HOUSE BILL NO. 4003 "An Act relating to the motor fuel tax; and providing for an effective date." 3:13:56 PM JERRY BURNETT, DEPUTY COMMISSIONER, TREASURY DIVISION, DEPARTMENT OF REVENUE, explained that the provisions in HB 4003 were identical to provisions in HB 4001 pertaining to motor fuel tax. He relayed the bill would increase current tax rates for highway fuel from 8 cents to 16 cents; for marine fuel from 5 cents to 10 cents; for aviation gas from 4.7 cents to 7 cents; and for jet fuel 3.2 cents to 6.5 cents. He reviewed the sectional analysis (copy on file): · Section 1: Amends AS 43.40.010(a) Changing the tax rate from eight cents to 16 cents per gallon for highway fuel, from four and seven tenths cents per gallon to seven cents per gallon for aviation gasoline, from five cents to 10 cents per gallon for fuel used in watercraft, and from three and two-tenths cents per gallon to six and one-half cents per gallon for aviation fuel other than gasoline. · Section 2: Amends AS 43.40.010(b) to conform with changes made in Section 1. · Section 3: Increases the credit against the motor fuel tax from six cents to 12 cents for fuel used for non- highway uses. · Section 4: Makes the change in sections 1, 2, and 3 applicable to fuel sold after the effective date of those section. · Section 5: Allows the Department of Revenue to adopt regulations to implement the provisions of this Act. · Section 6: Is an immediate effective date for Section 5. · Section 7: Provides for a July 1 effective date for the changes to the motor fuel tax. 3:16:08 PM Representative Wilson asked how the bill would impact the mining and fishing industries. She spoke to jet fuel and relayed the international airports currently took over $32 million in excess, which would not be used in Anchorage or Fairbanks and went to smaller airports. She asked if there had been any determination on why "this is better than landing fees on those small airports" versus increasing the jet fuel tax. Mr. Burnett responded that the aviation advisory committee had recommended (after the Department of Transportation and Public Facilities' (DOT) recommendation to implement landing fees in airports other than Anchorage and Fairbanks) an increase in the aviation fuel tax rather than landing fees. Co-Chair Thompson relayed that there were testifiers available from DOT. Representative Wilson noted that a group had gotten together and had decided they still did not want landing fees; therefore, they recommended increasing jet fuel. She explained increasing jet fuel [tax] increased cost at the two airports that already had landing fees [Anchorage and Fairbanks]. She wondered how it was fair to put more stress on the international airports that were self-sustainable versus implementing landing fees at smaller airports or exempting the international airports. JOHN BINDER, DEPUTY COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES (via teleconference), clarified his understanding that the question was about why DOT preferred a fuel tax over a landing tax. Representative Wilson asked if the department supported the legislation. Mr. Binder answered that the governor had tasked DOT with investigating ways to reduce the amount of General Fund (GF) subsidies to the rural airport system. He detailed that the rural airport system cost about $39 million to operate annually and brought in $5 million in revenue. The conversation had begun approximately 1.5 years ago when the legislature had asked DOT to subsidize or fund personnel increases (at the time operations had been increasing - significant overtime had been occurring and carriers had been requesting extended hours at the airports, which required personnel) with landing fees. He furthered that the aviation advisory board had asked the governor to engage with DOT on other available options for generating revenue. He detailed the conversation had built over the past year about what options were available and what made sense. He continued that board members had raised concerns about equitability and fairness across the state rather than at a specific airport. The board felt that due to the impact on the state, since aviation fuel taxes were already in place and were some of the lowest in the country, the board believed it would be the best way to generate additional revenue on the rural system to close the subsidy gap. The board recommended an increase up to 7 cents [note: some audio indecipherable], which was the foundation for the governor's inclusion of the tax increase in the current bill. Co-Chair Thompson shared that about 2.5 years back he had chaired the finance transportation subcommittee and had requested the department come back with some way to help cover the exorbitant cost of keeping 249 airports open without any money to offset. Representative Wilson relayed she had found it upsetting when she had called DOT to try to determine how much general funds were used at every airport - she had been unable to get an answer. For example, she had been told that a lump sum of money was sent to the northern region and there was no way of tracking what went to the highway and the airports. She opined that it was pretty scary if that was the way the state handled business. She asked if the department would be in favor of excluding the international airports from the tax, given they were already self-sufficient. She did not have a problem with the option for other airports. She was concerned that the bill would put more stress on the larger airports to subsidize the smaller airports. Mr. Binder responded that domestic traffic would be impacted by the aviation fuel tax since the international traffic was exempt already - it was about three-fourths of the total figure and impacted the amount of revenue generated [note: poor audio quality, some testimony indecipherable]. He pointed out that the international airports were directly benefiting from rural Alaska. He stated that while the fuel tax was being collected in Anchorage and Fairbanks and then flowing back to the rural system, the international airports were directly benefitting from the operations even if they did not actually weigh in. 3:24:01 PM Representative Wilson was concerned about actually looking at the users being able to support the industry. She clarified she was not speaking to the benefit. She noted she would offer an amendment to exempt the international airports from the tax. She furthered that the landing fee paid for capital projects at present on the two international airports (the airports also operated domestic flights). She asked if the department had modeling to show how the proposed increases would affect the average person in the mining, fishing, and other related industries throughout the state. Mr. Burnett responded that the modeling primarily looked at the amount of revenue each of the particular tax increases would raise (on the existing taxes). He explained that the subject matter experts and economists in DOR and other departments believed the increases would have minimal impact on the business. Co-Chair Thompson remarked that some modeling had been done pertaining to a commuter driving into Anchorage from the valley. The scenario had assumed a certain gas mileage and a five-day per week commute. He did not remember the precise numbers, but it had determined the motor fuel tax increase would cost someone about $48 per year. Representative Wilson stated that it was not just about the tax. She stated the committee had heard how low its taxes were, but that Alaska paid some of the highest gas prices. She continued there were impacts to everyone and as investors she believed they should know how the increases would impact individuals. She stated the addition may be minimal, but it was necessary to factor in the cost of gas, the income people brought in, and what else would be utilized. 3:26:35 PM Representative Gara referred to the committee's recent debate about whether there should be a big bill that included numerous taxes or separate bills for each of the taxes. He remarked that the administration had tried to submit individual bills [during regular session], which had not worked. Subsequently, the administration had introduced a large bill that included all of the taxes. He believed the administration was just trying to get something done. He apologized to Commissioner Hoffbeck that he had become animated in the previous discussion. He emphasized he merely wanted to see a bill move forward. He addressed the fuel tax and relayed the committee had been told that with the increase in the legislation the state's fuel tax would still be the lowest in the nation. He asked if the same was true for aviation fuel. Mr. Binder responded in the affirmative. Representative Gara remarked that the high price of fuel in Alaska had more to do with refineries; however, he acknowledged it was not the appropriate time to address that issue. He added that he and others had introduced a bill that would have dealt with refinery charges. He asked for verification that the aviation fuel tax increase would apply equally to all domestic flights including small plane flights in rural Alaska or flights at larger airports. Mr. Binder replied in the affirmative. He detailed that most of the [air] traffic in Alaska used jet fuel [note: poor audio quality, some testimony indecipherable]. As written, the bill would apply to everyone in the state except for international traffic originating or ultimately landing in a foreign country. 3:30:17 PM Representative Gara remarked that whether or not people wanted to agree, the state needed to raise revenue. He stated the question was about how to raise the revenue and about how fair it was to everyone. He was leaning in favor of the legislation. He was concerned that a significant portion of the burden was falling on individuals with little money. He wanted to see wealthier individuals contribute in a commensurate way. Overall he wanted to see a package that was fair to everyone and more balanced. Co-Chair Thompson referred to a prior presentation on HB 4001, which had demonstrated how the proposed motor fuel tax increase would impact Alaskans. For example, a typical person driving 12,000 miles per year in a vehicle getting roughly 20 miles per gallon, would pay an additional $48 per year in taxes. Representative Gara referred to a fiscal policy caucus that had existed before he had served as a legislator. At the time he had recommended that at high prices when there was less of a need for money and the price of gas was much more expensive, the gas tax would roll back. He noted a former version of the bill had rolled back the gas tax. He wanted the committee to spend some time considering whether the approach was fair. Co-Chair Thompson noted the committee would consider the bill the following day as well. 3:32:17 PM Representative Guttenberg acknowledged the state's budget crisis and noted that the price of motor and aviation fuel was fairly low. He recognized the bill's goal of increasing revenue. He mentioned the estimated $48 per driver in additional taxes per year for motor fuel. He spoke to a time when the price of gas increased to over $4.00 per gallon and was concerned the impacts on individuals would be significantly higher, but the state's needs for raising revenue would be greatly diminished. He asked if the administration had considered rolling back taxes at different stages if the oil price increased to $80, $90, or $110. He had heard questions about how the state would account for the price difference between Southcentral and Northern Alaska regions. He contended it was not difficult to draw a line around Paxson or Trapper Creek and Cantwell. He detailed rural Alaska would be paying the same hit two or three times the amount impacting the road system. Mr. Burnett answered that the House and Senate Transportation Committees had both included a price trigger in the legislation; however, the governor's legislation had never included a price trigger. He detailed that in 2008 when the price of oil hit its record high, the legislature acted to suspend the gas tax for one year, which was always an option in periods of excess prices. He relayed the issue was not a concern included in DOR's 10-year revenue forecast. Representative Guttenberg thought the best time to do something was when there was no pressure on it. He would look at bringing some of the things back. 3:35:13 PM Representative Wilson asked how the increase would impact the trucking industry in Alaska. She remarked that most of the goods were trucked into Fairbanks. Mr. Burnett responded that he did not have any estimates on hand related to shipping rates. The department had looked at how much fuel someone may use and what that would affect. He detailed the change in taxes was less than the change in the last month in fuel prices in most of the state's communities. He remarked there were not changes in shipping rates every time gasoline or diesel increased or decreased 8 cents. He stated it was very difficult to tell what the impact would be over time. He continued it was possible to identify the costs to a specific company, but it was not possible to know how it would impact prices. Representative Wilson hoped to hear about the impact from the trucking industry, which had pulled its support from the bill. She believed the administration was asking the legislature to make a decision without all of the information. She wanted to know how the motor fuel, jet, and other taxes would impact her constituents. She remarked that many goods were either flown or trucked in from Anchorage. She opined the impact would be very different in communities across the state. She believed the answers should be known. Representative Edgmon spoke to the art of raising taxes. He wondered if there was any way to quantify the cause and effect of raising taxes on industry, private sector, and consumer behavior. He assumed the answer was "no." He surmised there were ways for industry representatives to provide numbers about what increases to their costs mean in terms of their economic behavior (their ability to invest and to go forward to private sector entities). He was frustrated that levying taxes was inevitable. Additionally, he was frustrated that the cause and effect relationship was indeterminate and that the legislature had to rely on others to tell them. He furthered that even DOR, with its best quantitative tools, could only give some kind of extrapolation or estimate about what the tax increases would mean. He asked if the department had been able to do the analysis. Alternatively, he wondered if the legislature would have to rely on others to come forward to specify what the increases would truly mean. 3:39:02 PM Mr. Burnett replied that DOR could determine what the cost would be to an individual or company for any of the taxes. However, DOR could not determine how people would behave or change their behavior as a result of the tax. He shared that he had been a university business instructor in the past. He relayed there were numerous academic studies on the topic, but they were not conclusive and would not provide an answer about what would occur when taxes were raised. Representative Gattis referred to the study of Mat-Su commuters driving an average of 12,000 per year who would pay an average of $48 more per year [under the proposed motor fuel tax increase]. She shared that she lived in downtown Wasilla, which was 55 miles from Anchorage. She rounded the distance to 50 miles and stressed that a commute to Anchorage five days per week was more than 12,000. She stated the actual mileage would range between 27,000 and 30,000 not counting any other travel. She emphasized that the increase would have a bigger impact on Mat-Su than $48 per year. Co-Chair Thompson clarified that he had received a sheet from a former presentation showing that a car driving 12,000 miles per year at 20 miles per gallon, would pay an additional $48. He explained 12,000 per year was considered to be the national average for miles put on a vehicle. He shared that his vehicle was a 2001 and it only had 92,000. 3:41:14 PM Representative Gattis replied that she had a 2003 vehicle with over 150,000 miles. She stressed that most of the miles were not commuter miles. She detailed Mat-Su residents spent a significant amount of time traveling back and forth to Anchorage; therefore, there would be a big impact. Representative Guttenberg referred to his personal vehicles. He believed the appropriate term was "elasticity." He relayed he had recently read an article on the elasticity in the economy on men's underwear. He provided further detail about the article. He remarked that elasticity was a common economic concept. He did not believe there was no way of measuring the impact of the proposed tax increases on Alaska. He surmised it was possible to Google the question and come up with a multitude of papers. He asked about the effect of the taxes on the economy. He surmised that at present the impact would probably be minimal, but if the price ever went to $100, he believed it would be severe. He stated it was not rocket science. He underscored that the committee was asking questions, but was not getting the answers. He was disinclined to support the bill and had never been inclined to support it. Mr. Burnett responded that the elasticity of demand for motor fuels was very, very low within any relevant range. The change from 8 cents to 16 cents was unlikely to make any reasonable change in people's behavior. The price change from $2.00 to $4.00 was a separate question entirely. He emphasized the price change as a result of the legislation would be very low. Representative Guttenberg responded that he "certainly recognized that, but you get to a dollar a lot faster and that's the impact." He furthered that when the price went to $1.00 because of the increase in the legislation, it would impact "it faster than it would otherwise." He stated it made a difference when fuel would be $4.00 or $5.00 per gallon. He believed the increase in the bill would get to the higher price faster. Co-Chair Thompson summarized that the bill would increase motor fuel tax from 8 cents to 16 cents and the state would still have the second lowest gas tax in the nation. He shared he had recently been in California, which had a 52 cent tax; gas in California had been $3.15 per gallon when it had been $2.30 per gallon in Fairbanks. HB 4003 was HEARD and HELD in committee for further consideration.