Legislature(1993 - 1994)
03/10/1994 03:35 PM Senate TRA
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE TRANSPORTATION COMMITTEE
March 10, 1994
3:35 p.m.
MEMBERS PRESENT
Senator Bert Sharp, Chair
Senator Randy Phillips, Vice Chair
Senator Tim Kelly
Senator Jay Kerttula
Senator Georgianna Lincoln
MEMBERS ABSENT
All Members Present
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 61(FIN) am
"An Act relating to the offense of operating a commercial motor
vehicle while intoxicated and the offense of operating a motor
vehicle, aircraft, or watercraft while intoxicated; relating to
presumptions arising from the amount of alcohol in a person's
breath or blood; relating to chemical testing of a person's breath;
and providing for an effective date."
SENATE BILL NO. 327
"An Act amending the motor fuel tax to establish a different tax
levy on residual fuel oil used in and on watercraft; and providing
for an effective date."
PREVIOUS SENATE COMMITTEE ACTION
HB 61 - No previous senate committee action.
SB 327 - No previous senate committee action.
WITNESS REGISTER
Representative Jim Nordlund
State Capitol, Juneau, AK 99801-1182¶465-4968
POSITION STATEMENT: prime sponsor of HB 61
Margot Knuth, Assistant Attorney General
Criminal Division
Department of Law
P.O. Box 110300, Juneau, AK 99811-0300¶465-3428
POSITION STATEMENT: in favor of HB 61
Juanita Hensley, Chief, Driver Services
Division of Motor Vehicles
Department of Public Safety
P.O. Box 20020, Juneau, AK 99811-0020¶465-4335
POSITION STATEMENT: testified on HB 61
Larry J. Hackenmiller
Alaska Cabaret, Hotel, and Restaurant Retailers
518 Farmer's Loop Road, Fairbanks, AK 99712¶457-1327
POSITION STATEMENT: opposed to HB 61
Rick Solie, Aide
Senate Finance Committee
State Capitol, Juneau, AK 99801-1182¶465-3709
POSITION STATEMENT: prime sponsor of SB 327
Senator Suzanne Little
State Capitol, Juneau, AK 99801-1182¶465-2828
POSITION STATEMENT: in favor of SB 327
James Burns, Senior Vice President of Marketing
Petro Marine Services
3111 C St., Anchorage, AK 99503¶562-5000 or 345-4145
POSITION STATEMENT: in favor of SB 327
Gene Burden
Tesoro Alaska
3230 C St., Anchorage, AK 99503¶561-5521
POSITION STATEMENT: in favor of SB 327
Chris Gates, Director
Division of Economic Development
Department of Commerce & Economic Development
P.O. Box 110804, Juneau, AK 99811-0804¶465-2017
POSITION STATEMENT: in favor of SB 327
Robert Erickson
Teamsters Local 959
306 Willoughby Ave., Juneau, AK 99801¶586-3225
POSITION STATEMENT: in favor of SB 327
Larry Meyers, Director
Income & Excise Audit Division
Department of Revenue
P.O. Box 110420, Juneau, AK 99811-0420¶465-2320
POSITION STATEMENT: testified on SB 327
ACTION NARRATIVE
TAPE 94-8, SIDE A
Number 001
CHAIRMAN SHARP calls the Senate Transportation Committee meeting to
order at 3:35 p.m.
Number 018
CHAIRMAN SHARP brings up HB 61 (LOWER ALCOHOL LIMIT TO 0.08 FOR
OMVI'S) as the first order of business before the committee. The
chairman calls the prime sponsor to testify.
Number 034
REPRESENTATIVE NORDLUND thanks the chairman and the committee for
scheduling HB 61. The representative states HB 61 would lower the
blood alcohol limit by which a person is considered legally drunk
to drive. HB 61 would lower that limit from 0.10 to 0.08. Most
experts agree that driving at 0.08 blood alcohol level and above,
is a level at which a person is significantly impaired.
Number 078
REPRESENTATIVE NORDLUND cites statistics on accidents and blood
alcohol levels from information in the committee bill file.
Representative Nordlund states he has been known to have a few
drinks, and he knows there is no way someone who has had five
drinks in the space of an hour should be allowed to get behind the
wheel of an automobile. He states his objective in HB 61 is not to
encourage people to quit drinking, but to make sure that if people
do drink, they do not get behind the wheel of an automobile and
compromise the safety of others and themselves.
REPRESENTATIVE NORDLUND states as of 1993, ten states have passed
0.08 blood alcohol level laws. All European countries have a legal
limit at 0.08 or less. Three-year-average statistics from
California, Utah, Oregon, and Maine, states which have 0.08 blood
alcohol level limit, indicate that there are 15.5% fewer
fatalities, while the arrest rate for Driving While Intoxicated
(DWI) only went up about 4%. Representative Nordlund notes that
names of organizations which support HB 61 and studies that support
HB 61 are named in his sponsor statement for HB 61.
Number 114
CHAIRMAN SHARP thanks Representative Nordlund for his testimony and
asks if there are any questions for the representative. Hearing
none, the chairman calls Margot Knuth from the Department of Law to
testify.
Number 122
MARGOT KNUTH, Assistant Attorney General, Department of Law (LAW),
Criminal Division, states the department supports HB 61. Ms. Knuth
states there is no crime that kills more people in Alaska than
drunk driving. She thinks this legislation will have better and
more consequences for the State of Alaska than many other bills
that are being considered.
MS. KNUTH states that one of the legal aspects the Department of
Law is up against is that anyone with a prior conviction for DWI
from a state with 0.08 blood alcohol level, cannot have that
conviction counted as a previous conviction in Alaska. The courts
of the State of Alaska have ruled that a conviction from a 0.08
state, even if the person was found to have a blood alcohol level
of 0.15 for that conviction, is substantially dissimilar from
Alaska's law governing DWI offenses. So anyone with a record of
convictions for DWI from any of the states, such as Oregon,
California and the others, get treated as a first offender under
Alaska law. Ms. Knuth states that is inappropriate. This is an
instance where parity with other states is needed.
Most of those arrested for DWI are at about .10 blood alcohol
level. There are not a lot of people pulled over who are at .07 or
even .08. But if a person is very close to 0.10, it becomes worth
it for the defendant to go to trial and contest the charge. By
dropping to a 0.08 level, many people at 0.10 will plead out,
rather than going to trial.
MS. KNUTH states the Department of Law does not expect to see very
many more arrests, but they do expect to see more convictions as a
result of HB 61.
Number 163
SENATOR LINCOLN asks Ms. Knuth how many people plead out with a
0.10.
MS. KNUTH says she does not have that information with her, but she
could get back to Senator Lincoln with the answer. She does not
know how many DWI cases there are statewide, and how many are
prosecuted by troopers rather than by municipalities. Ms. Knuth
points out that the City & Borough of Juneau (CBJ) is looking at
passing an ordinance instituting 0.08 blood alcohol level law. She
believes it is better not to have two different standards, one at
the state level and one at the local level.
Number 176
SENATOR LINCOLN asks if Ms. Knuth has statistics showing the number
of people who are stopped for DWI whose blood alcohol level is
between 0.08 and 0.10.
MS. KNUTH replies the Department of Public Safety (DPS) has those
statistics.
Number 183
CHAIRMAN SHARP says he has read of instances where a person went to
trial, was not convicted of DWI, but still had their license
suspended under administrative revocation procedures. He asks Ms.
Knuth if administrative revocation is proper in those
circumstances.
MS. KNUTH responds DPS may do better in answering that question,
but she believes in instances of administrative revocation, the
person whose license is revoked has an opportunity to contest that
revocation. If the person whose license is suspended forgoes that
opportunity, there may be no recourse.
Number 201
CHAIRMAN SHARP thanks Ms. Knuth for her testimony and calls Juanita
Hensley from the Division of Motor Vehicles.
Number 204
JUANITA HENSLEY, Chief, Driver's Services, Division of Motor
Vehicles (DMV), Department of Public Safety (DPS) states DPS
supports HB 61 and feels it is a tragedy to lose lives as the
result of drunken driving. To answer Senator Lincoln's question,
DPS uses an intoximeter 3000 is used to determine the blood alcohol
level in a person's blood. Ms. Hensley states she has been advised
from the State Crime Lab that there was a total of 174 breath tests
given in 1993 that resulted in a level of 0.08 to 0.099. Unless
those individuals were in an accident which resulted in aggravating
injuries, they are not charged with DWI.
Number 222
SENATOR LINCOLN asks why the DPS fiscal note is zero.
MS. HENSLEY states the fiscal note is zero because HB 61 is not an
enforcement bill, so DPS does not anticipate very many additional
arrests due to the legislation. DPS does plan to apply for federal
highway safety grants for public education.
Number 234
SENATOR LINCOLN asks Ms. Hensley to clarify that there would not be
additional expense in arresting persons with a blood alcohol level
between 0.08 and 0.099.
MS. HENSLEY replies that in 1993 there were in excess of 5,500
arrests for DWI statewide, and she does not see the small number of
people with blood alcohol levels between 0.08 and 0.099 having much
of a fiscal impact on the department. Of the arrests made for DWI,
approximately 4,000 of those arrests were made by municipal police
departments. DPS does not feel that the approximately 173 persons
with a blood alcohol level between 0.08 and 0.099 would have much
of a fiscal impact on the department.
Number 259
CHAIRMAN SHARP asks what the purpose of section 4 is in HB 61.
Number 275
MS. HENSLEY replies section 4 would set the legal blood alcohol
level at 0.04 for commercial drivers and at 0.08 for all other
drivers. Right now, a person can be charged with DWI at a 0.05
level if they are in an accident involving serious injury to
someone. Section 4 would also reduce this level to 0.04.
CHAIRMAN SHARP thanks Ms. Hensley for her testimony and calls Mr.
Hackenmiller to testify.
Number 377
LARRY HACKENMILLER, Alaska Cabaret, Hotel, and Restaurant
Retailer's Association (CHARR) says he is from Fairbanks, where he
owns a tavern. Mr. Hackenmiller states he has some statistical
data which was not taken into consideration regarding HB 61. Mr.
Hackenmiller submitted a letter to the committee which he wrote to
the editor of the Fairbanks newspaper in April of 1993. He cites
information from this letter. Mr. Hackenmiller believes the state
should look at improving other aspects of highway safety, not just
lowering the allowable blood alcohol content (BAC). The experts
Mr. Hackenmiller has talked to state lowering the BAC will have no
bearing at all on highway safety.
MR. HACKENMILLER states 79% of the fatalities on highways involve
a person who has a BAC level over 0.15. Half the people involved
in fatal accidents have a BAC level of 0.20. We should deal with
these offenders. The state also needs to enhance enforcement for
speeding, failure to yield, and so on.
Number 364
SENATOR LINCOLN asks how the lowering of the allowable BAC will
affect restaurants and bars. Will employees have to be trained to
recognize the difference between a 0.10 BAC and a 0.08 BAC? Will
bars and restaurants be legally liable for patrons driving.
Number 377
MR. HACKENMILLER replies that title 4 indicates that bars and
restaurants cannot serve a visibly intoxicated person. The BAC
level is not applicable with regards to 0.08 or 0.10. In server
training, servers are taught to recognize the various stages of
drinking and intoxication. Mr. Hackenmiller says his bar no longer
takes the keys from intoxicated persons to keep them from driving:
it is that persons responsibility to not drive if they are
intoxicated. However, his bar will call the cops if an intoxicated
person intends to drive. Mr. Hackenmiller says he bought his bar
at about the same time MADD (Mothers Against Drunk Drivers) was
being organized, and he is a supporter of MADD.
MR. HACKENMILLER says the state needs to address the problem of
repeat offenders of DWI, and they need to address offenders whose
BAC is over 0.15. Those offenders are the ones who are going to
kill people.
Number 395
REPRESENTATIVE NORDLUND states perhaps he can help answer some of
Senator Lincoln's questions. There was a section of HB 61 that was
adopted on the house floor that would prevent the results from the
intoximeter or any sort of other breathalyzer tests from being used
as evidence in civil litigation against a bar or restaurant. Right
now, if a person tests at over 0.10 on a test, it can be used in
evidence in civil litigation against a bar or restaurant. HB 61
would disallow that linkage.
REPRESENTATIVE NORDLUND says, in response to several of Mr.
Hackenmiller's statements, that there are a number of things we can
do to make our roads safer, and he is correct that the bulk of the
DWI problem is caused by people who are over 0.15 BAC. We can
attack this problem from both ends, however. If you have had five
drinks in one hour, you are impaired and should not be operating a
motor vehicle. This is a modest step to set the BAC at a correct
limit. 0.10 is too high.
Number 416
CHAIRMAN SHARP thanks Mr. Hackenmiller and Representative Nordlund
and asks if anyone else wishes to testify. The chairman asks if
there is anyone in the room from the Public Defenders Office. The
chairman asks if there is anyone in the room from the Department of
Corrections.
Apparently, there is no one in the room from either the Public
Defenders Office or the Department of Corrections.
REPRESENTATIVE NORDLUND states he is not prepared to talk about the
Public Defenders fiscal notes.
CHAIRMAN SHARP says the Senate Finance Committee can address the
bill's fiscal notes when the bill reaches that committee.
Number 427
REPRESENTATIVE NORDLUND mentions that HB 61 will enable the state
to take advantage of some federal highway safety planning funds.
Passage of HB 61 will enable the state to capture more federal
funds.
Number 432
CHAIRMAN SHARP says the fiscal notes he has in front of him appear
to total about 225,000 dollars.
Number 434
SENATOR RANDY PHILLIPS says there are general fund receipts which
would pay for part of the cost of the fiscal notes.
Number 442
MS. HENSLEY says, for the state to keep 192,000 dollars in federal
alcohol incentive grants, a 0.08 BAC law must be passed within
three years. With the passage of HB 61 the state will get an
additional 5% grant. This money will be available for a three to
eight year period. This money would pay for alcohol server
training, administrative hearing officer training, overtime for
holiday alcohol programs, education, and enforcement.
Number 462
SENATOR LINCOLN asks Ms. Hensley to clarify that the state would
receive 200,000 dollars each year for eight years if HB 61 is
passed and how much the total cost of HB 61 would be to the state.
MS. HENSLEY replies there would be no cost to the state.
SENATOR LINCOLN says her concern is that there will be additional
DWI offenders having to wait to serve their sentences. She asks if
the state will have to build an additional facility to serve these
offenders. The senator states she is solidly in favor of keeping
people from driving while intoxicated, but asks if there is a way
to perhaps prevent people from driving while intoxicated.
Number 483
MS. HENSLEY states that a bill passed in 1993 that helped the
Department of Corrections by specifying that a DWI offender has to
pay for their time in jail. The fee paid can be up to 1,000
dollars. In addition, the time served does not have to be served
in a prison, but can be served in a halfway house.
Number 493
CHAIRMAN SHARP asks if there are any other questions and what the
pleasure of the committee is.
Number 496
SENATOR RANDY PHILLIPS makes a motion to release HB 61 from the
Senate Transportation Committee with individual recommendations.
Senator Phillips notes that he would like the Senate Finance
Committee to pay particular attention to the fiscal notes from the
Public Defenders Office and the Department of Corrections.
Number 502
CHAIRMAN SHARP, hearing objection from Senator Kelly, orders a role
call vote on whether to release HB 61 from committee with
individual recommendations.
The vote was taken and the motion passes by three yeas, one nay,
and one absent. Voting in favor of releasing HB 61 from the Senate
Transportation Committee are Senators Sharp, Phillips, and
Kerttula. Voting against releasing HB 61 from committee is Senator
Kelly. Senator Lincoln is absent.
SENATOR RANDY PHILLIPS, after hearing the secretary announce the
vote, makes an off-hand, disparaging remark about the committee
secretary being able to count.
Number 518
CHAIRMAN SHARP brings up SB 327 (TAX ON RESIDUAL MARINE FUEL OIL)
as the next order of business before the Senate Transportation
Committee. The chairman calls the first witness.
Number 522
RICK SOLIE, Aide, Senate Finance Committee, prime sponsor of SB 327
thanks the committee for hearing the bill. Mr. Solie states the
Finance Committee introduced SB 327 to try to create an industry
where currently one does not exist. We hope to make this a
treasury neutral bill by increasing residual fuel sales. This bill
will create jobs through the marketing and sale of this fuel, in
addition to refinery jobs. Mr. Solie says he would be happy to
take questions.
CHAIRMAN SHARP asks if there are any questions. Hearing none, he
calls Senator Little to testify.
Number 537
SENATOR LITTLE states SB 327 relates to bunker fuel, the residual,
thick stuff that is left over after refining. Cruise ships use
this type of fuel, and changing the tax rate on this fuel could
open the market up for possible sales to cruise ships coming into
Seward. Over 90 cruise ships will dock in Seward this summer, and
they all currently purchase their fuel from Vancouver, B.C. The
cruise ships have expressed an interest in purchasing their fuel in
Alaska.
SENATOR LITTLE says there are many incentives for the passage of SB
327. Not only will refueling in Seward require the cruise ships to
remain in Seward longer, but it will also create an industry in
transporting the fuel from the refinery to storage in Seward. It
is anticipated that ten to twenty jobs will be created if SB 327 is
passed. It is definitely a case where the tax policy dictates the
market.
SENATOR LITTLE states the proposed committee substitute (cs) before
the committee would change the bill in two ways to allow a revenue
neutral or a revenue positive situation. Those two changes are the
lessening of the tax reduction from 1 cent to 1.5 cents and the
restriction that the reduction of the tax would apply only to
passenger vessels. Senator Little states she would be happy to
take questions.
Number 565
CHAIRMAN SHARP asks if there are any questions.
SENATOR RANDY PHILLIPS states SB 327 is basically a tax reduction.
CHAIRMAN SHARP calls James Burns to testify.
Number 568
JAMES BURNS, Senior Vice President of Marketing, Petro Marine
Services (PMS) says there is not a facility in the state to handle
residual fuel. The fuel has to be handled carefully. If stored
below 90 degrees fahrenheit, it solidifies. Princess Tours asked
us if we would sell them residual fuel. We told them we would need
to sell a certain amount of residual fuel to amortize our
investment over a three-year period. Princess Tours agreed to
that, so PMS spent about 500,000 dollars on a pumping system and a
computer system. PMS completely re-did the pipes under the Alaska
Railroad dock. We signed a two-year contract with Princess Tours
and hired two additional dock workers. In addition, Weaver
Brothers purchased two trucks and hired four drivers last summer.
The treasury received 205,000 dollars revenue. Mr. Burns states
residual fuel is a product that is difficult to handle. He does
not think it is a product anyone would volunteer to sell in the
state of Alaska.
SENATOR KERTTULA asks what residual fuel is typically used for.
MR. BURNS replies it is typically used in cruise ships, tankers,
and cargo vessels for propulsion fuel. This product was sold in
Alaska prior to 1972. The only instances in which this fuel is
sold in the state currently, is on Princess Tours' ships, Tesoro's
vessels, or if a freighter has an emergency fuel need.
MR. BURNS says the impact to the state of SB 327, is to some
degree, based on his figures. His figures are based on meetings
with four of the cruise ship operators...
TAPE 94-8, SIDE B
Number 594
...they have expressed interest in buying additional fuel in Seward
if PMS is close in price to Vancouver. Mr. Burns states he cannot
give a definition on what is "close", but he will get to that if he
can establish a framework where the tax is reduced to a livable
point. No other state taxes residual fuel at all. Vancouver does
put a sales tax on a portion of the sale. Mr. Burns says his
selling price in Seward is about 40 cents per gallon. Vancouver's
selling price is about 34 cents per gallon. Mr. Burns shows the
committee some graphs he has prepared.
Number 580
SENATOR RANDY PHILLIPS asks if the figures Mr. Burns is referring
to are in Canadian or U.S. funds.
MR. BURNS responds his numbers are in U.S funds.
MR. BURNS continues to explain the graphs he is showing the
committee. Mr. Burns states the tax change in SB 327 would bring
PMS's price close to Vancouver's price. PMS's fuel is a better
quality fuel than the cruise ship companies get anywhere else. In
fact, a cruise ship operator in Florida is encouraging PMS to sell
fuel in Florida. Mr. Burns says he has no chance of entering the
market without this tax reduction.
Number 564
SENATOR KELLY asks if Mr. Burns could make up the difference in
price between PMS's price and Vancouver's price by simply cutting
PMS's price by 13%.
Number 562
MR. BURNS says if there was a way to reduce PMS's costs, he could
cut the price charged for residual fuel.
Number 552
SENATOR KELLY does not think the 5 cent per gallon tax is not the
only reason PMS's price is not competitive with Vancouver.
Number 551
MR. BURNS states his major costs are his environmental
considerations, the cost of the improvements PMS's has made,
trucking costs, and the wholesale price of the fuel.
SENATOR KELLY asks if Tesoro couldn't drop their wholesale price to
make this project work. Senator Kelly asks what Tesoro's position
on that would be.
Number 544
GENE BURDEN, Tesoro Alaska, testifying from Anchorage replies
Tesoro had hoped that the tax reduction would apply to all vessels
using residual fuel. The value that Tesoro receives on residual
fuel is very low. It ranges as low, and sometimes lower than 50%
of what Tesoro pays for the crude oil. Tesoro cannot sell the fuel
at a lower price. Tesoro exports 98.5% of the residual fuel that
it manufactures. The remaining 1.5% is used in Tesoro's tankers,
with the exception of the 80,000 barrels sold to Petro Marine
Services.
Number 524
SENATOR KELLY asks if the 205,000 dollars the state received in
taxes on residual fuel was just from PMS. (Someone in the audience
answers "Yes".) Senator Kelly asks what the sales tax in Vancouver
is.
MR. BURNS responds it is 7%.
SENATOR KELLY says if Alaska reduces its' tax, what is to keep
Vancouver from reducing their tax.
MR. BURNS replies the market place is always going to be dynamic,
and he cannot control that. He can only reiterate what the cruise
ships have told him: that if PMS is close in price to Vancouver,
they will consider Seward as their bunker port. If they view
Seward as their primary bunker port, there are other sales, namely
marine diesel, which would net additional revenue for the state.
Number 509
SENATOR LITTLE adds that SB 327 would sunset in five years, which
may allay some of the concerns being expressed.
Number 506
SENATOR KELLY states his initial concern is the loss of 200,000
dollars to the state treasury this year. If he felt confident that
this tax reduction would create a new industry, and bring in other
taxes, then he would not be concerned. But he is not convinced
this will happen. He has read the letters of support, and they are
all pretty vague. There are no commitments to buy fuel in Seward
if we pass this legislation. There are other factors involved that
would enable PMS to get to a lower price than just reducing this
tax. If Sitka also sells fuel under this legislation, then these
cruise ships might not need fuel when they reach Seward.
Number 486
MR. BURNS says his feasibility study involves cruise ships that go
to Seward. There are many other ships that go to Sitka, but do not
go to Seward. Holland America has made a commitment to extend
their time in Sitka by three or four hours to refuel. The
estimated volume in Sitka is 15 million to 18 million gallons.
That will only occur if the tax can be lowered.
MR. BURNS states Los Angeles was the third largest bunker port in
the world, next to Singapore and Rotterdam. After an 8.25% tax was
imposed, LA fell to 22nd in the world. California then removed the
tax, but the market in LA has never rebounded. The market is very,
very sensitive to tax policy. Once the tax is lowered, there are
other issues we can use to encourage the cruise ships to fuel in
Seward. The quality of our fuel is better than Vancouver's. Also,
the cruise industry will make a big deal of the fact that they're
supporting an Alaskan industry. Mr. Burns states that no one can
guarantee anything. He is just asking to have the chance to try.
Number 456
SENATOR KELLY states he thinks Seward is doing a lot of good
things, and he supports Sea-Wally World; he thinks Seward is a
perfect tourism location. It is right on the sea with a connection
to the Alaska Railroad, and he likes what they are trying to do,
but he would feel a lot more comfortable if the state did not stand
to lose 200,000 dollars. Why can't we work out an incentive deal,
whereby the state maintains 200,000 a year, but PMS keeps anything
above that.
SENATOR RANDY PHILLIPS says he has the same concerns, and Senator
Kelly is simply expressing them better than he could.
SENATOR KELLY says it is not just the 200,000 dollars, but is also
a matter of principal. If, in these times of declining oil
revenues, we start giving back taxes, in order to make things more
competitive, that argument could be made for every tax there is.
Number 436
SENATOR LITTLE states the Department of Revenue said it would cost
too much to figure two different tax rates on residual fuel.
CHAIRMAN SHARP says the committee will hear from a representative
of the Department of Revenue later.
Number 430
MR. BURNS states he is willing to be creative to find a solution.
Number 424
CHRIS GATES, Director, Division of Economic Development, Department
of Commerce & Economic Development (DCED) says DCED has been
working on this issue for about eight months and has been trying
hard to come up with some creative solutions to create a market,
and yet at the same time not hurt the state's revenues. Mr. Gates
is testifying primarily to inform the committee how important SB
327 is to Sitka. It is hoped this will help mitigate the affects
of the Alaska Pulp Company's (APC) closure in Sitka. This is one
of the items on the agenda to try to create a new industry in
Sitka. This will also keep tourists in Sitka longer. This is an
important source of local revenue and local sales tax revenue. SB
327 would mean possibly 15 to 12 jobs.
MR. GATES states there are major refinery changes occurring in
Vancouver. One refinery is shutting down, and another one will
possibly also shut down. He would like to see Alaska begin
positioning itself to serve as a major refueling port. There also
will be added passenger and crew spending in communities where
refueling occurs.
MR. GATES makes a point that the air quality problems that are
occurring in Juneau as a result of the stack emissions from the
Princess Lines will be diminished as a result of burning Tesoro's
residual fuel. So there is also a small air quality benefit to the
state, if we can manage this switch.
MR. GATES states Tesoro can only sell this product for 50% of what
it costs them to purchase the crude. For Tesoro to only get 46% or
48% of what they buy it for is putting them in a bad position.
Tesoro has no margins on bunker fuel. It is a loss for them. They
have to subsidize 40% of all they produce with their gasoline and
jet fuel sales. Tesoro is not extremely healthy; they made
commitments to the State of Alaska many years ago that they have
been fulfilling. We have been trying to support in-state
manufacturers; this could be a way to help them a little bit as
well.
Number 390
SENATOR KELLY asks how the refineries in Vancouver closing would
affect the situation.
Number 387
MR. GATES replies Alaska would like to force its' way into the
market and be the major supplier of bunker fuel if we can. This is
an extremely cost sensitive product, and we will not ever be lower-
priced than Vancouver. However, the closer we can get, the more
likely we will be to be a major supplier for the cruise ships. As
those refineries go down, Alaska's position relative to Vancouver
improves. It is a matter of pennies and increments.
CHAIRMAN SHARP asks if there are any questions. Hearing none, he
thanks Mr. Gates for his testimony and calls the next witness.
Number 376
ROBERT ERICKSON, Representative of Teamsters Local 959 states the
teamsters have a real interest in SB 327. If this program goes
through, and if it works and we capture the bunker fuel market from
Vancouver, it would create, just in full-time driving jobs, eight
to ten positions. This does not include any added positions in
Nikiski and Seward. The Kenai Peninsula has had the highest
unemployment rate for quite a while. Eight, ten, twelve, fourteen
jobs does not seem like much, but it sure is in Kenai. We support
SB 327.
CHAIRMAN SHARP asks if there are any questions. Hearing none, he
thanks Mr. Erickson for his testimony and calls the next witness.
Number 354
LARRY MEYERS, Director, Income & Excise Audit Division, Department
of Revenue says he has a few points of clarification. One,
currently the state collects 5 cents per gallon on residual fuel.
The departments current forms do not break down what type of
residual fuel it is. Any numbers that have been mentioned so far
have been provided by the industry.
Number 345
CHAIRMAN SHARP asks what the difficulty would be with a J rate tax,
which would guarantee the state 200,000 dollars, then drop the tax
down to 1.5 cents after that. The chairman also asks if this tax
can be collected at the refinery.
MR. MEYERS responds the department would prefer to deal with as few
distributors as possible, and it would be preferable for the
department to collect the tax from the refinery. The way the motor
fuel tax report works right now, is the Department of Revenue is
geared up to give refunds. The form could be modified.
Number 332
SENATOR KELLY asks Mr. Burns that since Petro Marine Services
capitalized their infrastructure for 500,000 dollars on a three
year contract, if they made enough revenue to be able to amortize
that investment over three years.
MR. BURNS replies that is correct. PMS sold 4,106,000 gallons of
residual fuel in 1993. Revenue from sales was about 1.2 million
dollars.
SENATOR RANDY PHILLIPS asks if there is a federal tax on residual
fuel.
MR. BURNS responds there is no federal tax on residual fuel. PMS
pays 0.6 cents per gallon to the Alaska Railroad Corporation
because they own the dock, 1.5 cents for labor costs, and 5.2 cents
for trucking costs per gallon. The fuel is trucked from the
refinery in Nikiski. It comes from the refinery at about 140
degrees fahrenheit. The temperature cannot drop below 110 degrees
by the time it gets to Seward. PMS's tank is kept heated. PMS
pays over a penny per gallon in heating and electric costs. The
residual fuel must be kept heated, or it will solidify.
SENATOR KELLY asks if Sitka has infrastructure in place to handle
this type of fuel.
MR. GATES replies they do not, but they would like to build it
using Alaska Pulp Corporation tanks.
SENATOR KELLY asks if there will be competition between Sitka and
Seward.
MR. BURNS says there will not be competition because the two ports
will be servicing different ships. Mr. Burns states he supports
the project in Sitka. He thinks it is a win-win-win situation for
Sitka, Seward, and the State of Alaska. The only advantage Sitka
has that PMS does not have is the free APC tanks in Sitka. That is
the only way that project would fly, is from the free use of those
tanks. Sitka has added costs, so the free use of those tanks makes
Sitka's cost about equal with those of Petro Marine Services.
Number 236
SENATOR KERTTULA states the problem is we do not want to raise
taxes, yet we must balance the budget.
Number 181
MR. BURNS says he understands the concerns being voiced.
Number 180
SENATOR RANDY PHILLIPS shares the concerns being voiced and is
worried about the future of state taxing policies. What the state
does for one, we have to do for all. What other groups will ask
for similar tax breaks if we pass SB 327?
Number 155
SENATOR KELLY says a sunset date of 2000 seems to long to him. He
says there ought to be a way to make the bill revenue neutral to
the state.
Number 145
CHAIRMAN SHARP also thinks there are some ways to make the bills
revenue neutral, and he would like to talk to Mr. Burden about
that.
Number 140
MR. BURDEN says Tesoro shares some of the same concerns that have
been voiced. He says Tesoro wanted to demonstrate that additional
sales would make SB 327 revenue neutral. There is a concern that
an alternative approach would generate a tax rate that is still to
high for Petro Marine Services to capture the market. He suggests
possibly having PMS pay the same amount of taxes paid last year,
and then not being taxed after that amount is reached.
Number 092
CHAIRMAN SHARP says he would like to keep things simple. Perhaps
the tax could drop down after current levels of tax have been
collected. That would at least give the advantage of letting PMS
try to get additional business. The revenue on other residual fuel
sales would not be jeopardized, since this tax break would only go
to cruise ships.
CHAIRMAN SHARP says perhaps if we can guarantee that the present
level of tax would be collected, we could then give a break on
future sales. The chairman says he is inclined to hold SB 327 in
committee to work on a solution.
Number 026
SENATOR KELLY says he is also concerned with the length of the
sunset date, and would like to look at changing it.
Number 016
SENATOR SHARP says he would like to look at amendments to SB 327
and see if the committee can't release the bill as a revenue
neutral bill.
TAPE 94-9, SIDE A
Number 001
SENATOR RANDY PHILLIPS asks if Sitka has docking facilities.
Number 015
MR. GATES says the tanks are located so far from the main town,
that Sitka plans to use a shuttle barge to fuel the cruise ships.
Number 020
SENATOR RANDY PHILLIPS asks if Sitka will then come to the state to
ask for money to fund this project.
Number 025
MR. GATES replies Sitka is hustling as hard as it can to mitigate
the loss of the pulp company.
SENATOR RANDY PHILLIPS says he has a feeling Sitka is going to come
to the state asking for more money.
Number 031
CHAIRMAN SHARP asks the Department of Revenue, Mr. Burns of Petro
Marine Services, and the Department of Commerce & Economic
Development to work with the committee staff to come up with
something doable. The chairman states he would like to schedule SB
327 in a week to ten days.
Number 042
CHAIRMAN SHARP adjourns the Senate Transportation Committee meeting
at 5:10 p.m.
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