HOUSE JOINT RESOLUTION 49 Proposing amendments to the Constitution of the State of Alaska creating a highway fund. REPRESENTATIVE JEANNETTE JAMES noted that HJR 49 would propose amendments to the Alaska State Constitution creating a dedicated transportation fund. The amendments would be placed before the voters of Alaska at the next general election. The bill would not address an amount of motor fuel tax increase, but merely would provide a mechanism for allocating the proceeds from collection of fuel taxes. She added that the resolution has received wide support relative to the current level of fuel taxes. She thought that Alaska's citizens would be more willing to accept a necessary increase in their motor fuel taxes if they knew 8 the money would be utilized to address the need for improved maintenance of the roads and highways. SAM S. KITO III, LEGISLATIVE LIAISON/SPECIAL ASSISTANT, OFFICE OF THE COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES (DOTPF), testified in support of HJR 49. He pointed out that the resolution contains the marine fuel tax component. The Department would utilize that revenue to transfer facilities to local governments. Mr. Kito pointed out the Department's recommendations to permit highway expenditures to include construction. He suggested changing the vote from 3/5 to 3/4 consenting votes. BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME & EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE, advised that the fiscal note provided by the Department of Revenue would change the effective date to July 1, 1998. At that point, proceeds for motor fuel tax would be deposited into a dedicated fund. He added, the fiscal note only indicates the impact of gasohol in the Anchorage area. In FY95, gasohol was required use by the Environmental Protection Agency (EPA) in Anchorage for duration of a two month period. During that two months, the State lost $2.4 million dollars in revenue, resulting from the motor fuel tax exemption. The stipulation in Anchorage was increased from two to four months required use, as well as two to four million gallons being sold each month during the transition. The estimates include FY96 lost revenue in the amount of $6 million dollars. Representative Mulder asked if there was any Alaskan grain used in production of gasohol. If not, he recommended revising that statute. Representative James agreed, indicating that there is a bill in another committee which addresses that tax. There could be some gasohol made in Alaska, although most of it comes from outside. Mr. Bartholomew pointed out that DOR's dedicated fund revenue dollars, includes a tax applied to off highway fuel. On off highway fuel, an eight cents per gallon tax is charged, and then a six cent per gallon refund is made. The resulting net tax amounts to two cents per gallon. The Department collects $3.2 million dollars per year from that tax. That revenue is not reflected in the fiscal note. MR. DILLION, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE, testified in support of HJR 49. He requested that intent language be added in order to tightly control the dedicated fund, stressing that the fund be used strictly for maintenance purposes. He recommended that a tool be implemented to focus behavior in spending fuel tax revenue. 9 He stressed that he would be against using the fund for construction. It must be a maintenance fund, and be used for highways only. Mr. Dillion noted that his company would not support the marine portion of the legislation. In response to Representative Therriault's question, Mr. Bartholomew noted that a separate account would be maintained for the marine fuel. Mr. Kito added, DOTPF has established that there is not enough revenue even with the proposed tax increases to expand beyond maintenance of the highway system. Co-Chair Hanley advised that there is not enough revenue available without a tax increase to cover the needs. The public wants to see current roads being maintained rather than new roads being built with those funds. Co-Chair Hanley voiced his concern adding "construction" to the use of the fund. Representative James noted that Commissioner Perkins had indicated in a previous committee discussion, that federal funds to Alaska would be reduced, which would create a reduction to the federal tax requirement. That action would provide a need for the State to tax, thus placing more revenue into that account. Mr. Kito noted that a general accounting office report had been released in January, 1996, which indicates how the U.S. Congress plans on putting together the next funding authorization for the Federal Highway Trust Fund. In four of the seven scenarios, Alaska went from receiving $230 million dollars to being allocated approximately $40 million dollars. Mr. Dillion questioned how the ferry system would be integrated as part of the highway system. He understood that ferries do not pay a fuel tax. Mr. Kito responded that some activities on the ferry system would be permissible as an expenditure. The primary focus would be pavement, repair and maintenance from the dedicated fund. Representative James agreed that within the legislation, the marine highway would be an allowable use of fund monies for maintenance only. (Tape Change, HFC 96-75, Side 1). Representative Brown asked how much the State currently spends on highway maintenance. Mr. Kito replied the best estimate of the direct and indirect FY95 costs is $75 million dollars. The indirect expenses would include some administrative costs which helps to keep equipment working. The Department does not have a clearly defined break-out of 10 those costs. Representative Brown asked the current costs of construction and improvement of harbor facilities. Mr. Kito replied that FY97 budget requests a $1 million dollar appropriation for the harbor fund. He added, those costs have averaged approximately 37% of the amount collected in fuel tax. The balance would be placed into the general fund. Representative Brown pointed out that passage of the legislation would provide that revenue available to the general fund be decreased and the amount spent on harbor construction be increased by $7.6 million dollars. Co-Chair Hanley suggested that costs could be added to the amount currently spent. He voiced concern with that portion of the bill, pointing out that it could increase by six times the expenditures for ports and harbors. Co-Chair Hanley recommended separating the issues. Representative Brown asked how much the State spends on maintaining local government roads. Mr. Kito replied that revenue for local government road maintenance passes through the Department of Community and Regional Affairs (DCRA) in a revenue sharing request, for a road program component in the amount of $4.4 million dollars. Representative Brown asked if local governments would be entitled to some of the maintenance money. Mr. Kito commented that provision had been included in order to prevent incentive to take over roads. Without increasing the tax rate, there would not be enough revenue for the State to initiate the transfer or sharing program. Mr. Kito noted that the "airport system" would not be considered a "highway" within the language of the legislation. Mr. Kito spoke to upgrading facilities which belong to a municipality. The Department currently is negotiating with the municipalities to determine the level of community acceptance. He added, the Department is currently investigating a "tax sharing" mechanism, whereby, a community that does accept ownership of a facility would also receive a portion of the tax revenue collected. Discussion followed among Committee members regarding inclusion of the marine highway to the resolution. Representative Brown inquired if the State currently collects shared taxes on behalf of local governments. Mr. Bartholomew replied that the State does not collect any shared highway or marine fuel taxes. A minimum amount has been collected for aviation air revenue. Representative Brown argued that if the Constitution is to be amended, the new language should be clear. She recommended deletion of Section (b). Co-Chair Hanley replied that there should exist some statutory mechanism to 11 address when the State collects taxes for the municipalities. He questioned who would pay the administrative costs. Co-Chair Hanley interjected that he was not in support of including the marine fuel tax, suggesting that it be a separate issue. Discussion followed among Committee members regarding the marine fuel tax. Representative Brown voiced opposition to creating a dedicated fund source. Representative Navarre commented that the State spends far more than collected on highway maintenance. He suggested that the amount assessed should be increased, otherwise, there would be no reason to pass a constitutional amendment. Representative Navarre suggested the harbor facilities provision be removed. He added, if a dedicated fund is to be established, a 3/5ths vote would not provide enough protection for a dedicated fund, and recommended that a 3/4th or 4/5th majority vote be required. Co-Chair Hanley agreed. Representative Grussendorf elaborated his support to include harbor maintenance. HJR 49 was HELD in Committee for further consideration.