HOUSE BILL NO. 541 "An Act providing for an advisory vote of the people concerning a preferred alternative for increasing revenue available to support state government; and providing for an effective date." Co-Chair Larson noted that the legislation provides for an advisory vote. The ballot provision asks citizens of Alaska which alternative they prefer for raising revenues: * A state income tax; * A state sales tax; or * Capping permanent fund earnings to be distributed as earnings. Co-Chair Larson expressed concern that comparable need to be set to demonstrate how $450 to $500 million dollars could be raised. Representative Hanley maintained that comparisons need to be drawn between the revenue each item would raise. Representative Navarre suggested that the response to the ballot question would be minimal. He observed that the public wishes to see the budget cut. He stressed the need to inform the public in regards to the over-all, long-term state economic picture. He emphasized that there is a misconception that the budget can be easily cut with no impact or increased taxes. He observed that reduction in state support for municipalities has resulted in an increase in municipal taxes. Representative Therriault suggested that a reduction of the 2 budget should be added to the ballot question. Representative Navarre emphasized that the perception that the budget can be cut without impacts is inaccurate. Representative Grussendorf expressed support for the legislation. Representative Martin noted that Alaska has experienced a high voter turnout in past elections. He stressed that the ballot question will generate discussion and provide guidelines. He emphasized that it will allow citizens to have a voice in the legislature's action. Representative Grussendorf noted that the ballot question does not address the use of the earnings income account in the general fund. Co-Chair MacLean stressed that varying levels of capping permanent fund dividends should be discussed in the ballot question. Co-Chair Larson provided members with quotations regarding permanent fund restrictions and the legislature's ability to spend from the Fund's earnings reserve (copy on file). He noted that: * "All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law." Article IX, Section 15, Alaska Constitution * "The income of the fund would be deposited into the general fund without any permanent fund restrictions." Jay S. Hammond, Governor, January 15, 1976 * "The purpose of the language in the last sentence of the resolution is to give future legislatures maximum flexibility in using the Fund's earnings reserve..." Hugh Malone, Chairman House Finance Committee on CSSSHJR 39 * "When the oil and gas is depleted, where will the funds to feed our giant government come from? the answer is: The Alaska Permanent Fund." 1976 Election Pamphlet in regards to proposition no. 2 * Each new legislature "is entitled to make its own choices about the use of Fund earnings." Alaska Permanent Fund 1991 Annual Report 3 * "The purpose of the Constitutional Budget Reserve Fund is to cushion the impact of reduced oil revenue as oil production declines and state revenues are depleted. Currently, state revenue is not depleted. For example, there is presently some $950,000,000 in the Permanent Fund Earnings Account, available for appropriation by the legislature." Superior Court Judge John Resse Co-Chair Larson noted that $551 million dollars will be distributed as dividends. An income tax would have to be twice the amount it was when it was discontinued to raise the equivalent amount. A state sales tax would have to be set at approximately 20 percent to raise equal revenues. He stressed the need to open options to the legislature. Representative Brown stressed that options should be parallel. She noted that there are other options not on the list. She suggested that voters choose two of five or six options. She suggested that an option of other taxes could include motor fuel, alcohol, cigarette, flat employment, fish, and mining taxes. She added that specific items could be identified for budget cuts. She concluded that the inclusion of more options would allow a lower threshold per item. She suggested that increased oil taxes and a state wide property tax should also be included. She suggested an interim commission be created to address the issue of raising revenues. Co-Chair MacLean stressed that the Alaska Permanent Fund needs to be revisited. She suggested that the amount used as inflation proofing is too high. Representative Martin expressed support for HB 541 as drafted. He felt that too many options would be confusing. He did not want an interim commission to replace the legislation. Representative Navarre observed that a state sales tax would be difficult to administer. He emphasized that the legislature holds the economic future of the state. He stressed that if the economic structure, including the tax structure, is not addressed the state will be lead into economic collapse. Co-Chair Larson noted that the public perception is not favorable. He questioned if there should be additional options. Representative Hanley observed that the public would choose to cut the budget instead of raising taxes. He stressed the need to educate the public. He emphasized that the more 4 options added the more difficult the process to educate. Representative Hanley suggested that the legislature state that: "The total state general fund spending budget for FY 95 is approximately $2.5 billion dollars. If prices for Alaskan oil average $14 dollars a barrel for that year, the total general fund recurring revenues are anticipated to be $1.7 billion dollars. That leaves a gap of $800 million dollars that we are currently using savings accounts to fill." Representative Hanley suggested that the legislation also state: Each of the following alternatives would fill $250 to $300 million dollars of that gap. Pick no more than 2 options. He stated that he would add: Cut the budget by 10 percent. Representative Hanley noted that to raise the $250 to $300 million dollars, a sales tax would have to be 10 percent and dividends would have to be capped at $500 dollars. Representative Grussendorf noted a lack of clarity on the dividend question. He emphasized that the state operating budget does not contain many mid management level jobs. He suggested that the legislature consider contracting for a survey. Representative Navarre stressed that the option to cut the budget by 10 percent is misleading. He emphasized that the budget is over inflated by the inclusion of program receipts, federal matching funds, shared taxes and education funding. Representative Brown noted that no one has advocated a state sales tax as a viable alternative. She suggested that the state sales tax option be deleted. She accented that choices should be feasible to implement. Representative Martin argued that the ballot question will educate voters and that all options should remain. (Tape Change, HFC 94-132, Side 2) Co-Chair Larson expressed his intention to add other options to the legislation. HB 541 was HELD in Committee for further discussion.