although an  estate tax                                                            
should be levied  on multi-million dollar estates  to "slow down the                                                            
concentration  of wealth". He reminded of the situation  of the late                                                            
1800s and early  1900s when a few  families owned a majority  of the                                                            
wealth  in the  nation.  This  was the  reason  the estate  tax  was                                                            
implemented.  He supported increasing  the limit and abolishing  the                                                            
tax for  middle  income and  higher income  Alaskans.  He noted  the                                                            
value of farms,  fishing permits,  boats, small businesses  and real                                                            
estate is significant;  however a cap should be imposed  and the tax                                                            
should be implemented for  high value estates. Otherwise, the wealth                                                            
of  the nation  would  again  become  concentrated.  Some  extremely                                                            
wealthy  families, including  the  Bill Gates  family, have  brought                                                            
this concern forward.                                                                                                           
9:11:51 AM                                                                                                                    
Co-Chair  Green asked  if  the extremely  wealthy  families  support                                                            
paying an estate tax.                                                                                                           
9:11:55 AM                                                                                                                    
Senator  Stedman  understood  those families  oppose  the  permanent                                                            
exemption  of  all  residents  because  an  estate  of  hundreds  of                                                            
millions  of  dollars  or  billions  of  dollars  transferred   from                                                            
generation to  generation is a different issue than  the inheritance                                                            
of a family  business or property.  It is not good public  policy to                                                            
have  a few  people in  control  of the  majority  of the  country's                                                            
9:13:00 AM                                                                                                                    
Co-Chair  Wilken told  of the difficulties  in paying  taxes  on the                                                            
estates  of  his late  parents.  He  must carry  life  insurance  to                                                            
prevent his heirs from  having to liquidate his assets to pay estate                                                            
taxes. He did  not oppose estate taxes  on significant estates,  but                                                            
opposed the tax on middle class estates.                                                                                        
9:16:10 AM                                                                                                                    
Co-Chair Wilken  recalled a similar resolution was  before the State                                                            
Senate a few  years prior, which did  not pass because the  question                                                            
was raised  about the  impact of  this repeal  on the State  general                                                            
fund.  No answer  was provided  at  that time.  He  again posed  the                                                            
9:16:31 AM                                                                                                                    
Ms. Grundmann responded  that the permanent repeal of the estate tax                                                            
would have zero fiscal impact on the State general fund.                                                                        
9:16:57 AM                                                                                                                    
MIKE  WILLIAMS,  Auditor,  Tax  Division,   Department  of  Revenue,                                                            
testified via teleconference  from an offnet location to affirm that                                                            
the  current federal  structure  provides  that  there  would be  no                                                            
fiscal impact on the state of Alaska.                                                                                           
9:18:13 AM                                                                                                                    
Senator  Stedman  noted the  limited  time  allowable  for heirs  to                                                            
procure the  funds necessary  to pay the  estate tax. Many  families                                                            
are forced to sell off assets to raise money for this tax.                                                                      
9:19:10 AM                                                                                                                    
Senator Huggins gave an  example of the state of Nebraska, where his                                                            
wife was  raised. A  number of the  small farms  in that state  have                                                            
been passed down  to family members over many generations.  Often in                                                            
these instances, acreage  must be sold off to pay the estate tax and                                                            
the  farm becomes  smaller.  This  is not  conducive  to  successful                                                            
family farming.                                                                                                                 
9:20:35 AM                                                                                                                    
Senator Olson  understood that taxes  have been paid on investments                                                             
and other earnings.  However, he cautioned  against allowing  "super                                                            
monopolies"  from controlling the  nation's wealth. He exampled  the                                                            
Carnegie  and Rockefeller  families, which  controlled the  nation's                                                            
economy  until estate  taxes  were created  and other  actions  were                                                            
9:21:43 AM                                                                                                                    
Senator  Huggins remarked  that those families  have many  attorneys                                                            
structuring their assets  in such a manner as to avoid estate taxes.                                                            
The  impact on  these  families  is minimal.  The  average  American                                                            
families however are not protected.                                                                                             
9:23:10 AM                                                                                                                    
Senator Dyson  appreciated this resolution.  The federal  government                                                            
has  enacted  anti-trust  legislation  to  prohibit  monopolies.  He                                                            
opposed the concept that  government should limit a family's ability                                                            
to become rich.                                                                                                                 
9:24:11 AM                                                                                                                    
STEVE  BOYD,  Alaska  Chapter  of National  Electrical  Contractors                                                             
Association, testified  that this resolution represents the position                                                            
the union has  held for many years.  He told of the hardship  of the                                                            
estate tax on second and third generation-owned businesses.                                                                     
9:25:21 AM                                                                                                                    
Co-Chair  Green pointed  out that  the US Congress  is debating  the                                                            
matter this week.                                                                                                               
9:25:35 AM                                                                                                                    
Senator Bunde supported the bill.                                                                                               
9:25:54 AM                                                                                                                    
Co-Chair  Wilken offered a  motion to report  SJR 14 from  Committee                                                            
with individual recommendations and accompanying fiscal note.                                                                   
Without objection SJR 14  MOVED from Committee with zero fiscal note                                                            
#1 from the Department of Revenue.                                                                                              
AT EASE 9:27:03 AM/9:31:48 AM                                                                                               
9:31:50 AM                                                                                                                    
     SENATE BILL NO. 158                                                                                                        
     "An Act prohibiting  the imposition of municipal  sales and use                                                            
     taxes   on   state    construction   contracts    and   certain                                                            
     subcontracts; and providing for an effective date."                                                                        
This was the first hearing for this bill in the Senate Finance                                                                  
DEBBIE GRUNDMAN, Staff to Senator Charlie Huggins, read testimony                                                               
into the record as follows.                                                                                                     
     During  the course  of business  in the last  couple of  years,                                                            
     subcontractors  in the construction industry,  who work in some                                                            
     areas  of the state have experience  negative financial  impact                                                            
     due  to the imposition  of local  sales taxes  on State  DOT/PT                                                            
     funded projects.                                                                                                           
     These taxes have been  assessed on the value of the subcontract                                                            
     - we are not talking about the                                                                                             
          1. purchase of incidental materials,                                                                                  
          2. renting of equipment,                                                                                              
          3. purchasing food or lodging                                                                                         
     Those  items would be  taxed. Again, we  are talking about  the                                                            
     construction contract or subcontract.                                                                                      
     1. The State  cannot afford to have an increase  in the cost of                                                            
     construction projects  due to the levying of sales taxes on the                                                            
     State construction  contracts and subcontracts awarded directly                                                            
     in connection  with the project  funded under the construction                                                             
     2. While  all municipalities do not assess this  sales tax, and                                                            
     many municipalities  DO have tax caps - the policy  needs to be                                                            
     consistent statewide.                                                                                                      
     Example:  In  one  instance,  on  a  Nome  Airport  Project,  a                                                            
     construction  contract  was awarded to  Quality Asphalt  Paving                                                            
     (QAP).  QAP and  Diamond Electric  entered  into a subcontract                                                             
     directly  in  connection  with  the project  funded  under  the                                                            
     construction  contract.  Dimond Electric  was assessed  a sales                                                            
     tax  of over $20,000  on the value of  their subcontract.  This                                                            
     tax was unexpected and not considered in their bid.                                                                        
     SB 158 will prohibit  the imposition of municipal sales and use                                                            
     tax on  State construction contracts  and certain subcontracts                                                             
     and remedy the inequity that exists.                                                                                       
Co-Chair  Green ordered the  bill HELD in  Committee until  later in                                                            
the meeting.                                                                                                                    
9:34:26 AM                                                                                                                    
     SENATE BILL NO. 147                                                                                                        
     "An  Act providing for  a sport fishing  facility surcharge  on                                                            
     sport  fishing licenses;  providing  for the  construction  and                                                            
     renovation  of state  sport fishing  facilities  and for  other                                                            
     projects  beneficial to the sport  fish resources of  the state                                                            
     as  a  public  enterprise;  and  authorizing  the  issuance  of                                                            
     revenue bonds to finance those projects."                                                                                  
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
SENATOR RALPH SEEKINS,  sponsor of the bill, testified to the desire                                                            
to catch  fish  while sport  fishing and  the practice  of  stocking                                                            
water bodies  with fish  species for this  purpose. Formally,  three                                                            
hatcheries  supplied fish  for sport fish  activities; however,  the                                                            
Clear  Hatchery was  closed  and likely  another  would close  soon.                                                            
Population has  increased in the Interior region,  particularly with                                                            
the  expansion of  the  military bases.  Some  areas  of the  State,                                                            
primarily in Southcentral  and Interior Alaska, are  facing a crisis                                                            
in providing the necessary biomass for sport fishing activities.                                                                
Senator Seekins detailed  the process of certain Fairbanks residents                                                            
to consider  options  to increase  the  biomass.  The Aurora  Energy                                                            
power plant is situated  along the Chena River and discharges heated                                                            
water into the  river. This heat could be captured  and utilized for                                                            
a hatchery.  Interested parties began  contacting State and  federal                                                            
agencies and US  Senator Ted Stevens to request assistance.  Senator                                                            
Stevens secured  $10 million for the construction  of a new hatchery                                                            
facility located in Fairbanks, near the power plant.                                                                            
Senator Seekins  reported that no  statewide plan exists  to address                                                            
sport fishing hatchery  needs. The proposed Fairbanks facility would                                                            
have the capability of meeting statewide needs.                                                                                 
Senator Seekins  opined that the new  facility would be "not  cheap,                                                            
but affordable."  Federal  funds and  receipts from  a revenue  bond                                                            
package  would  be  utilized.  The  bond  would  be  repaid  from  a                                                            
"moderate  fisheries   enhancement  fee"  added   to  the  price  of                                                            
recreational  fishing licenses.  The  cost of the  license would  be                                                            
comparable  to that of  licenses in other  states, especially  given                                                            
the  better  assurance  of  a  successful  catch.  He  detailed  the                                                            
consideration  of the proposed fee amount and stated  that $8.50 per                                                            
license would be adequate  to repay the bond. Once the bond is paid,                                                            
the fee would be eliminated.                                                                                                    
Senator Seekins  stated this proposal  should alleviate the  current                                                            
shortages,  sustain the need  for 20 to 25  years, and be useful  in                                                            
planning for the  future. Before a new hatchery could  be completed,                                                            
the  biomass  would  be reduced  and  short-term  impacts  would  be                                                            
Senator  Seekins cautioned  that taking  no action  would delay  the                                                            
replacement of  the biomass. He stressed the intent  this program be                                                            
a "statewide  concept". Other  efforts to  enhance sport fishing  in                                                            
Southeast Alaska are under review.                                                                                              
9:41:56 AM                                                                                                                    
Senator Hoffman  questioned the assertion  that this is a  statewide                                                            
problem, as shortages were  not occurring in Southwestern Alaska and                                                            
the Bristol  Bay area. He  asked how this  legislation would  affect                                                            
residents of Southwestern Alaska.                                                                                               
9:42:25 AM                                                                                                                    
Senator Seekins  replied that  residents would  have the ability  to                                                            
stock lakes  and areas  in Southwestern Alaska.  He understood  this                                                            
area  currently  has "world  class"  fisheries;  however,  increased                                                            
demand on the resources would reduce the wild fish stocks.                                                                      
9:43:06 AM                                                                                                                    
Senator Hoffman asked who  would determine the allocation of the new                                                            
9:43:17 AM                                                                                                                    
Senator  Seekins answered  that the  Division of  Sport Fish  in the                                                            
Department  of  Fish and  Game  would administer  the  program.  The                                                            
Department  is  "very  excited   to  be able   to use  enhancement"                                                             
9:43:39 AM                                                                                                                    
ROB BENTZ,  Deputy Director, Division  of Sport Fish, Department  of                                                            
Fish and Game,  outlined the annual process of updating  a five-year                                                            
stocking  plan. This  plan  details the  fish species  allocated  to                                                            
certain lakes  and rivers. He told  of the public process  involving                                                            
local  fish   and  game  advisory   committees  and  sport   fishing                                                            
9:44:42 AM                                                                                                                    
Senator  Hoffman  asked  if the  infrastructure  for  operation  and                                                            
maintenance  of the new facility and  this program are in  place. If                                                            
not, he asked  whether funds for these efforts are  included in this                                                            
9:45:10 AM                                                                                                                    
Senator  Seekins responded  that funds  for infrastructure  are  not                                                            
included  in this  bill. The  bonds  are intended  for construction                                                             
costs only. He stated that  funds for operation and maintenance "are                                                            
there". He spoke  about the current practice in which  hatchery fish                                                            
are flown into areas to be stocked.                                                                                             
9:45:49 AM                                                                                                                    
Senator Hoffman  pointed out that  this legislation would  impose an                                                            
additional  $8.50  charge  for all  sport  fishing licenses  in  the                                                            
State. The  largest concentration  of sport fishing activity  occurs                                                            
in Southcentral  Alaska and  fishers in that  area would  contribute                                                            
the largest  share to this  endeavor. He  wanted to understand  what                                                            
benefit these fishers would receive.                                                                                            
9:46:41 AM                                                                                                                    
Senator Seekins  responded that as demand increases  and enhancement                                                            
is needed,  supplies would  be made available.  The majority  of the                                                            
funds would  be generated from nonresident  licenses, most  of which                                                            
are sold in the  Interior, Southcentral and Southeastern  Alaska. In                                                            
some respects,  anglers in  Southeast may not  benefit as much  from                                                            
this bond issue  as they would from  "some of the other commitments                                                             
that we've  made to be able to help  them enhance their fisheries."                                                             
9:47:35 AM                                                                                                                    
Senator Hoffman  requested a detail of the locations  throughout the                                                            
State  in which  sport fishing  licenses  are utilized.  This  would                                                            
demonstrate who would be  paying the additional fee and the benefits                                                            
they would receive.                                                                                                             
9:48:14 AM                                                                                                                    
Senator Seekins  did not have the  information. He opined  that most                                                            
Alaskans consider the State  as a "statewide organization", although                                                            
some would receive more benefits than others.                                                                                   
9:48:37 AM                                                                                                                    
Senator Hoffman requested this information.                                                                                     
9:48:47 AM                                                                                                                    
Mr. Bentz did not have  a detail of license sales by region. Twenty-                                                            
five percent  of sport  fishing  licenses are  sold in Southeastern                                                             
Alaska  and   the  majority  of  the   licenses  are  sold   in  the                                                            
Southcentral   region.  Large  areas  of  Southwestern   Alaska  are                                                            
designated  as  subsistence  areas where  rod  and reel  fishing  is                                                            
prohibited.  Sport fishing licenses  are not required to  fish these                                                            
areas   and  many   area  residents   do  not   purchase   licenses.                                                            
Nonresidents  would  pay  most  of  the  fees  generated  from  this                                                            
enhancement fee.                                                                                                                
Mr.  Bentz continued  that  this program  would benefit  areas  that                                                            
currently  are not stocked  with fish. Approximately  20 percent  of                                                            
the Sport Fish Division  spending is done in stocked areas. When the                                                            
number  of fish  declines in  a stocked  area, those  anglers  begin                                                            
fishing other  areas, i.e. areas with wild stocks.  Most wild stocks                                                            
are either fully  allocated or an increased harvest  would result in                                                            
stricter regulations.                                                                                                           
9:51:07 AM                                                                                                                    
Senator  Hoffman   requested  information  on  sport   fish  license                                                            
purchases delineated by postal zip code.                                                                                        
9:51:29 AM                                                                                                                    
Mr. Bentz indicated he would provide the information.                                                                           
9:51:34 AM                                                                                                                    
Co-Chair  Wilken  asked  the  percent of  sport  fish  licenses  are                                                            
nonresident licenses.                                                                                                           
9:51:54 AM                                                                                                                    
Senator  Seekins  listed  the  categories   of license  purchasers:                                                             
115,000 resident  sport fishing, which contributes  approximately $1                                                            
million annually;  44,000 resident sport fishing and  hunting; 6,000                                                            
sport fishing,  hunting  and trapping; 4,200  nonresident  military,                                                            
110,000 nonresident  one-day  sport fishing,  and etc. He cited  the                                                            
fiscal  note  for  additional   information.  Residents   would  pay                                                            
approximately $1.4 million  and nonresidents would pay approximately                                                            
$5.1 million for this surcharge.                                                                                                
9:53:16 AM                                                                                                                    
Senator Bunde  recalled research he  conducted eight years  prior on                                                            
the statewide  distribution  of residents  who purchase hunting  and                                                            
fishing  licenses.  He discovered  that  less  than one  percent  of                                                            
residents  living  in  unorganized  areas   purchased  licenses.  He                                                            
therefore concluded  that this legislation would not  likely concern                                                            
those rural residents.                                                                                                          
9:54:11 AM                                                                                                                    
Co-Chair  Wilken calculated  that nonresident  anglers would  pay 82                                                            
percent of this bond obligation.                                                                                                
Senator Seekins affirmed.                                                                                                       
9:54:34 AM                                                                                                                    
Senator Stedman  surmised the proposed  rate structure burden  would                                                            
"fall" on nonresident anglers.                                                                                                  
Senator Stedman  understood  that as more  visitors fish in  certain                                                            
concentrated  areas,  such  as near  Fairbanks,  wild  stocks  would                                                            
diminish to a  point that the area would be closed  to fishing until                                                            
restocking could done.                                                                                                          
9:55:35 AM                                                                                                                    
Senator  Seekins asserted  this is  already occurring,  noting  some                                                            
areas are limited to catch and release fishing.                                                                                 
9:55:44 AM                                                                                                                    
Senator  Stedman  expressed  concern  about  the  proposed  hatchery                                                            
construction. He surmised  that a privately managed nonprofit agency                                                            
operating  a hatchery  would be more  viable than  a State  operated                                                            
system.   He  asked   about  an   analysis  to   determine   whether                                                            
reactivation  of  a  "non-utilized"  or  "under-utilized"   hatchery                                                            
should  be done  with fish  stock shipped  to various  locations  as                                                            
9:56:51 AM                                                                                                                    
Senator Seekins  told of a clear distinction between  production for                                                            
sport fisheries  and commercial fisheries  that involve "turf  wars"                                                            
and  different   constituencies  served.   The  two  should   remain                                                            
separated for targeted markets.                                                                                                 
9:58:32 AM                                                                                                                    
Mr.  Bentz  was not  involved  in  portions  of  analysis  involving                                                            
underutilized hatcheries.  There are major differences between sport                                                            
fish hatcheries  and private nonprofit  hatcheries. Sport  fisheries                                                            
hatcheries must retain  brood stock to be raised on an annual basis,                                                            
which is not done  in commercial fisheries hatcheries.  Each species                                                            
must have separate waters with separate temperatures, etc.                                                                      
9:59:52 AM                                                                                                                    
Senator Olson  asked the origins of  the brood stock for  commercial                                                            
9:59:55 AM                                                                                                                    
Mr. Bentz  replied  that the  brood stock  is taken  each year  from                                                            
returning salmon.                                                                                                               
10:00:05 AM                                                                                                                   
Senator  Stedman assumed  the Department  has  contacted  hatcheries                                                            
currently in operation  on this matter and that none  have expressed                                                            
interest in participating in this program.                                                                                      
10:00:47 AM                                                                                                                   
Senator Seekins  did not consult with  existing hatcheries.  Central                                                            
locations   were  considered  to   meet  the  biomass  demand.   The                                                            
Department  already has control  of two  sport fisheries  hatcheries                                                            
and a municipal  government is "eager" to help provide  property for                                                            
location of a third hatchery facility.                                                                                          
10:01:16 AM                                                                                                                   
Senator Stedman  remarked on the prudence  of the Finance  Committee                                                            
to secure a  cost analysis on this  project before tens of  millions                                                            
of dollars are spend. If  the need is identified, the project should                                                            
commence, but not before research confirms this need.                                                                           
10:01:48 AM                                                                                                                   
Senator  Stedman expressed  concerns  about implementation  of  this                                                            
program.  He understood  efforts to  revitalize  areas of  Fairbanks                                                            
were planned and  that this hatchery would be integrated  into those                                                            
plans.   He  asked   if   the   proposed   facility  would   be   an                                                            
"industrialized  fish growing plant", or an "architectural  complex"                                                            
that would attract visitors.                                                                                                    
10:02:58 AM                                                                                                                   
Senator  Seekins had  heard rumors  that the hatchery  would  be the                                                            
"kingpin to development".  He produced a map [copy  on provided] and                                                            
pointed to the  location of the proposed hatchery  near Pioneer Park                                                            
and the Carlson  Center. He detailed the municipality  mayor's plans                                                            
for  improving  and   developing  this  area  with  better   access,                                                            
condominiums,  etc. The primary  reason this  location was  selected                                                            
was proximity to the Aurora  Power Plant. The project has received a                                                            
commitment  from  the power  company  to  provide  hot water  for  a                                                            
minimum of 15 years.                                                                                                            
Senator Seekins  stated the hatchery would have a  visitor component                                                            
as well  as an education  component  for the  University of  Alaska,                                                            
which  would be  constructed  with federal  funds.  The facility  is                                                            
meant to be  a functioning building,  although somewhat attractive.                                                             
The proposed hatchery  is not the cornerstone to future  development                                                            
of the area, but rather a functioning hatchery with good access.                                                                
10:06:30 AM                                                                                                                   
Senator Stedman  did not  disagree with the  concept of integrating                                                             
tourism with the hatchery,  although stressed the greater importance                                                            
to integrate  the hatchery activities  with education. He  asked for                                                            
further  explanation   of  the  heated  water  issue,   noting  that                                                            
hatcheries  located  in  Southeast   Alaska  did  not  change  water                                                            
10:07:30 AM                                                                                                                   
Senator Seekins responded that fish "grow faster" in warm water.                                                                
10:07:40 AM                                                                                                                   
Senator Stedman  surmised that hot water is therefore  necessary for                                                            
hatchery activities.                                                                                                            
10:08:01 AM                                                                                                                   
Senator Seekins indicated  the location of the power plant along the                                                            
Chena River  on the  aforementioned  map. The river  water near  the                                                            
power plant  does not freeze  in the winter,  given the BTUs  of the                                                            
water discharged from the  plant. The hatchery would utilize the hot                                                            
water  otherwise cycled  back into  the river,  thus alleviating  an                                                            
environmental issue.                                                                                                            
10:08:56 AM                                                                                                                   
Senator Stedman  assumed the commitment for the supply  of hot water                                                            
was less than an actual guarantee.                                                                                              
10:09:11 AM                                                                                                                   
Senator  Seekins replied  that  Usibelli Coal  Mine  owns the  power                                                            
plant and has given a 15-year commitment.                                                                                       
10:09:28 AM                                                                                                                   
Senator  Stedman commented  that,  generally  speaking, commitments                                                             
should  be tied to  the life  expectancy  of the bonds  and debt  of                                                            
10:09:56 AM                                                                                                                   
Senator Seekins distributed  a letter from Aurora Energy, indicating                                                            
this commitment [copy on file].                                                                                                 
10:10:19 AM                                                                                                                   
BUKI WRIGHT, General  Manager, Aurora Energy Company,  testified via                                                            
teleconference  from Fairbanks about the process of  utilizing water                                                            
from the Chena River to  cool the plant systems. Some of the heat is                                                            
returned  to  the  river,  although  the  temperature   increase  is                                                            
approximately  55 degrees and not  significant. This excess  heat is                                                            
not suitable  for hot water heating  systems, but would be  suitable                                                            
for hatchery  operations. The water  would be made available  to the                                                            
hatchery  "almost free".  He clarified  that Aurora  Energy did  not                                                            
intend to incur  the costs of installing,  operating or maintaining                                                             
the  pipes. The  hatchery  would  require  additional  heat for  the                                                            
offices and  other public areas, which  the company would  supply at                                                            
the usual assessed  rate. That expense  would be a moderate  portion                                                            
of the total operating costs of the hatchery.                                                                                   
Mr. Wright reported that  the power plant has been in operation many                                                            
years and  would continue  much longer.  The company  has plans  for                                                            
business expansion.  If this legislation is passed  and the hatchery                                                            
is constructed,  Aurora  Energy intends  to enter  into a  long-term                                                            
contract  to provide  the  heated  water. The  minimum  term of  the                                                            
contract would be 15 years, although the terms could be longer.                                                                 
10:14:25 AM                                                                                                                   
Senator Seekins  reported this would result in an  annual savings of                                                            
approximately $750,000.                                                                                                         
10:14:44 AM                                                                                                                   
Senator  Stedman understood  that the residents  of Fairbanks  would                                                            
continue to require electricity  and therefore the power plant would                                                            
likely continue to operate.                                                                                                     
Senator  Stedman repeated  that the  Committee  should undertake  an                                                            
analysis  of   existing  infrastructure   to  determine   how  these                                                            
facilities are inferior to a new facility.                                                                                      
10:15:31 AM                                                                                                                   
Senator  Seekins responded  that  in communicating  with  Department                                                            
representatives,  he learned  that the available  infrastructure  is                                                            
not adequate to produce the sport fishery stocks.                                                                               
10:16:15 AM                                                                                                                   
Co-Chair Wilken  spoke to the timing of this project.  Utilizing the                                                            
aforementioned  map, he  told of a  major upgrade  to a road  system                                                            
near the  proposed facility.  The intent is  to lay the water  pipes                                                            
necessary for  the hatchery operation at the time  the road is under                                                            
construction.  This  digging  is planned  for  the  upcoming  summer                                                            
season. Therefore, this legislation should not be delayed.                                                                      
10:17:36 AM                                                                                                                   
GORDON GARCIA,  Department of Fish and Game, addressed  the issue of                                                            
whether  existing  hatcheries   could  perform  this  function.  The                                                            
Department   reviewed  the  conditions   of  other  facilities   and                                                            
determined  that  the complexities  of  the different  fish  species                                                            
necessary  for sport  fishing  activities  require  that a  specific                                                            
hatchery  be constructed.  Commercial fisheries  hatcheries  produce                                                            
andronomous  fish. However,  in dispersing  fish  across the  State,                                                            
water quality  is important.  The intent is  to construct a  "bullet                                                            
proof" facility  to raise  a range of fish  species for planting  in                                                            
over 400 lakes and rivers.                                                                                                      
10:19:32 AM                                                                                                                   
Senator  Stedman  countered  the  witness'  testimony  differs  from                                                            
information he has received from hatchery operators.                                                                            
Senator Stedman  wanted to  know the architectural  elements  of the                                                            
proposed  Fairbanks  hatchery.  He  understood  the  feasibility  of                                                            
installing   water  pipes  at  a   time  when  the  road   is  under                                                            
construction.  He  did  not  support  re-digging  and  re-paving  of                                                            
streets. However,  the matter is larger  than the road construction                                                             
10:20:51 AM                                                                                                                   
Senator Seekins  informed that  he has invested  five years  to this                                                            
project,  starting before  he became a legislature.  He worked  with                                                            
the Department  of  Fish and Game,  the Fairbanks  municipality  and                                                            
user groups to develop  a plan that did not "overstep" the "peoples'                                                            
money" to produce biomass.  He has never seen a project with greater                                                            
community support  than this. People  identify the need,  especially                                                            
with  an  expanded  military  presence.   Those  people  spend  time                                                            
enjoying  outdoor activities.   This proposal  is intended  to reach                                                            
the  broadest  number  of  people  possible  in the  State  with  an                                                            
enhanced fisheries  program. The people  who harvest the  fish would                                                            
pay for  the project. Further  delay would  ensure the demand  would                                                            
not be met.                                                                                                                     
10:23:41 AM                                                                                                                   
Senator   Hoffman  commented   he  should   probably  support   this                                                            
legislation  because  it  would  limit  fishing  pressure  in  rural                                                            
Alaska. The Anchorage  hatchery is expected to cost  $45 million and                                                            
generate approximately  $6.4 million in fish, $4 million  of that in                                                            
salmon  and the proposed  Fairbanks  hatchery is  expected cost  $25                                                            
million and  produce less  than one-third of  a million dollars.  He                                                            
questioned  the economics.  There is nothing  "mystical or  magical"                                                            
about  hatcheries.  They utilize  incubators  and  other  equipment.                                                            
Existing hatcheries  should be considered.  He requested  additional                                                            
information   about   retrofitting   existing    hatcheries   versus                                                            
constructing new facilities.                                                                                                    
10:26:32 AM                                                                                                                   
DOUG  VINCENT-LANG,  Assistant  Director,  Division of  Sport  Fish,                                                            
Department  of Fish and Game, testified  that hatcheries  located in                                                            
Southeast  Alaska could be  used for stocking  waters in  Southeast,                                                            
but  would not  be  viable for  Southcentral  and  Interior  Alaska.                                                            
Building  new facilities in  Anchorage and  Fairbanks would  be most                                                            
cost effective.                                                                                                                 
10:27:47 AM                                                                                                                   
Senator  Olson asked the  field source  of the  power that would  be                                                            
provided to the Fairbanks facility.                                                                                             
10:27:58 AM                                                                                                                   
Mr. Wright  responded that  coal from the  Usibelli Mine is  used to                                                            
fuel the power plant.                                                                                                           
10:28:08 AM                                                                                                                   
Senator Olson  asked the impact to the power plant  of a natural gas                                                            
supply provided to the community.                                                                                               
Mr. Wright  replied that natural gas  would likely be used  for some                                                            
uses such  as space heat.  However, switching  from coal to  natural                                                            
gas would not be economical  for other power uses in the short term.                                                            
10:29:33 AM                                                                                                                   
Senator Olson asked how  the hatchery would operate if the hot water                                                            
were not supplied from the power plant.                                                                                         
10:29:40 AM                                                                                                                   
Senator Seekins  responded that boilers would be needed  to heat the                                                            
10:29:50 AM                                                                                                                   
Co-Chair Wilken  asserted that "nobody is contemplating  taking down                                                            
Chena five power", Fairbanks' major power source.                                                                               
10:30:11 AM                                                                                                                   
Mr. Wright affirmed  and reported that Aurora Power  has a long-term                                                            
contract with  Golden Valley Electric Association  and provides heat                                                            
to  almost  every building  located  in  downtown  Fairbanks.  Those                                                            
buildings have no other heat source method.                                                                                     
10:30:50 AM                                                                                                                   
Senator  Olson asked  about the ability  to air  transport fish  fry                                                            
across the State.                                                                                                               
10:31:06 AM                                                                                                                   
Senator Seekins had seen it done in roadless areas.                                                                             
10:31:22 AM                                                                                                                   
Senator  Olson asked  if successful  air  transport  is possible  to                                                            
locations in Western Alaska.                                                                                                    
10:31:39 AM                                                                                                                   
Mr. Garcia  replied that the Department  has "fish flying  down to a                                                            
science"  and  that  it is  possible  to  transport  fish  fry  over                                                            
distances. The issue is cost.                                                                                                   
10:32:09 AM                                                                                                                   
Mr. Vincent-Lang  reiterated  that stocking  of areas is  determined                                                            
based on a five year stocking  plan with a public process. If a need                                                            
is identified  in  a certain  area, the  public has  the ability  to                                                            
petition for inclusion in the plan.                                                                                             
10:32:56 AM                                                                                                                   
Senator  Olson asked the  plan in  the event disease  was to  become                                                            
rampant in  an area, possibly through  the introduction of  Canadian                                                            
10:33:33 AM                                                                                                                   
Mr. Vincent-Lang  responded  that  the Department  could do  nothing                                                            
about  fish from  Canada introducing  diseases.  The Department  has                                                            
invasive  species policies  and  efforts would  be  made to  prevent                                                            
disease from  entering the  system or stop  if from spreading  if it                                                            
did occur. The  Department stocking policy dictates  that stock fish                                                            
are disease free and are  raised from local areas. For example, fish                                                            
would not be taken  from waters in Southeast Alaska  and transferred                                                            
to Southwestern waters.                                                                                                         
10:34:43 AM                                                                                                                   
Senator Bunde shared that  he has caught hatchery fish. If this bill                                                            
were  before the  Committee  and proposed  utilizing  State  general                                                            
funds  to  construct  the  new facilities,   he would  join  in  the                                                            
scrutiny  and  likely  vote  against  its  passage.   However,  this                                                            
legislation provides  that the program would be user  paid. Although                                                            
all  who  purchase   a  sport  fishing   license  in  Alaska   would                                                            
contribute,  the majority of residents  who purchase a license  live                                                            
along the Alaska Railbelt and would be direct beneficiaries.                                                                    
10:37:29 AM                                                                                                                   
Senator  Hoffman emphasized  the intent  that this  program be  user                                                            
paid.  While general  funds  would  not be  utilized,  he could  not                                                            
identify  the benefit to  Western Alaska  residents required  to pay                                                            
the additional  charge.  He then  asked the  percentage of  hatchery                                                            
Coho salmon  that would be  caught by commercial  fishers who  would                                                            
not pay this fee.                                                                                                               
10:38:34 AM                                                                                                                   
Senator Hoffman  contended that salmon  from the Anchorage  hatchery                                                            
must  go  to  sea  then  return  to  area  rivers  and  streams.  He                                                            
understood  that the  king salmon  would likely  be caught by  sport                                                            
fishers, but  again asked the percentage  of Coho salmon  that would                                                            
be caught in commercial fisheries.                                                                                              
10:39:22 AM                                                                                                                   
Mr. Vincent-Lang  responded that hatchery  fish are tagged.  In past                                                            
surveys it  has been determined  that 85 to  90 percent of  hatchery                                                            
salmon are  caught by sport  fishers, with  the remainder caught  by                                                            
commercial fishers.                                                                                                             
10:39:57 AM                                                                                                                   
Senator Hoffman  concluded  that the catchers  of 15 percent  of the                                                            
hatchery fish are not paying anything to this program.                                                                          
10:40:42 AM                                                                                                                   
Senator Bunde clarified he is not necessarily against this bill.                                                                
10:41:18 AM                                                                                                                   
Senator Stedman  announced intent to review the funding  "mechanism"                                                            
further.  He  qualified  that he  does  not oppose  the  concept  of                                                            
hatchery  sport fish  activities  and that  part of  the program  is                                                            
located in Senate District A, which he represents.                                                                              
Co-Chair Green ordered the bill HELD in Committee.                                                                              
10:42:02 AM                                                                                                                   
     SENATE BILL NO. 158                                                                                                        
     "An Act prohibiting the imposition of municipal sales and use                                                              
     taxes on state construction contracts and certain                                                                          
     subcontracts; and providing for an effective date."                                                                        
This bill was heard earlier in the meeting.                                                                                     
STEVE BOYD, Alaska Chapter of National Electrical Contractors                                                                   
Association read his testimony into the record as follows.                                                                      
     We feel  that the scope of the  State projects logically  links                                                            
     the  subcontractors  to the  general contractor  and  therefore                                                            
     subcontract  values should be exempt from local  taxes. Bids on                                                            
     projects are generally  solicited from a general contractor for                                                            
     a   total  project   including  subcontractor   work  and   the                                                            
     coordination   of  their  work   thereof.  Subcontractors   can                                                            
     therefore   only  work  for   the  State  via  this   "conduit"                                                            
     established  by  the  State  and  the  general  contractor  and                                                            
     language  that binds  the subcontractor  to  the State as  much                                                            
     like the general contractor is bound to the State.                                                                         
     It  has come  to our attention  that subcontractors  have  been                                                            
     charged  local sales taxes and  in particular the City  of Nome                                                            
     assessed   Diamond   Electric  ($20,000),   Alaska   Industrial                                                            
     Insulation  and Fireproofing($6,100),   Midnight Sun  Services,                                                            
     Northland Tile, Arctic  Striping and Premier Construction on an                                                            
     airport  project  in  Nome,  While  AirTek  from  Soldotna  was                                                            
     assessed  a tax  of $1,800  by  the City  of Sand  Point on  an                                                            
     airport project.                                                                                                           
     This is not  just an electrical contractor issue,  but one that                                                            
     impacts any  subcontractor. For example a painting  contractor…                                                            
     Negative  financial impact to  the State. For example  a tax of                                                            
     $20,000 assessed on  a subcontractor would probably result in a                                                            
     mark-up  of, for discussion  sake, of  ten percent, or  $22,000                                                            
     included  in the bid to the general  contractor, which  perhaps                                                            
     marks  up the value of the subcontract  by ten percent,  so the                                                            
     State would see $24,200 increase in project cost.                                                                          
     As  an  industry  association  it  is  our  goal  to  create  a                                                            
     consistent  and equitable practice statewide  so everyone knows                                                            
     the rules.  This is why we are here today after  evaluating the                                                            
     steps   the  contractor  took   in  seeking  relief.   We  feel                                                            
     clarification  of the statute would be in the  best interest of                                                            
     the State and our industry.                                                                                                
10:45:51 AM                                                                                                                   
Senator Olson asked the amount of the subcontract with Diamond                                                                  
Mr. Boyd replied the amount was approximately $419,000.                                                                         
10:46:26 AM                                                                                                                   
SENATOR  HUGGINS,  sponsor  of  the  bill  told  of  three  elements                                                            
instigating  this  legislation.  The  first was  the  experience  of                                                            
Diamond Electric  and others in Nome.  It was determined  that State                                                            
agencies had  no established guidelines  to address the taxation  of                                                            
subcontractors  in  Alaskan  communities.  Secondly,  this  practice                                                            
created  an "unstable, cloudy  business  environment". Finally,  the                                                            
practice "wasn't  right." In talking with parties  across the State,                                                            
this was agreed upon.                                                                                                           
Senator Huggins read an  e-mail message addressed to the director of                                                            
the  Alaska Municipal  League  demonstrating  this was  not "just  a                                                            
community that  stumbled on an isolated  practice" and would  expand                                                            
to  other  communities  if  allowed   to  continue.  He  noted  that                                                            
identifying information is omitted.                                                                                             
     "I think  most communities that use as their  legal firm, [name                                                            
     of  firm],   have  a  policy  of  collecting   sales  tax  from                                                            
     subcontractors  doing business  in the community regardless  of                                                            
     the funding source."                                                                                                       
Senator  Huggins restated  the communication  that communities  that                                                            
are clients  of certain legal  firms would  adopt this taxation  and                                                            
the practice would spread.                                                                                                      
10:48:37 AM                                                                                                                   
Co-Chair Green asked the number of communities already involved.                                                                
Senator Huggins  told of at least three. Each community  is a client                                                            
of the unnamed legal firm.                                                                                                      
10:48:57 AM                                                                                                                   
Co-Chair  Green asked if  this practice continues  whether  it would                                                            
impact the State capital budget.                                                                                                
Senator Huggins answered  "absolutely" and noted the State currently                                                            
has appropriated  approximately  $500 million  for capital  projects                                                            
and an  assessment of five  percent for subcontract  taxes  added to                                                            
this amount would be "staggering".  He added that the taxation would                                                            
be assessed  at the local  sales tax rate,  and the amount  could be                                                            
10:49:30 AM                                                                                                                   
Co-Chair  Green asked if  the community that  has chosen to  do this                                                            
did so to offset the loss of other funds.                                                                                       
10:49:42 AM                                                                                                                   
Senator Huggins replied that the rational varies.                                                                               
10:50:02 AM                                                                                                                   
Senator Olson  asserted that the Murkowski  Administration  supports                                                            
local control and local  self-funding. The practice outlined in this                                                            
legislation  has occurred  for  a number  of years  and cities  have                                                            
established a history of such; he knew of other projects.                                                                       
10:51:05 AM                                                                                                                   
Co-Chair Green  remarked that the Committee should  be aware of this                                                            
practice in drafting the annual capital budget.                                                                                 
10:51:13 AM                                                                                                                   
Senator Huggins  noted the difficulty  in that the City of  Nome has                                                            
been very inconsistent  in applying  this local tax. This  creates a                                                            
"sketchy business environment."                                                                                                 
10:51:41 AM                                                                                                                   
Senator Bunde  commented that he appreciated local  control. However                                                            
in some areas, local support  is defined in "spending other peoples'                                                            
money"  in  lieu  of local  contributions.   He  characterized  this                                                            
practice as  "double dipping" in that  a community secures  a State-                                                            
funded  improvement,  then attempts  to  receive funding  from  that                                                            
10:52:43 AM                                                                                                                   
Senator Hoffman  commented on the  need for uniformity. This  matter                                                            
was brought  forward by a  subcontractor unaware  of the sales  tax.                                                            
The  practice  of  other  communities   should  be  reviewed  and  a                                                            
determination should be  made whether those communities assess a tax                                                            
on  subcontractor   activities   or  provide   an  exemption.   Many                                                            
contractors  operate  in small  communities  in which  they are  not                                                            
based.  The community  must accommodate  for  these activities,  for                                                            
example through  the repair and maintenance of roads  damaged by the                                                            
use of heavy equipment.                                                                                                         
10:54:42 AM                                                                                                                   
Senator  Huggins   agreed  that  the  issue  is  uniformity.   Other                                                            
communities do not tax subcontractors.                                                                                          
10:55:06 AM                                                                                                                   
Co-Chair Green  understood that subcontractor employees  would pay a                                                            
sales tax on goods purchased in the community.                                                                                  
Senator Huggins affirmed.                                                                                                       
10:55:21 AM                                                                                                                   
DAVID LANTZ, Owner and  General Manager, Diamond Electric, testified                                                            
via teleconference  from Anchorage, that halfway through  completion                                                            
of the project,  the City of Nome notified the subcontractor  of the                                                            
sales tax that would be  levied. The amount of the tax was therefore                                                            
not  included  in  the  bid.  This  tax is  a  retail  tax  and  the                                                            
subcontract  was not a retail  purchase. He  attempted to work  with                                                            
the  City  to  rectify  the  situation  and  also  hired  attorneys;                                                            
however, the  company was eventually  presented with a tax  lien and                                                            
was forced  to pay the tax. The tax  and attorney fees totaled  over                                                            
$30,000.  He noted the company  and workers  also paid sales  tax on                                                            
groceries, housing,  concrete and rental of equipment.  As a result,                                                            
the company was  double-taxed on almost 25 percent  of the contract.                                                            
10:58:06 AM                                                                                                                   
Senator  Olson asked  if the  company purchased  a  permit or  other                                                            
licenses from the City.                                                                                                         
Mr. Lantz answered the company did not.                                                                                         
10:58:41 AM                                                                                                                   
DENISE MICHELS,  Mayor, City of Nome,  testified via teleconference                                                             
from Nome in opposition  to the bill. The City views  this sales tax                                                            
as an  option  to generate  local revenue.  The  City increased  its                                                            
sales  tax  to  offset  increased  costs   of  insurance  and  other                                                            
expenses. Unlike  other communities, Nome does not  have a large tax                                                            
base.  Subcontractors   utilize  City  services,  including   roads,                                                            
ambulances  and police, who arrest  workers acting unruly.  This tax                                                            
is fair to  the City of Nome. She  informed she is a contractor  and                                                            
understands  the need to  ensure that all  fees are known;  this tax                                                            
should not have been a surprise for Diamond Electric.                                                                           
11:01:34 AM                                                                                                                   
Senator  Huggins  spoke highly  of Mayor  Michels.  Senator  Huggins                                                            
explained   that  the  Department   of  Transportation  and   Public                                                            
Facilities  imposes  an  administration   fee  on  capital  projects                                                            
because it  must provide staff to  oversee the project. The  City of                                                            
Nome  should  benefit from  the  influx  of subcontractors   through                                                            
revenue generated from hotels, restaurants, etc.                                                                                
Co-Chair Green ordered the bill HELD in Committee.                                                                              
Co-Chair Green adjourned the meeting at 11:03 AM                                                                                

Document Name Date/Time Subjects