CS FOR SENATE BILL NO. 115(FIN)(efd fld) "An Act relating to vehicle registration fees; and relating to the motor fuel tax." 11:35:09 AM Co-Chair Johnston indicated the committee would be hearing SB 115 first. Co-Chair Johnston OPENED Public Testimony. Co-Chair Johnston CLOSED Public Testimony. DARWIN PETERSON, STAFF, CLICK BISHOP, provided a brief review of the legislation. SB 115 proposed to increase the highway motor fuel tax from $.08 cents to $.16 cents. The original legislation proposed to increase the marine fuel tax from $.05 cents to $.10 cents. The amendment that was added to the bill in the House Transportation Committee provided a refund for commercial fishermen. In order to receive a refund of $.05 cents per gallon, fishermen would be required to send in their fuel receipts at the end of the year. Mr. Peterson reported that the bill did not propose a change for aviation or jet fuel. He spoke about the off- road refund. In current statutes if a person purchased highway gasoline for off-road vehicles such as snow machines and 4-wheelers, they could send in their receipts for a refund of $.06 per gallon. The legislation proposed to increase the refund amount for off-road vehicle fuel from $.06 cents to $.12 cents. He was directed by the sponsor to request that the committee consider amending the bills effective date. Currently, the legislation reflected an effective date of July 1, 2020. Due to the current COVID-19 disaster, he respectfully requested the committee consider extending the effective date to January 1, 2021. Co-Chair Johnston replied that the committee would be taking up amendments. She reported there were 4 amendments submitted for consideration. 11:38:32 AM Vice-Chair Ortiz MOVED to ADOPT Amendment 1, 3l-LS0895\E. l Nauman 3/17/20 (copy on file): Page 2, following line 22: Insert a new bill section to read: * Sec. 3. AS 43.40.00S(a) is amended to read: (a) Every dealer or user of refined fuels shall pay a surcharge of $.015 [$.0095] a gallon on refined fuel sold, transferred, or used in the state." Renumber the following bill sections accordingly. Co-Chair Johnston OBJECTED for discussion. Representative Josephson explained the amendment added a tax of 55/100 cents per gallon to the purchase of refined fuel. The funds would be used for making the prevention account whole in the out years from the Spill Prevention and Response Division. He borrowed the concept from a bill offered in 2015 by Senator Micciche. The Senator had increased the tax by $.0095 cents to support the division which received a significant amount of its revenue from the funding. The revenue had declined because cars were more efficient and because throughput had declined, which was another source of revenue for the department. He called it the "one latte" tax because it would cost about $5.00 per year for the average driver. He was told by the sponsor and the administration that they were not opposed to the amendment. Representative Carpenter asked how much revenue a tax of $5.00 per year per person would generate each year. Representative Josephson responded that it would generate additional revenue of $3.8 million. Representative Knopp asked if the funding would go to the Department of Environmental Conservation (DEC) for spill response. Representative Josephson responded affirmatively. He noted that the concept had already been applied in the 2015 legislation he mentioned. If the amendment passed, the state would spend less to regulate and prevent spills. Otherwise, the money would have to come out of the states treasury. Currently, the fund could not sustain the division past 2024. The fund would simply be depleted. He cited the example of class 2 tank farms. The administration wanted to terminate 7 positions, reduce training for responders and staff, and reduce its regulation of long- term soil and water contamination among other things. The effect was already being felt. Representative Knopp asked why the fund was in decline. Representative Josephson replied that it had to do with people purchasing hybrid cars and because of throughput declining from 550,000 to 480,000 barrels per day and falling. 11:43:54 AM Vice-Chair Ortiz added that, with the gradual erosion of revenue, it had been projected that the spill response fund would be at zero by 2024. Representative Knopp did not understand the correlation with throughput because it was not a refined product. Representative Josephson understood that, starting in 1986 and adjusted after the oil spill in 1989, there was a $.05 cent surcharge on throughput. One cent per barrel went into the spill response fund which was designed to be used for a massive Exxon-Valdez type of problem. The remaining $.04 cents went into the spill prevention account. The amendment would supplement the prevention side. Representative Wool wanted to make sure he understood the amendment and provided what he thought were the terms. He wondered about the total amount of refined fuel. Representative Josephson thought Mr. Peterson could respond. Mr. Peterson asked Representative Wool to repeat his question. Representative Wool restated his question. Mr. Peterson indicated that the additional increase of $.08 cents per gallon plus $.05 cents for marine fuel would bring in an estimated amount of $34 million. He though a half-cent would bring in about $3 million to $4 million. Heating fuel was exempt from the tax. He indicated that there were additional exemptions as well. Representative Wool thought the total revenue from the tax would be about $2 million. Representative Josephson responded that it was $3.8 million and the total gallons taxed was roughly 695 million gallons in Alaska. Co-Chair Johnston WITHDREW her OBJECTION. Representative Carpenter OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Josephson, Knopp, LeBon, Ortiz, Wool, Johnston, Foster OPPOSED: Merrick, Sullivan-Leonard, Tilton, Carpenter The MOTION to ADOPT Amendment 1 PASSED (7/4). 11:50:32 AM Representative LeBon MOVED to ADOPT Amendment 2 31-LS0895\E.3 Nauman 3/20/20 (copy on file): Page 1, line l, following "registration": Insert "and registration" Page 1, following line 2: Insert new bill sections to read: "* Section 1. AS 28.10.155(a) is amended to read: (a) Except as provided in {c) of this section, the [THE] owner of a motor vehicle [, OTHER THAN A COMMERCIAL MOTOR VEHICLE,] that is required to be registered under this chapter may elect to register the motor vehicle permanently in lieu of registration under AS 28.10.108 if the vehicle is at least eight years old and the owner resides in the unorganized borough or in a municipality that elects, by passage of an appropriate ordinance, to allow the permanent registration of motor vehicles. The permanent registration expires when the owner transfers or assigns the owner's title or interest in the vehicle. A permanent registration may not be renewed. On receiving the proper application and fees, the department shall issue to the registered owner registration plates, tabs, and a permanent registration form. * Sec. 2. AS 28.10.155 is amended by adding new subsections to read: (c) The following vehicles are not eligible for permanent registration under (a) of this section: (1) commercial motor vehicles; (2) electric vehicles; (3) plug-in hybrid vehicles; (4) vehicles powered by an alternative fuel and manufactured primarily for use on public roads. (d) In this section, (1) "alternative fuel" includes hydrogen and natural gas; (2) "electric vehicle" and "plug-in hybrid vehicle" have the meanings given in AS 28.10.42l(k)." Page 1, line 3: Delete "Section 1" Insert "Sec. 3" Renumber the following bill sections accordingly. Co-Chair Johnston OBJECTED for discussion. Representative LeBon explained the amendment would exclude electric vehicles, plug-in hybrid vehicles, and alternatively fueled vehicles from being eligible for permanent registration, known as a Z-tag. The issue was brought to his attention by the American Automobile Association (AAA) who noted the disparity between vehicles powered by traditional motor fuel, such as gasoline and diesel, versus electric and hybrid vehicles. He continued that when contributing to the highway maintenance fund, since electric and hybrid vehicles would be purchasing less motor fuel at the pump the bill raised the bi-annual registration costs for the vehicles to ensure they were contributing to the highway maintenance as users of public roads. However, current law allowed a person to buy an electric vehicle that was more than 8 years old, purchase a permanent registration which would be $200 for an electric or hybrid vehicle, plus a $25 permit registration fee never again having to contribute towards highway maintenance. He argued that by excluding electric, hybrid, and alternative vehicles from permanent registration fees, highway maintenance costs could be recuperated. Prior testimony revealed that the life span of a battery in an electric vehicle was about 8 years. However, technology was anticipated to improve. Representative Josephson relayed that the bill already treated hybrid and electric cars differently. He thought the bill was potentially double-dipping by treating them differently than other regular cars over 8 years old. He asked if he was accurate. Representative LeBon was looking to not exempt a hybrid or electric vehicle just because it reached a certain age, if it was still on the road. The goal was to continue to collect a fee towards road maintenance even if a vehicle reached a certain age. He argued that an electric or hybrid vehicle should continue to contribute to road maintenance as long as they were on the road. Representative Wool provided clarity regarding the amendment. He suggested that the basic average increase would be $50 for a gasoline-powered car. The difference in the registration fee for a hybrid or electric car would be about $50. He thought the bill addressed the inequity and leveled the playing field. Co-Chair Johnston WITHDREW her OBJECTION. Representative Carpenter OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Knopp, LeBon, Ortiz, Sullivan-Leonard, Tilton, Wool, Carpenter, Josephson, Foster, Johnston OPPOSED: Merrick The MOTION to ADOPT Amendment 2 PASSED (10/1). 11:56:18 AM Representative LeBon MOVED to ADOPT Amendment 3, 31-LS0895\E.4 Nauman 3/20/20 (copy on file): Page 3, line 25: Delete "1" Page 3, line 27: Delete "(A)[(1)]" Insert "(1)" Page 3, line 28: Delete "(B)[(2)]" Insert "(2)" Page 3, line 30: Delete "(C)[(3)]" Insert "(3)" Page 3, line 31: Delete ";or" Insert "." Page 4, lines 1 - 3: Delete all material. Co-Chair Johnston OBJECTED for discussion. Representative LeBon explained that Amendment 3 would remove the language inserted by the House Transportation Committee creating a $.05 cent per gallon refund for marine fuel tax paid by licensed commercial fishing vessels. The bill raised tax on marine fuel from $.05 cents to $.10 cents per gallon. The refund would essentially exclude an entire industry from paying the increase in the tax which went to state and municipal port and harbor maintenance and upgrades which would directly benefit the fishing industry. He understood that the commercial fishing industry had experienced many economic challenges even before the states current array of economic challenges. He continued that the increase from other fees was certainly part of the industry. However, he saw the amendment being about equity. He could see the argument for reducing the amount of the increase but not for excluding an entire industry from the increase in which it would be a direct beneficiary. He spoke with the sponsors office and the sponsor was okay with the proposed change. Representative Knopp asked for clarity on the amendment. He noted on page 4 that there was an exemption for the commercial fishing fleet. He asked about the items on page 3, lines 25, 27, and 28 regarding off-road users. 11:59:01 AM Representative LeBon responded that the intent of his amendment was to address the favorable treatment that commercial fishermen would receive from the $.05 cents per gallon exemption under the amendment passed by the House Transportation Committee. His understanding was that other users of marine fuel such as charter fishing operators, tourism operators, boating operators, barge operators, and ferry operators would pay the $.05 cents per gallon surcharge. Commercial fishermen would enjoy the ability to apply for a refund by sending in their receipts. He posed the question whether commercial fishermen were receiving a benefit. Currently, the way the bill was structured, commercial fishermen would receive a refund of the additional $.05 cents per gallon. If the commercial fishermen were not going to receive a benefit, he wondered if other users such as charter boat operators, tourism operators would receive a benefit. He thought the commercial fishermen would benefit in some way and should pay the tax. Vice-Chair Ortiz spoke against the amendment. The commercial fishing industry, under the current scenario with COVID-19, was facing a huge loss in profits. When considering a $.05 cents exemption. However, getting out to the fishing grounds was costly in fuel. He did not agree with the amendment. 12:02:11 PM Representative Knopp opposed the amendment. He reported that everything on page 3 reflected existing language applicable to off-road equipment including loaders, graders, and excavators used for road maintenance or at mining sites. He read from a portion of the bill staring on page 3, line 23. He concluded that the purpose of the motor fuel tax was to fund highway maintenance. The vehicles he was referring to were not used on highways. He also referred to the new language on page 4. There were many additional costs on the commercial fleet. He thought anything that could alleviate the pain would be desirable. Mr. Peterson replied that in his view the amendment was deleting the sub numbers that were inserted because of the new language on page 4, lines 1-3 creating the refund for commercial fishermen. If the amendment sponsored by Representative LeBon were to pass, the refund for $.12 cents per gallon for off-road use would still apply. The refund would apply for anyone who purchased fuel for vehicles used off-road. The amendment would delete the new language inserted by the House Transportation Committee on page 4, lines 1-3. If the amendment were to pass the commercial fishing industry would no longer have the option to apply for a refund for the additional $.05 cents. However, the $.12 cent per gallon off-road rebate would remain in the bill. 12:06:12 PM AT EASE 12:07:31 PM RECONVENED Representative Knopp had not interpreted the amendment correctly. Although he had received clarification, he argued that some sectors of the commercial fishing industry needed some relief. He continued to oppose the amendment. Representative Wool asked how many other states provided a different tax rate for marine versus highway fuel. Mr. Peterson responded that most all other states charged the same excise tax for marine fuel as they did for highway fuel. Alaska was unique in having two different tax rates. Representative Wool asked if different rates had applied in Alaska for a significant period. Mr. Peterson responded that the last time the marine fuel tax was changed was in 1994. The highway fuel tax was changed last in 1970. In 1945, when Alaska was still a territory and the tax was created, he believed it was $.01 cent for both fuel categories. He was unsure when the legislature separated highway fuel tax from marine fuel tax charging different rates. He suspected it was when the commercial fishing industry came into existence. He would have to research when the two taxes were separated. Representative Wool understood the effects of the COVID-19 virus on several different industries. The sponsor of the amendment mentioned other industries that would not be exempt. He asked if a state aid package was in the works for the fishing industry. Co-Chair Johnston thought several relief avenues would be accessible in the near future. 12:11:17 PM Mr. Peterson reported speaking with Jim Anderson, the operations manager for investments at the Department of Community and Economic Development (DCCED). Current statute provides the department the ability to defer loan payments and withhold penalties for the commercial fishing fleet through loans provided by DCCED. He also understood that the Alaska Commercial Fishing and Agriculture Bank (CFAB) had the statutory authority to do so as well. Interest would continue to accrue, but for the duration of the current disaster, the commercial fishing fleet could defer payments, particularly if the commercial fishing fleet was not able to operate in the coming summer due to the canneries not opening. He noted that permits would not be seized as well. Representative Wool asked about processors. He asked if the reduction would apply. Mr. Peterson asked if Representative Wool was talking about the amendment from the House Transportation Committee. Representative Wool responded affirmatively. Mr. Peterson responded in the negative. [Mr. Peterson was interrupted with an additional question from Representative Wool]. Representative Wool asked if the exemption would apply to ancillary vessels such as a tender or a floating processor. Mr. Peterson replied that the only people that could apply for the refund were licensed commercial fishermen who had a Commercial Fisheries Entry Commission (CFEC) license. He did not believe it would apply to processors. Representative Wool asked if most CFEC licenses were issued to Alaska Residents. He wondered about the percentage of licenses issued to residents versus non-residents. Mr. Peterson confirmed there were non-residents who fished commercially in Alaska but did not know the percentage. Co-Chair Johnston WITHDREW her OBJECTION. Vice-Chair Ortiz OBJECTED. Representative LeBon provided closing remarks on Amendment 3. He thought it was necessary to know how the $.05 cent per gallon would benefit all payers or whether anyone was excluded. He suggested it was easy to connect the dots on the highway fuel tax improving highway maintenance such as timely snow removal and roads remaining open 24/7. He mentioned a Fairbanks family-owned trucking business that was not opposed to the additional tax. The company wanted the roads to be managed. He wondered if all parties were being treated fairly. Vice-Chair Ortiz remarked that the captain of the fishing vessel had to fill out and submit the proper paperwork in order to receive a refund. He was unsure how many fishermen would actually submit the proper documentation. The amount of money the state would lose was not calculable. However, he felt granting the exemption was a statement about how much the industry contributed to Alaskas economy. 12:16:58 PM AT EASE 12:24:10 PM RECONVENED Representative Tilton had not seen the amendments prior to the meeting. She appreciated the time to consult with other members. A roll call vote was taken on the motion. IN FAVOR: LeBon, Wool, Johnston OPPOSED: Merrick, Ortiz, Sullivan-Leonard, Tilton, Carpenter, Josephson, Knopp, Foster The MOTION to ADOPT Amendment 3 FAILED (3/8). 12:25:54 PM Co-Chair Johnston MOVED to ADOPT Amendment 4, 31-LS0895\E.5 Nauman 3/20/20 (copy on file): Page 1, line 5, following "$100,": Insert "the owner of a vehicle powered by alternative fuel shall pay a special biennial registration fee of $100," Page 1, following line 8: Insert a new paragraph to read: "(1) "alternative fuel" includes hydrogen and natural gas;" Renumber the following paragraphs accordingly. Representative Sullivan-Leonard OBJECTED for discussion. Co-Chair Johnston reviewed the amendment. She noted there were other alternative fueled vehicles being introduced into the market. She indicated natural gas had been around for a significant amount of time and felt it should be included in the alternative fuel special biannual fee of $100. Representative Sullivan-Leonard asked if Representative Johnston had a figure of how much the amendment would generate in revenue. Co-Chair Johnston responded in the negative. She explained that hydrogen-fueled vehicles were just reaching the market presently. They would be limited to markets in San Francisco and Vancouver. However, they would be coming. She continued that natural gas-fueled vehicles had come and gone. She wanted to ensure that both types of alternative fueled vehicles were included. Representative Wool replied that since the legislature did not know what the tax structure was, he would be hard- pressed to increase it for a new type of technology not presently in existence. He asked if there was currently a natural gas tax refund related to gas at a residence. Co-Chair Johnston replied that in Anchorage there was natural gas and there had been vehicles fueled by natural gas including part of the municipalitys fleet. One of the challenges with natural gas was the length of time it took to fill up a car. The municipality converted to natural gas then converted back. She did not think there was a natural gas tax beyond what was currently in place to heat residences and barbeques. She added that she did not believe there was a natural gas motor fuel tax. Representative Knopp supported the amendment. He thought the sponsor had estimated about 600 alternative fueled vehicles on the road. He thought the fee was very appropriate and would help to pay for some of the states road maintenance. Representative Sullivan-Leonard MAINTAINED her OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Josephson, Knopp, LeBon, Ortiz, Foster, Johnston OPPOSED: Merrick, Sullivan-Leonard, Tilton, Wool, Carpenter The MOTION to ADOPT Amendment 4 PASSED (6/5). 12:31:22 PM Co-Chair Johnston MOVED to ADOPT a Conceptual Amendment to include an effective date of January 1, 2021 and to direct Legislative Legal Services to make any necessary technical and conforming changes. Vice-Chair Ortiz OBJECTED for discussion. Co-Chair Johnston explained that with current economic uncertainties, she did not think the bill should take effect in the current year. She also thought carve-outs should be avoided, as it was unclear which industries would be affected most. 12:32:17 PM AT EASE 12:32:41 PM RECONVENED Co-Chair Johnston WITHDREW her motion. Co-Chair Johnston restated her motion. She MOVED to ADOPT a conceptual amendment that would include an effective date of January 1, 2021 and to direct Legislative Legal Services to make any technical or conforming changes. Representative Tilton OBJECTED. Representative Tilton wanted clarification that without the amendment to change the effective date to January 1, 2021, the bill would take effect 90 days after the governor signed the bill if he chose to do so. She asked if she was accurate. Co-Chair Johnston replied, "Thants correct." Representative Tilton WITHDREW her OBJECTION. Vice-Chair Ortiz OBJECTED for further discussion. Vice-Chair Ortiz asked that if the amendment were to be adopted, he wondered how much revenue would be lost. He invited members to keep in mind the states infrastructure and deferred maintenance costs. Mr. Peterson responded that the effective date on the Senate side was July 1, 2020 but failed on the Senate floor. Currently, the bill would go into effect 90 days after the governor signed the bill or allowed it to become law without signature. It was difficult to know when the bill would go into effect, as it was up to the Senate President, once the bill passed in the Senate, when it would be transmitted to the governor. If the bill was transferred to the governor while the legislature was in session, he would have 15 days, excluding Sundays to decide what to do with the bill. Should the governor sign it or allow it to become law without signature, it would be 90 days after that. The effective date of the bill without an effective date would be sometime in the summer rather than July 1, 2020. He anticipated that about $16 million would be lost with a delayed effective date of January 1, 2021. Vice-Chair Ortiz asked if Mr. Peterson thought the bill sponsor would be open to the amendment. Co-Chair Johnston interjected that she had spoken with the bill sponsor earlier in the day and he was open to the amendment. Mr. Peterson responded, "That's correct." Representative Knopp asked that if the bill went into effect July 1, 2020 there would be more revenue lost because of activity in the summer. He believed Mr. Peterson was assuming that revenues would be equal throughout the year. He suspected that the summer months would generate more revenue than in the winter months. He asked if it was reasonable to think the state would be losing more than $16 million in revenue by deferring the effective date. Mr. Peterson responded that it was certainly possible. He assumed more revenue would be generated in the summer months with the increase in tourism and rental car business. He was providing a rough estimate of $16 million to $17 million by taking half of what the bill would generate in a year. 12:37:32 PM Representative Wool thought any guess about fuel purchases in the following months would be just a guess. He wondered about the railroad. He commented that the Alaska Railroad bought a significant amount of diesel. Mr. Peterson guessed that the railroad would be exempt as a government entity similar to the ferry system. Representative Carpenter was uncertain of revenue loss. However, it was also additional cash being taken from the economy. Cash was the most important thing to get people through the current situation. Vice-Chair Ortiz WITHDREW his OBJECTION. There being NO further OBJECTION, it was so ordered. The conceptual amendment was ADOPTED. 12:40:07 PM AT EASE 12:41:35 PM RECONVENED