SB 135-REFUND OF FISH BUSINESS TAX TO MUNIS  4:03:30 PM CHAIR GIESSEL announced the consideration of SENATE BILL NO. 135 "An Act relating to the sharing of tax revenue from the fisheries business tax and fishery resource landing tax with municipalities; relating to municipal reports on the shared tax revenue; and providing for an effective date." 4:03:52 PM TIM LAMKIN, Staff, Senator Gary Stevens, Alaska State Legislature, Juneau, Alaska, said SB 135 is inspired by and modeled after legislation that was introduced in 2012 and relates to fisheries tax revenue sharing. He briefly discussed the history of fisheries tax revenue sharing and explained that the revenue split was originally 10/90 (with ten percent going to local municipalities). He said the revenue sharing is intended to support fisheries-related activities in coastal communities (e.g. canneries). He stated the revenue share for municipalities has increased twice, in 1979 (an increase to 20 percent) and in 1981 (an increase to the current share of 50 percent). He shared his understanding that municipalities typically receive 50 percent in the form of a refund. He said the fisheries business tax and the fisheries landing resource tax are shared between municipalities and the State of Alaska. In general, SB 135 would shift the split from 50/50 to 60/40 (with 60 percent going to municipalities). He emphasized that SB 135 does not change the tax level or the fisheries policies. He said the intention of SB 135 is to begin discussions and there is room for change. He pointed out that Joint Legislative Task Force Evaluating Alaska's Seafood Industry (ASTF) considered shifting the revenue so that municipalities received 100 percent. He surmised that the Senate Finance Committee would discuss the fiscal impact at length. He noted that representatives from the Department of Revenue and the Alaska Municipal League (AML) would provide additional testimony. 4:06:54 PM SENATOR HUGHES referred to page 2, paragraph 3 of the fiscal note from the Department of Revenue (DOR), OMB Component Number 2476, dated March 28, 2025. She pointed out that, according to the fiscal note, the revenue split between municipalities and the state would range from 60-75 percent, depending on tax type and processing location. She acknowledged that coastal communities are struggling and indicated concern about potentially decreasing the State of Alaska's revenue amounts. She asked for additional information about range in the revenue split. 4:07:28 PM MR. LAMKIN replied that reading SB 135 and the sectional analysis would be the most helpful way to understand those changes. He explained that the split changes depending on whether the local government falls withing a qualified municipality, is an unorganized borough, etc. He said that he did not do in-depth historical research on the origin of the policies; however, he surmised that the politics of that time impacted the structure of the current statute. 4:08:18 PM CHAIR GIESSEL said that Department of Revenue (DOR) and Department of Commerce, Community and Economic Development (DCCED) representatives were available to answer questions. 4:08:37 PM SENATOR HUGHES noted that it is a complicated issue and asked whether DOR could speak to the potential revenue impact this change would have on the State of Alaska. 4:08:49 PM CHAIR GIESSEL pointed out that there was a fiscal note and invited Mr. Spanos to provide additional information. 4:08:58 PM BRANDON SPANOS, Deputy Director, Tax Division, Department of Revenue (DOR), Anchorage, Alaska, said that the current structure of the revenue share is simpler than the language in SB 135. He expressed uncertainty regarding whether this was intentional. He said the changes to the fisheries business tax - including the 60-75 percent split - are different than the fisheries development tax. He suggested that this may have been an oversight. He explained that, currently, the statute includes a 50/50 split for revenue sharing and said that, if the intention is to create a 60/40 split, DOR could suggest amended language options to achieve that goal. He explained that, generally, this would give 30 percent each to the city and the borough (if the city is in an organized borough), and the state would receive 40 percent. MR. SPANOS shared his understanding that, as currently written, every case results in a 75/25 percent split. He explained that 75 percent would either go directly to local communities or to the Department of Commerce, Community and Economic Development (DCCED) to be shared out with local communities. He expressed uncertainty with the allocation program of DCCED and surmised that it is different from the way DOR would distribute the revenue share. He referred to the fiscal note from the Department of Revenue (DOR), OMB Component Number 2476, dated March 28, 2025, and explained that the fiscal note assumes a 75/25 percent split. He said that in fiscal year (FY) 2026, this would result in a negative budget impact of $12.3 million. He said that amount would be appropriated in the current budget year but would not be paid out until the following budget year. In FY2031, there would be a negative budget impact of $16.8 million. 4:11:10 PM SENATOR MYERS observed that SB 135 includes a stair step method for new cities created within a borough but does not address new boroughs created to encompass a city. He offered a hypothetical example and asked if this also needs to be addressed. 4:11:49 PM MR. LAMKIN deferred the question. 4:12:03 PM MR. SPANOS expressed uncertainty. He said the stair step method is in current statute and SB 135 would change the amount communities receive, depending on how long each has been incorporated. He deferred the question. 4:12:30 PM CHRIS BECKER, Lead Auditor, Tax Division, Department of Revenue (DOR), Anchorage, Alaska, said current statute does not address new boroughs formed around cities. 4:12:51 PM SENATOR MYERS observed that the impetus for the fisheries tax revenue sharing is related to harbor maintenance. He noted that those facilities were previously owned by the State of Alaska. He pointed out that, according to the sponsor statement for SB 135, if municipalities are unable to maintain harbor facilities, the harbor facility titles revert to the State of Alaska. He asked whether any municipalities have requested to return harbor ownership to the State of Alaska rather than making changes to the revenue sharing structure. 4:13:43 PM SENATOR STEVENS replied that he is not aware of any municipalities making that request. SENATOR MYERS wondered if this should be considered in the place of changing the fisheries tax revenue sharing. 4:13:55 PM SENATOR STEVENS replied that ASTF heard from many communities that were highly impacted by the industry downturn. He noted that some communities have lost their processors and there is no way for the State of Alaska to help them. However, for other small communities where processors remain, a small amount of assistance would be highly impactful. He opined that some communities have not yet realized the impact the industry downturn will have. He said SB 135 is an attempt to help fishing communities during a difficult time and added that the funds are not limited to harbor maintenance. 4:14:55 PM SENATOR KAWASAKI shared his understanding that the intention was for municipalities to use the funds from revenue sharing on related infrastructure improvements. He asked if this is how municipalities ultimately used the revenues. 4:15:46 PM MR. SPANOS asked to hear the question again. 4:15:51 PM SENATOR KAWASAKI said the intent is for the money collected from the landing tax to be distributed to communities that have related ports, and for those communities to use the funds for port maintenance and related infrastructure. He asked if DOR is aware of how the money is spent or whether it is rolled into the municipality's general fund. 4:16:27 PM MR. SPANOS shared his understanding that current statute does not specify that communities must spend the funds from revenue sharing on fisheries infrastructure. He surmised that the revenue is deposited into the municipality's general fund. 4:16:52 PM MR. LAMKIN directed attention to SB 135, Section 8, page 4, and said this would require municipalities to begin reporting how they are spending monies from the fisheries business tax. He then directed attention to SB 135, Section 15, page 8, which contains a similar reporting requirement for the landing tax fisheries monies. 4:17:27 PM CHAIR GIESSEL noted that Alaska Municipal League (AML) would also provide testimony on SB 135. 4:17:40 PM SENATOR DUNBAR expressed interest in seeing what the reporting requirement reveals and whether municipalities are spending the funds on harbor maintenance. He argued that the State of Alaska should not strictly regulate how the money is spent, as there are many ways to make communities livable that would directly benefit those in the fishing industry. He asked whether the State of Alaska has always followed the revenue sharing formula - or whether there have been times when the State of Alaska has not paid out the full amount due to fiscal restrictions. He wondered if the State is bound by the language - or whether the money could be deposited into the State of Alaska's general fund if needed. 4:18:58 PM MR. SPANOS said that to his knowledge, the money has always been appropriated to the designated fund, which has been shared with the communities. He said that according to the [Shared Taxes and Fees Annual Report], the State of Alaska distributed $16.17 million of fisheries business taxes to local communities. He added that during the Covid-19 pandemic, the distribution matched the previous year's share. He explained that during one of those years, the legislature appropriated additional funds to match the prior year's distribution. 4:20:03 PM CHAIR GIESSEL announced invited testimony on SB 135. 4:20:24 PM NILS ANDREASSEN, Executive Director, Alaska Municipal League, Juneau, Alaska, read the following written testimony on SB 135: [Original punctuation provided.] Chair and members of the Senate Resources Committee, Thank you for the opportunity to testify today. My name is Nils Andreassen, and I am the Executive Director of the Alaska Municipal League, representing local governments across Alaska. We appreciate the work of the Alaska Seafood Industry Task Force and the thoughtful consideration of this bill, SB 135, which reflects recommendations aimed at enhancing support for coastal communities. We are supportive of the intent of SB 135 to increase the share of fisheries tax revenue distributed to municipalities. This recognition of the important role that local governments play in supporting the seafood industry and providing services that benefit fisheries-dependent communities is welcomed and appreciated. Alaska's coastal cities and boroughs are essential to the operation and success of the state's seafood industry. Local governments own and maintain the majority of ports and harbors across the state, managing critical infrastructure that enables the safe and efficient movement of significant volumes of seafood. Many of these facilities are aging and require ongoing investment to ensure their continued functionality and safety. The revenue provided through fisheries taxes is essential for maintaining these assets and supporting the broader network of services and infrastructure that enable this industry to thrive. Further, the benefits of this revenue extend beyond infrastructure maintenance. It supports emergency services, transportation systems, housing, and other community needs that directly and indirectly benefit the seafood industry. For many of Alaska's municipalities, fisheries-related revenue provides essential funding that contributes to overall community well-being and economic resilience. As you work to move this bill forward, we would like to respectfully raise a few points for consideration that we believe would strengthen this legislation: Not all recipients of fisheries tax revenue maintain or operate harbor facilities. While we recognize the importance of maintaining and improving these facilities for the benefit of the seafood industry, a requirement to allocate additional funds specifically for this purpose may not be applicable or practical for all local governments. For instance, the business tax includes the communities of Houston and Anderson, which aren't coastal but where businesses are located that contribute to the seafood industry. Another wrinkle to consider is that while a borough like Kodiak Island receives a share, it is the City of Kodiak that has the port and harbor powers. Flexibility in the use of these funds should be considered to ensure all recipients can utilize them in ways that best support their communities. It is critical that this increase in revenue sharing be seen as additive, rather than a replacement for other forms of state investment. Local governments depend on a predictable and reliable revenue stream to meet their obligations and to provide services that benefit the industry and community members alike. This legislation should make clear that other forms of state support are not to be diminished as a result. 4:23:51 PM MR. ANDREASSEN continued to read from the following written testimony on SB 135: [Original punctuation provided.] AML last surveyed port and harbor infrastructure improvement needs in 2019 and identified $600 million in needs. We will recreate that survey this year, but the scale of need is important to evaluate and ensure that together we are appropriately meeting the needs of these communities relative to the industries dependent on improvements. Finally, we are concerned about the potential administrative burden associated with the requirement for annual reports. For many local governments, particularly those that receive only a minimal amount of revenue from this program, the cost of compliance may exceed the benefit of the increased share. We recommend the Committee consider ways to streamline reporting requirements to ensure they are not unnecessarily burdensome. I noted payments of the fisheries business tax in FY 23 to two communities of $244 and $214 each. We have to think about the increase involved and whether it actually increases the ability for these communities to improve facilities, or complete the annual report to the Legislature that will now be necessary. Perhaps there are alternatives to achieve this same goal. The Alaska Municipal League and its members are supportive of finding additional ways in which the State may contribute to investments in coastal communities, and we commend the Task Force and this Committee for its consideration. We appreciate your willingness to consider these suggested improvements and look forward to continuing to work with you to enhance this legislation for the benefit of not just local governments, but the seafood industry that is interdependent. Thank you for your time and consideration. I am happy to answer any questions you may have. 4:25:40 PM SENATOR DUNBAR agreed that the reporting requirement is excessive for communities that receive minimal amounts. He asked about the maximum amount communities receive and wondered what a reasonable cutoff would be. He wondered whether "$10 thousand or more," or "$50 thousand or more" would be reasonable. He acknowledged that keeping track of the funds is important; however, he suggested that a report may be unnecessary for $240. 4:26:26 PM MR. ANDREASSEN replied that he does not have those numbers; however, he surmised that DOR would have that information. He opined that each community should be allowed to determine the appropriate cutoff. He emphasized that any increase in revenue is positive for local governments. He noted that the funds are used for a variety of community needs. He pointed out that communities may have complicated harbor improvement and capital improvement plans, along with other community needs. He indicated that determining the distribution amount and the reporting requirement cutoff could be complex and stated that this should be based on the circumstances of each community. He noted that SB 135 would increase the revenue share for use on port and harbor maintenance and other infrastructure needs, and all communities would receive an increase. However, he pointed out that needs differ greatly by community. He stated that the increased revenue share should be structured and disseminated in a way that is responsive to the needs and resources of each community. 4:28:12 PM SENATOR DUNBAR acknowledged that communities have unique needs and would prefer a more wholistic approach; however, he indicated that choosing a specific cutoff may be necessary for administrative simplicity. He pointed out that SB 135 is not structured in a way that is responsive to each community's needs. He commented that a more responsive approach to funding could be found in the capital grant process, whereas SB 135 offers blanket community revenue-sharing. He argued that this type of revenue sharing maintains more flexibility. 4:29:18 PM MR. ANDREASSEN commented that a blanket increase is the fairest way to distribute the funds. He pointed out that the ASTF report recommends that 100 percent of the funds be distributed to the local communities and suggested that this amount would create a high bar. He clarified that AML is willing to work with the committee and the legislature to ensure SB 135 is a right fit for everyone involved. He said that many of the task force recommendations are interdependent, and local governments have a role in most of those recommendations. He emphasized the importance of thinking about the recommendations wholistically. He reiterated that AML appreciates SB 135 and is willing to be a part of those conversations as the legislation moves forward. 4:31:09 PM SENATOR STEVENS expressed appreciation for Mr. Andreassen's comments. He reiterated that two communities have lost their local processors and receiving a larger share of the tax would not provide an advantage to those communities. He opined that it makes sense for the communities to use those funds as they see fit. He acknowledged the challenges that coastal communities will face in the coming years. He indicated that it would be reasonable to deposit the funds into each community's general fund and allow communities to decide where those funds are most needed. 4:32:07 PM CHAIR GIESSEL held SB 135 in committee.