HB 52: RELATING TO TAX ON ALCOHOLIC BEVERAGES HB 53: INCREASING TAX ON ALCOHOLIC BEVERAGES Number 030 REPRESENTATIVE KAY BROWN, PRIME SPONSOR of HB 52 and HB 53, testified saying, "HB 52 would allow municipalities to enact a sales tax on alcohol at any rate whether or not they had sales taxes on other commodities. The need for this bill comes primarily from an Alaska Supreme Court interpretation of our existing law in 1991 where they found that the community of Sitka did not have the authority to impose an alcohol sales tax that was four percent above their tax on other commodities. As the law is currently interpreted, municipalities are prohibited from enacting an alcohol sales tax in excess of or different than an existing commodity sales tax or having only a sales tax on alcohol." REPRESENTATIVE BROWN continued, saying, "The restrictions on local alcohol sales tax were put into the statute in 1985 and at that time there were three municipalities that had additional sales tax on alcohol and those were grandfathered in. They are Juneau, Craig and Kotzebue. And their's can continue but this ruling applies that they wouldn't be able to increase them or change them. With respect to others, Anchorage as you might have been reading in the press, is now considering a tax and the tax they're considering is at the same rate as their other tax which is the bed tax at eight percent." (Representative Bill Williams joined the committee at 1:05 p.m.) Regarding HB 53, REPRESENTATIVE BROWN said, "What that bill would do is address the state's tax on alcohol and it would slightly more than double our state excise tax on alcoholic beverages which has not been changed or increased since 1983. The proposed increase would equal about ten cents per drink on beer, wine and spirits and at the current rate of consumption would raise roughly 19 million additional dollars into our general fund. That would bring our total collection from our alcohol tax to about 30 million which is roughly ten percent of the overall costs to the state of dealing with alcohol abuse." Number 140 REPRESENTATIVE BROWN continued, "One reason I think it's appropriate that we consider an increase in the alcohol tax is that users of this substance would be paying a little bit more toward the overall cost to society that alcohol is causing us and that the costs people would be paying would be in direct proportion to what they are consuming. Research shows that an increase in the alcohol tax would have a significant and long-term effect on the alcohol consumption particularly of young people." (Representative John Davies joined the committee at 1:12 p.m.) REPRESENTATIVE BROWN added, "Polls show that of all potential taxes of any type or description, this is the one that has the most popular support, the most public support. Nationally, about two thirds of those surveyed indicated that they support additional taxes on alcoholic beverages... We have a significant alcohol problem in our state, I understand that Alaska ranks fourth in the nation in per capita consumption." Number 253 REPRESENTATIVE CYNTHIA TOOHEY asked, "Are you saying that the people within the municipality will have the right to vote on whether to increase the tax in HB 52?" REPRESENTATIVE BROWN said, "Anchorage, whether or not we pass HB 52, if the Anchorage Assembly chose to put this issue on the ballot they could only do it at the same rate as we already have an existing sales tax on other communities. If we had HB 52, the Anchorage municipality would not be limited to considering it at that rate, they could consider it at some other rate without regard to any other taxes." Number 291 REPRESENTATIVE CON BUNDE pointed out he did not feel that a price increase would discourage use and gave an example of expensive cocaine abuse. He also asked if HB 52 would require municipalities to dedicate funds toward alcohol- related problems specifically, or into a general fund. REPRESENTATIVE BROWN said municipalities had a choice of placing those funds in either a dedicated fund or the general fund. REPRESENTATIVES BUNDE and BROWN discussed the principles of taxes being produced at a municipal level by HB 52 and state revenues increasing through HB 53. Number 380 REPRESENTATIVE JOHN DAVIES asked if there was any other commodity limited by state statute in the same way that alcohol was limited "relative to sales tax" and gave an example of fuel taxes which were not limited. REPRESENTATIVE BROWN did not believe any other commodity was limited by state statute in the same way as alcohol. Number 400 REPRESENTATIVE DAVIES indicated his experience at the municipal level brought him to the conclusion that this was an exclusive situation. He said, "If it is true, then I would say that what we're really doing here is we're removing what I would consider to be an unnecessary limitation on municipalities to decide how and when and if and under what terms they want to impose taxes." REPRESENTATIVE ED WILLIS asked if Anchorage, being a first- class city, currently had the right to tax alcohol. REPRESENTATIVE BROWN replied in the negative and referred to the statute as it currently reads. Number 427 REPRESENTATIVE BUNDE asked what communities throughout the state thought about HB 52. REPRESENTATIVE BROWN said, "I know, as you do, all the local governments are tight and looking for ways to raise money to support local services." REPRESENTATIVE DAVIES concurred that the municipality of Fairbanks had discussed what HB 52 would do and realized this was currently a limitation. Number 458 REPRESENTATIVE TOOHEY asked if Representative Brown had alcohol revenue figures for the state. REPRESENTATIVE BROWN referred to the Department of Revenue fiscal note provided with HB 52. Number 491 KENT SWISHER, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL LEAGUE, testified saying, "This is an additional revenue opportunity for local governments and we certainly need those. It's also one that very probably is well geared towards a specific problem that will be pretty large on the local government horizon and we would certainly welcome the opportunity to levy these taxes, independently or in a way that is not coupled to the rate of other taxes within the jurisdiction." REPRESENTATIVE BUNDE doubted municipalities would be able to raise taxes "on booze" through the various assemblies or a "vote of the general public" and pointed out that HB 52 "may be an exercise in futility." Number 505 MR. SWISHER said, "If a jurisdiction is locked to another sales tax rate, that may have the effect of taking the option of the sales tax on alcohol at that specific rate off the table for consideration. If a jurisdiction had the option of setting the tax on alcohol at some other rate, it might leave that question on the table and, therefore, lead to a selection of that tax as an option. The flexibility enhances the viability of the option." Number 530 CHAIRMAN OLBERG verified that Mr. Swisher was limiting his testimony to HB 52. MR. SWISHER concurred. Number 540 RICK URION representing the ALASKA WINE AND SPIRITS WHOLESALERS ASSOCIATION, testified against HB 52 and HB 53 saying, "Only alcohol was picked out as an item to increase, so if a local government picked fish or automobiles or wheaties to tax at a higher rate you would see those interest groups here to convince the legislature to limit those items. So it is an issue of equity... that was singled out so we oppose that bill (HB 52)." MR. URION continued, "On HB 53, the people I represent are the people who pay this tax to the state. We pay it on a monthly basis, we remit money to the state based on our inventory depletions... We understand the problems associated with abusing alcoholic beverages and as an industry we spend a lot of time and effort and money to preach moderation. I think we're being successful. Most people who drink are not abusers as you've heard the sponsor say... We do not think that alcohol is the cause of all our social ills as some would have you believe. Most reports that you read that associate purported costs to society to alcohol are subjective at best. Including the ones that are in your packet." Number 580 MR. URION concluded, "Cost only affects those people who treat alcohol responsibly and the passage of this bill will not bring about the purported results and we urge you not to pass it." Number 590 REPRESENTATIVE BUNDE asked what portion of the cost of alcohol was presently taxed. MR. URION indicated approximately 29 percent of a 750 ml. bottle was taxed, of which 18 percent was federal, and 11 percent state and local. He disputed Rep. Brown statistics through example. REPRESENTATIVE BILL WILLIAMS questioned whether the alcohol industry really preached moderation through advertisements. He asked if the revenues from HB 53 could be dedicated to education or something similar instead of going into the general fund. REPRESENTATIVE BROWN indicated dedication of revenues would probably take a constitutional amendment. Number 650 REPRESENTATIVE DAVIES addressed Representative William's concern and said, "Whenever there's a strong legislative intent and the funds are shown as program receipts going into a particular program there's a fair amount of momentum, budgetary momentum, behind using those funds in that way." REPRESENTATIVE DAVIES added, with regard to Mr. Urion's comments, "I certainly agree with you about the statistics. A lot of kinds of statistics are kept in very inappropriate ways ... however, having conceded that, I will not concede that alcohol is not the most significant social problem in this state and I would challenge you to develop appropriate statistics that would demonstrate anything other than that." MR. URION declined to respond. Number 686 REPRESENTATIVE TOOHEY asked how much money was set aside by the Alaska Wine and Wholesalers Association to help young people of Alaska. MR. URION said his client only contributed to a national group. TAPE 93-6, SIDE B Number 022 RICK LAUBER, representing ANHEUSER BUSCH, CO., INC., testified against both HB 52 and HB 53 saying, "Referring to advertising...the alcohol consumption in general, and beer consumption in particular, has gone down. Fortunately for Anheuser Busch, their share of the market has gone up and that's probably due to the fact that they do better advertising and take customers away from their competitors." He cited the historical increases of taxes on alcohol. MR. LAUBER continued, "The thing that often is ignored by people who want to raise the taxes on liquor, and people in so-called health related fields, is that there's a growing body of literature and work that's being done that has found that moderate use of alcohol has health benefits. If you increase the price, for any reason, you will reduce the consumption but there are many studies quite frankly that show you do not reduce the abuse...You're reducing the consumption of alcohol by the moderate users of alcohol, not the abusers of alcohol. And if you factor in the health benefits, you're then saying, the person terminates the moderate use of alcohol that is beneficial because they can't afford it." Number 157 REPRESENTATIVE TOOHEY identified herself as a nurse, a mother, and a child of an alcoholic. She said, "Warn children if they have alcoholic parents, which is very normal up here in Alaska, that these children too have a predisposition and they must be careful of this. They must watch this. I mean there are all kinds of things we can do." She added, "The increase in that little bit of tax wouldn't stop anybody..." REPRESENTATIVE WILLIAMS asked what Mr. Lauber would suggest to the legislature to "take care" of alcoholism and the associated problems. MR. LAUBER revealed his experience with alcohol abusers and gave a synopsis of the more positive trends relating to alcohol consumption. Number 251 REPRESENTATIVE BROWN asked Mr. Lauber to reveal the studies he referenced in his testimony because she had studies which came to the opposite conclusion. MR. LAUBER gave the author and title of one study. REPRESENTATIVE BROWN asked to see that study since an author's name was also found within her data. MR. LAUBER said he would retrieve the study for her. Number 290 REPRESENTATIVE BUNDE said, "The advertising I still see especially relating to sports, sends the wrong kinds of messages. It doesn't send responsible drinking messages and encourages, I think, the kind of legislation we're looking at today... It undermines what you say in 'when to say when'." Number 314 LENNIE GORSUCH representing MILLER BREWING COMPANY, testified against HB 52 and HB 53 saying, "With respect to HB 52, Miller Brewing Company does oppose that legislation. As well we believe it's not good public policy to isolate one industry or one commodity for differential tax treatment. With respect to HB 53, I can speak only to the sections dealing with beer because we don't handle the other alcoholic beverages. ....Already Alaska's tax rate per gallon is above the national average where it stands today and with this increase it would be by far the highest in the nation and that is for state tax." MS. GORSUCH also said, "Beer excise taxes, we believe, are highly regressive in that they place a disproportionate burden on the lower income individuals, particularly with respect to beer drinkers, they traditionally fall into the middle and low income status bracket. This only means that more of their disposable income would go to pay the taxes to take care of those problems that you've identified here. Taxation does not solve alcohol abuse... Raising the price of alcohol only forces alcoholics to spend more of their money on the alcohol that they're going to buy no matter what, and decreases the amount of money that they're going to have to spend on food and shelter." Number 377 REPRESENTATIVE DAVIES said, "I fail to see the equity argument associated with HB 52. It seems to me it's in fact the other way around, the legislation that was passed a few years ago...made a protected class out of that commodity relative to all other commodities." MS. GORSUCH said, "To undo it at this particular time would be to focus it back on the one industry..." Number 400 REPRESENTATIVE DAVIES asked Ms. Gorsuch to share the dollar amounts that go into educational programs versus advertising. MS. GORSUCH said she could provide that information for the chair later. REPRESENTATIVE BROWN pointed out the bar chart provided by Ms. Gorsuch did not provide the rates of higher tax states for comparison. (A copy of this chart may be found in the House Community and Regional Affairs Committee Room, Capitol Room 110, and after the adjournment of the second session of the 18th Alaska State Legislature, in the Legislative Reference Library.) MS. GORSUCH said the chart came from the west coast headquarters and reflected the taxes of western states only. CHAIRMAN OLBERG asked for further testimony or discussion. Number 433 REPRESENTATIVE DAVIES MOVED that HB 52 be passed out of committee with individual recommendations. REPRESENTATIVE JERRY SANDERS OBJECTED. CHAIRMAN OLBERG called an at ease at 2:12 p.m. Number 435 CHAIRMAN OLBERG reconvened the meeting at 2:17 p.m. with all members present. REPRESENTATIVE BUNDE said, "What we're really saying is, "Drink yourself to death because the city needs the money," and "I would feel a lot more comfortable with [HB] 52 if the monies gained from it went directly dedicated to alcohol abuse." REPRESENTATIVE DAVIES spoke at length saying, in part, "Those issues are interesting and should be debated but it's not at this point, I believe. The point of [HB] 52 is to allow a municipality the local option to decide." He reiterated his concern about alcohol receiving special protection under the law. Number 511 REPRESENTATIVE TOOHEY concurred that HB 52 offered only a local option of alcohol taxation and said she could not support HB 53. REPRESENTATIVE WILLIAMS supported HB 52 and HB 53. "I think [HB] 53 is an area where we can generate some money back into the general fund," he said. REPRESENTATIVE WILLIS expressed a concern that the legislature was not devising a state fiscal plan. He said he might introduce legislation to form a commission to address a long-term fiscal plan for Alaska. "We're piecemealing," he added. REPRESENTATIVE DAVIES reminded the committee of the motion before them. REPRESENTATIVE SANDERS rendered some personal experience with alcohol. He said, "I don't know what the answer is but I don't know that tacking monies on to it is going to help with the alcohol problem. If it's to raise money, I think we have too much taxes, I think we have too much government and I'm not for taxes in any way, shape or form. ...I'm not inclined to go along with this for those reasons, I'm not sure which it's trying to address and I don't think it addresses either one of them adequately." Number 591 CHAIRMAN OLBERG called for a roll call vote on the motion to move HB 52 out of committee with individual recommendations, which resulted in the following: Representatives Toohey, Willis, Williams, Bunde and Davies voted to move HB 52 out of committee with individual recommendations; and, Representative Sanders and Olberg voted against the motion. THE MOTION CARRIED. REPRESENTATIVE BUNDE MOVED that HB 53 be moved out of committee with individual recommendations. REPRESENTATIVE SANDERS OBJECTED. REPRESENTATIVE BROWN testified again, "I view it as a socially responsible way to raise needed revenue. The amount raised by this bill would not even cover the incremental increases in one public safety agency, the Department of Corrections, that we have right now before us in their increase that's requested for the coming fiscal year. A prior commissioner testified at a meeting I was at that 85 percent of the prisoners in Alaska's prison system today are there because of involvement with alcohol in their crime." Number 693 REPRESENTATIVE DAVIES reminded the committee that he cosponsored HB 53, and reiterated his support for the bill. TAPE 93-7, SIDE A Number 000 REPRESENTATIVE BUNDE said, "This is raising state taxes: That was not my goal when I came to the legislature." A roll call was taken on the motion that HB 53 be moved out of committee with individual recommendations, which resulted in the following: Representatives Sanders, Bunde, Olberg and Toohey voted against the motion; and Representatives Willis, Davies and Williams voted for the motion. THE MOTION FAILED. ADJOURNMENT Number 055 CHAIRMAN OLBERG adjourned the meeting at 2:40 p.m.