HOUSE BILL NO. 356 "An Act making a special appropriation to the transportation infrastructure fund; and providing for an effective date." 10:40:15 AM REPRESENTATIVE PEGGY WILSON, SPONSOR, pointed out that the Alaska Transportation Infrastructure Fund (ATIF) required three separate pieces of legislation in order to put the fund into practice. The first, HJR 42, would put a constitutional amendment on the ballot to allow for a dedicated transportation fund. Next, HB 329 would create the fund, define how it would be used, and how the appropriations would be dispersed. The third, HB 356, would appropriate $1 billion seed money for the fund. Representative Wilson maintained that Alaska needed to shoulder more of the responsibility for its own transportation costs. She relayed that the previous year the state had received 87 percent of its transportation funding from the federal government, more per capita than any other state. A new federal highway reauthorization bill was anticipated, with less money for states with low populations. She argued that Alaska needed a dedicated transportation fund. State-funded projects do not have the same stringent requirements that the federal government has, but they still need the same construction standards. Representative Wilson reported that the House Transportation Committee had met during the previous session regarding improving the transportation infrastructure in geographically-diverse Alaska. The committee traveled to villages and urban areas to see firsthand the challenges faced, including safety corridors, congested areas, and roads in need of repair. The committee heard from the Alaska Municipal League (AML) and the Mat-Su Borough, who teamed together to contract an independent study of the fiscal challenges of transportation in the state. Larry Persily, a committee aide, had completed an extensive study of the fiscal options for funding transportation infrastructure upgrades. There was a full day of hearings on issues from the national level down to the local level, and discussion of optimal solutions to the problems. She maintained that the bill was the culmination of all the hearings, travel, and hours of research. Represented Wilson emphasized that she did not take changing the state constitution lightly. Two dedicated funds had been grandfathered into the constitution already, including one for transportation. She asserted that the time was right to put the fund into place in order to plan solutions to transportation problems. A dedicated fund would provide known funds and the ability to provide a long-term plan for capital improvements and major maintenance. She believed the voters would be in favor of the dedicated fund. 10:44:53 AM BECKY ROONEY, STAFF, REPRESENTATIVE PEGGY WILSON, briefly described the two other transportation bills. She explained that HB 329 would cover all modes of transportation, including aviation, roads, surface transportation, bike paths, ferries, harbors, and municipal assets. The bill would take the revenue from the fuel tax and vehicle registration fees and put them into a fund. The Department of Revenue (DOR) would manage the fund, looking to provide 6 percent of market value (POMV) average over five years. Each year, appropriations into the fund would consist of the 6 percent POMV plus 50 percent of the revenues from the fuel tax and vehicle registration fees. The legislation would set limits on how much could be appropriated across the modes of transportation and would create an advisory council with representation from the legislature, the public, and the Department of Transportation and Public Facilities (DOT/PF). The advisory council would assign a numeric value to the proposed projects to define which would be done in a given year. The bill would allow for Division of Motor Vehicle (DMV) operations, retain all specialty license-plate appropriations set forth in statute to date, and retain funds from the aviation fuel tax for municipal airports. The governor and the legislature would approve the capital appropriations recommended by the advisory council; the capital items would go through the regular budget process. Ms. Rooney reported that HB 356 would be an appropriation bill for the $1 billion for seed money. 10:47:25 AM Representative Gara commended the work done on the bills, although he was skeptical about dedicated funds. He noted that he had been told about a provision that interested him. He believed other areas of the capital budget should be dealt with in the same manner as school construction, with some sort of ranking process. He asked whether there was a version of a Statewide Transportation Improvement Program (STIP) process included in one of the bills. Representative Wilson replied the process was in the enabling bill (HB 329). Representative Austerman stated that he had had some reservations about the proposal at first because it would take funds that are already being used in the budget process and dedicate them to a different use. He thought there was enough time to address the issue before a vote. He queried a change related to a date on page 1, line 9. BRIAN KANE, DRAFTER, LEGISLATIVE LEGAL SERVICES (via teleconference), explained that the question referred to a conforming change needed because the constitutional section has not been amended since it was ratified. He added that the real change to the section was the addition of Sections 15 and 18 as allowable dedicated funds; putting the date in was a clean-up measure. 10:50:44 AM Representative Wilson asked whether the appropriate committee substitute was before the committee. She noted that the bill should be version \C. 10:51:12 AM AT EASE 10:53:25 AM RECONVENED Co-Chair Stoltze explained that there was a proposed CS and the chair preferred to offer a constitutional amendment instead, which would allow a dedicated fund. Representative Wilson felt that the issue could be taken care of in the enabling bill. Representative Joule directed attention to HB 356 (related to the appropriation). He asked whether the numbers were strictly from the 6 percent POMV or from that amount plus the other money available. He wondered what would be available for transportation funds in the future. Ms. Rooney referred to the chart "Available Funds From ATIF" (in the packets for HB 356) with two scenarios. Scenario one assumed the $1 billion appropriation seed money for the fund; all of the revenue from the vehicle registration fees and the motor fuel tax would go into the fund and accumulate. The only thing available for appropriation would be the 6 percent POMV averaged over 5 years. Ms. Rooney continued with the second scenario, the seed money plus 50 percent of the previous year's revenue from vehicle registration fees and motor fuel taxes; she indicated that the total appropriation was shown on the right-hand side in the last column. Representative Joule queried the difference between the two scenarios. He noted that in FY 12, about $36 million would be available for projects statewide. Ms. Rooney responded in the affirmative. Representative Joule questioned the out-years and the changing numbers. Ms. Rooney replied that the numbers reflected the compounding of all of the motor vehicle fees and motor fuel tax in scenario one; the funds would continue to be put into the savings account and compound; it would catch up at about year 2018. The choice would be between spending the money up-front or saving it to spend in the out-years. 10:58:41 AM Representative Gara speculated that the amount available would start in the high $50 million range and then grow to $100 million. Ms. Rooney agreed. Representative Wilson clarified that he was referring to scenario one. Representative Gara understood the need for a healthy transportation budget. He was concerned that in the early years, the fund would spin off less than was already spent on transportation. He was worried about declining state revenue and availability of funds, which could result in budget cuts. The legislation would not allow transportation funding to be cut any lower than the designated amounts, which was his problem with the dedicated fund. He wondered what would happen if the state found itself in a situation where something needed to be slashed. Supporters of the dedicated fund would be protecting transportation from being cut, but people advocating for schools would not want school funding cut, healthcare advocates would not want health care cut, and so on. The legislature would be forced to slash something big, and he did not know why one area of need should be protected more than another. Representative Wilson responded that if the legislature found itself in the described situation, the economy of the state would be in dire straits. She asserted that no matter what was cut, jobs and economic development would be important in such a situation. She maintained that the measure would ensure some economic development for the state. Ms. Rooney added that Representative Gara's description of the smaller amount was why the enabling statutes would be changed to allow expenditure of 50 percent of the revenues so that something substantial would be seen immediately. Representative Gara thought a lot of work had to be done to address as many considerations as possible. 11:02:40 AM Representative Joule shared Representative Gara's concerns; however, the other part of the discussion related to moving forward with transportation infrastructure in the state. Often, the challenge in Alaska is developing modes of transportation (surface or otherwise) that would allow access to resources that the state might want to develop. He thought development could help avoid the challenges described. Representative Fairclough asked where the described funds [collected from motor vehicle fees and motor fuel taxes] were currently going and what they were being used for. She thought the funds went to other state entities, which would need general fund dollars [if the measure passed]. Representative Wilson replied that the intent of the CS was to ensure that the state would not take any of the funds used currently and that nothing would be taken out of the general fund; the assurance could be put in enabling legislation. The sponsors did not want to change anything happening currently with the receipts from vehicle registration fees and fuel taxes. Some of the receipts go to different communities for airports; she asserted that they did not want to touch that funding. 11:05:45 AM Ms. Rooney added that there were [receipts from] specialty license plates that go through the general fund to specialty organizations such as veterans and Special Olympics; the sponsors did not intend to take that money. She noted that there were receipts from taxing aviation fuel that went to municipal airports. Representative Fairclough pointed to page 1, Section 18, line 14 and read: "from any sales tax on fuel for the propulsion of motor vehicles, aircraft, and watercraft, less refunds, credits, and collection costs provided by laws, and from a registration fee of motor vehicles, not special registration fees." She asked whether money would be put into a fund from some state-revenue sources or taxation already in place. Ms. Rooney answered in the affirmative. Representative Fairclough asked whether the money put in the dedicated fund would result in less money going to the places where the money currently went. Ms. Rooney replied that the funds went into various holding accounts within the general fund and then were appropriated. Representative Fairclough queried the total that would have to be backfilled with general funds. Ms. Rooney answered $76 million per year. Representative Austerman asked whether the current gasoline motor tax went into a dedicated fund. He referred to a dedicated fund that had been grandfathered in. Representative Wilson responded that the fund was grandfathered in, but when the legislature raised the fuel tax, they were told that the dedicated fund would have to go. Representative Austerman pointed to 11 years out using scenario one, when there would be a little over $2 billion in the fund. He wondered whether the legislature could use the money for anything other than transportation if a situation of need occurred as described by Representative Gara. Representative Wilson responded that the enabling legislation would be in statute and that the statute could be changed if needed. 11:09:45 AM Ms. Rooney clarified that the legislature could not use the money for other things without changing the constitution because the amendment would stipulate that the fund must be used for transportation capital funds. Co-Chair Stoltze recalled the last dedicated fund established by the voters in 1976. There was a revenue stream and the legislature augmented the fund "far beyond." He summarized that the idea was to have the legislature be able to send the gas tax, any other tax, or an amount in a special appropriation to the constitutionally-protected transportation fund instead of the general fund. 11:11:05 AM Representative Gara referred to the chart depicting the historical amount of state spending on transportation projects, with a general fund part, a federal part, and other. He asked whether the fund would be used only for non-federal transportation projects or if it would be available for state transportation spending. Representative Wilson replied that the enabling legislation would limit how much could be spent on federal projects, but it would allow spending on federal projects. She preferred to do the projects as state projects because they tended to be much cheaper and faster. However, they did not want to limit use of the fund to only state projects; up to 10 percent could be used on federal projects, such as for a federal match. Representative Gara wanted to know how much of the state money has gone to state projects and how much has been matching money for federal projects. Representative Wilson replied that DOT/PF would provide the information. Vice-Chair Thomas asked why all three pieces of legislation were being considered at one time. Representative Wilson responded that she would be happy if the resolution got through and they waited to do the other ones. She noted, however, that many people wanted to know the overall thought process. Vice-Chair Thomas commented that the large sum of money ($1 billion) could worry people and distract from the resolution itself. He stated that he liked the idea. 11:13:38 AM Representative Austerman asked for clarification regarding the conceptual amendment. Ms. Rooney responded that the amendment would allow for the use of some of the fund for the operations of the DMV; the enabling legislation stipulates that the state must appropriate for those operations, so they wanted it in the constitutional resolution. Representative Wilson added that the program was currently handled in the way described; receipts were used to run the DMV and the sponsors did not want to change that. They wanted to avoid people coming to the legislature for the funds. 11:15:12 AM Representative Austerman commented that he would not support the idea. He opined that all revenue from the DMV should go to the general fund and then be appropriated through the legislature so the legislature would know what was going on. Representative Wilson responded that the funds would still go through the usual process, through the subcommittees and so on. Representative Austerman stated that he did not like the idea of the DMV being funded through the constitution. Representative Kelly asked whether the legislature would have the flexibility of spending 100 percent state funds and whether the current system of matching funds would still be in place. Representative Wilson responded yes, except that 10 percent could be used for federal match (although it does not have to be used for federal match). Representative Kelly summarized that the current system of matching across the board would be permitted but not required. 11:16:49 AM Representative Fairclough asked which bill was being addressed in public testimony. Vice-Chair Thomas responded all three bills. JOHN MACKINNON, EXECUTIVE DIRECTOR, ASSOCIATED GENERAL CONTRACTORS OF ALASKA (AGC of Alaska), stated that the organization represented over 650 businesses around Alaska. He provided testimony regarding HB 329; he did not have an opinion on either the appropriation or the constitutional amendment. He noted that Alaska had relied on federal transportation and construction funding for many years. The federal highway program had used the federal fuel tax, which has been around since 1916. He thought it was one of the best programs developed. Alaska did not get to participate in the program until statehood. Mr. MacKinnon detailed that for the federal gas tax collected in Alaska (at $0.184 per gallon), the state received a return of about six-to-one; for every $1.00 collected the state received $6.00 back. He emphasized that most states get only $0.90 back for every dollar collected. He warned, however, that the return may not be allowed much longer. The federal highway program was a six-year program, and re-authorization was overdue. He relayed that the federal administration wanted to hold back, although the federal committee chair wanted to move ahead; the [re- authorization bill] has been referred to as the "transit bill" instead of the transportation bill, and was expected to favor urban areas with higher populations. He expected less to come to Alaska as a vast state with limited population. Mr. MacKinnon maintained that general-fund appropriations for transportation projects have been generous in past and current capital budgets. Over the years, the ability to spend state funds has greatly speeded up the process. He noted that one federal dollar was worth about $0.75, compared to the worth of a state dollar. Federal dollars were harder to spend as there were more rules and procedures; state dollars have the same construction and environmental standards, but could be used more concurrently instead of consecutively. He pointed out that there were numerous examples of faster projects. Mr. MacKinnon stated that AGC of Alaska has been on record for many years supporting a state-funded transportation plan. He thought the proposed plan had gone through a long and thoughtful process and had made great headway. He believed a key element of any successful program was a predictable and steady flow of funding; living from one year's appropriation to the next, through highs and lows, makes it difficult to have an efficient system. He believed directing the state motor fuel tax of $0.08 per gallon and the vehicle registration fees constituted a user fee going toward the various modes of transportation being used. He thought the proposed advisory committee resembled the transportation boards or commissions that most other states had; the system has worked well in other states. Mr. MacKinnon concluded that HB 329 would provide a very good framework for a successful state-funded transportation program. 11:22:58 AM WHITNEY BREWSTER, DIRECTOR, DIVISION OF MOTOR VEHICLES, DEPARTMENT OF ADMINISTRATION (via teleconference), spoke to HB 329. She explained that currently, almost all DMV appropriations (including capital and operating) were funded via receipt-supported services; the division lived off receipts, and the extra was deposited into the general fund. The DMV budget went through the appropriation process, but the funding source was receipt-supported services. Ms. Brewster furthered that HB 329 would allow for 3 percent of the appropriation of the transportation infrastructure fund to be available for DMV's operating costs. She referred to a letter from the division to the committee [April 6, 2010, copy on file] outlining the details. She thought the DMV would have enough funds for FY 12 in terms of operating expenses; but looking forward, it could possibly have budgetary problems that would result in the DMV requesting supplemental funding from the legislature. The vehicle registration fees listed in HB 329 would be transferred into the transportation infrastructure fund; there would be insufficient funds left to fund the DMV operations. None of the funds would be capital funds. She stated that the division did not conceptually oppose the bill, but wanted to see the language changed dealing with the 3 percent being available to the DMV. She thought the language should basically state that anything in excess of needs for operations would go into the transportation fund. Co-Chair Stoltze appreciated information about the technical difficulties, but said that he preferred to consider the constitutional amendment without having to figure out all the funding mechanisms. Vice-Chair Thomas commented that the Commercial Fishery Entry Commission was fully funded by the fishermen and that the surplus went automatically to the Department of Fish and Game to supplement its budget. He thought a similar mechanism could be used to make sure the DMV was fully funded each year, with the surplus going to the dedicated fund. 11:27:43 AM Representative Gara commented about moving ahead on the constitutional amendment. He also wanted to go forward on another statute to evaluate and rank projects to limit spending and dedicate money to the most important things. He described the current process related to transportation, with each district fighting for its own projects. He thought the capital budget needed to be reformed to rank projects. He wanted the process to be written into the proposed transportation fund. Representative Fairclough suggested limiting the discussion to HB 42 in order to facilitate the process. She was concerned that discussion about funding possibilities could result in losing the overall focus on whether to create a dedicated transportation fund. She argued that education and emergency medical services would also benefit from dedicated funds for transportation. MARK HICKEY, JUNEAU, noted his 30 years of experience working on transportation issues in Alaska, including as commissioner of DOT/PF. He testified in strong support of the bills, particularly a dedicated transportation fund. He believed all former DOT/PF commissioners would support the idea as well. He thought the state needed a reliable and predictable way to fund transportation, especially the user-fee concept, since the state did not have a state- funded program. Alaska was the only state that did not, which caused considerable problems on the federal level. He thought the real problem was that the state was not meeting its transportation needs. The municipalities were forced to make federal programs meet a variety of needs, which did not work and was an inefficient use of federal money. Mr. Hickey informed the committee that at statehood, Alaska had dedicated taxes from both motor-craft and water-craft fuels, as well as the school fund (using tobacco tax). The purpose for the motor-craft and water-craft fuel taxes was related to operations and maintenance, such as repairs. 11:34:09 AM Mr. Hickey continued that in 1961, the motor-fuel tax was changed from $0.04 to $0.08 because the state needed the revenue. At the time, the Department of Law (DOL) provided what turned out to be incorrect advice that if there was a change to a tax that had been dedicated, such as increasing the amount, the dedicated fund would be lost. Based on the advice, the Title 19 statute still on the books stipulated how the money would be used. The legislature amended the statute to say "may be used" and therefore eliminated the dedicated-fund status. He did not know whether DOL had issued a new opinion since that time. When the tobacco tax was put in place in the mid-1990s, it was demonstrated that the DOL advice was incorrect. There was a long discussion about what would happen to the dedicated funds if the rate of taxation was changed in the future. The members of the constitutional convention all agreed that since need changes, the rate can be changed. To lose the dedication, the tax would have to be eliminated and then brought back, or the purpose of the tax would have to be changed. As a result, the tobacco tax was increased for the school fund, which was still in place and had never been challenged. Representative Austerman queried the relationship between HB 42 (Section 18) and HB 356 and how the fund could work without the $1 billion appropriation. Mr. Hickey replied that it was complicated to look at all the pieces required. He believed HB 329 also needed to be considered; it was designed to supplement the programs in place already and focus on state-funded capital. He referred to Representative Fairclough's question about what money would get displaced; the $76 million was accounted for in the budget in the highway account as well as being essentially appropriated to maintenance support along with other general funds. House Bill 329 would take the money and put it into the capital side (which could participate in some federal money but was mostly designed to augment the federal). There would be a need for additional general funds to deal with funding for maintenance costs. He continued that the concept as a whole would require both the appropriation of a meaningful amount of funds and user fees sufficient enough to have a program; $20 million or $30 million spin-off each year would not be meaningful, but $50 to $70 million in addition to a way to grow the fund would be meaningful. He thought user fees were important and had to be looked at. He noted polls showing strong support for increasing the motor fuel tax as long as the money raised was used appropriately. Mr. Hickey opined that the dedicated fund and its mechanisms would not work very well without some initial, significant appropriation into the fund. He thought the foundation was created at statehood with user fees. He recommended protecting the user fees and then supplementing then. 11:40:11 AM Representative Austerman pointed out that putting $76 million each year into the fund would not grow it. He wanted a fund that would grow, and thought that would take a significant endowment by the legislature. Mr. Hickey responded that it would depend on what the funds were used for. He agreed with the concept in HB 329 of keeping half of it (or some other amount) to grow the fund more with the resulting interest deposits. He noted that putting the money into state-funded transportation projects represented a significant change from current practice. The problem of what the $76 million was used for would still have to be worked out. The need for a state-funded program had been discussed since 1986 or 1987, when the price of oil went down to $9 per barrel. Projects were still funded, but haphazardly. Transportation projects need investment over time on a programmatic basis, because of environmental requirements and so on. In the current system, a little bit of money was acquired at a time, and each subsequent bit had to be fought for. He acknowledged that the endowment part was important, but the added benefits of the user fees focused on state-funded capital in a programmatic way with a ranking mechanism would represent a significant change from the current process. Representative Austerman agreed that something needed to be done, but stated concerns regarding HB 329 and how to appropriate the money; with percentages at 188 percent of the fund and funding sources (page 3), he thought there would be a lot of competition. Mr. Hickey explained that there was a not-to-exceed amount that would create some equity between modes. He explained that Alaska was unique in terms of the multi-modal challenges, including ports and harbors as well as aviation. Representative Gara stated that he was beginning to be convinced, but he saw a reverse problem that might require an amendment. He did not want to overspend, to require the legislature to spend money that it does not need to spend. He felt a dedicated fund meant that the money had to go only to transportation funding, but he did not think transportation funding would be the same in all years. He noted that the fund would soon have $60 million per year, but in FY 10, only $35 million was spent on transportation projects. He questioned what would happen with extra money during times of less need. He suggested that the bill stipulate that at the end of the fiscal year, the excess not spent on transportation (of spin-off money, not principal) should be put into the general fund. 11:45:12 AM Mr. Hickey replied that any expenditure was subject to appropriation; the legislature annually controlled what funds were spent, although the money in the dedicated fund could only be spent as prescribed. He underlined that the backlog for transportation needs were excessive; between deferred maintenance and capital projects, the need was more than ten times the amount that would be available. He emphasized that the user fees collected would not have to be spent in any given year, if there were not projects that it made sense to fund. He believed the money would be protected. He was not sure how a sweep structure could work within a constitutional amendment. Representative Gara commented that leaving the money in the fund would mean it could only be spent for transportation. He wanted to consider some kind of sweep provision that would happen after the legislative session was over in a given year. Mr. Hickey detailed that DOT/PF had a $20 billion backlog in transportation projects. He emphasized that the costs of the projects were very high. He referred to one project that cost $70 million. In a good year, he conjectured the fund could pay for five or six projects, and thought two or three projects each year was more likely. 11:47:58 AM Representative Fairclough asked whether public testimony was closed. Vice-Chair Thomas closed public testimony. 11:48:37 AM RECESSED 6:59:40 PM RECONVENED Co-Chair Stoltze continued discussion on HJR 35.