HB 443 - INCREASE MOTOR FUEL TAX Number 1084 CHAIRMAN PORTER announced that the next order of business to come before the House Judiciary Committee was HOUSE BILL NO. 443, "An Act relating to the tax on transfers or consumption of motor fuel, and repealing the exemption from that tax for motor fuel which is at least 10 percent alcohol by volume; and providing for an effective date." He noted that the bill was introduced at the request of the Long Range Fiscal Planning Commission. REPRESENTATIVE TOOHEY asked if the State Affairs CS was before the committee. CHAIRMAN PORTER responded in the affirmative. He asked if there was anyone on the teleconference line who wished to testify on HB 443. Hearing no response, the Chairman invited Rick Lauber to testify. Number 1454 RICHARD B. LAUBER, a lobbyist for Pacific Seafood Processors Association, stated that he did not know when the time would be for HB 443, but that it certainly was not now. He emphasized that this is probably the worst time in the history of the state for the seafood processing industry. Virtually every aspect of the industry is in trouble. In the last year, the processing sector has lost millions--possibly hundreds of millions of dollars. The outlook for the 1996 fishing season is the worst ever. For example, a processor who was selling a case of canned pink salmon, a year ago would have sold it for about $18 per case. At the close of the 1995 season, the offering price for the same case was $16.25. There were no takers. Today, that same case of salmon is selling for about $10 per case. In Japan today, there is a glut of surimi, with over a 6-month supply. In the United States, there is over 6-months supply, not even taking into account the amount of product in the cold storage of individual producers. This does not bode well for the rest of 1996, in that portion of the bottom fish industry. Every species is experiencing similar problems. Last year, processors were paying about 15 to 20 cents per pound for refrigerated sea water pink salmon. One major processor recently notified fishermen that the base price this year will be 5 cents per pound, and that the refrigerated sea water price will be 6 cents per pound. MR. LAUBER further noted that this will make it extremely difficult for fishermen to survive economically. To add increased fuel costs to the overall costs of doing business would present an insurmountable burden. The current marine fuel tax is 5 cents per gallon. If a fisherman delivers to a floating processor, that processor pays 5 percent of the ex-vessel price to the state of Alaska. The local sales tax on fish is 3 percent. The Alaska Seafood Marketing institute state tax, combined between fishermen and processors, is 1.3 percent. The fishermen also have to pay fees to the Limited Entry Commission. Thus, taxes add up to somewhere between 10 and 12 percent. On top of that, there are additional taxes, such as the current marine fuel tax. Mr. Lauber stated that he understands the desire of the Long Range Fiscal Planning Commission to raise revenue. He asserted that very few of the commission members have any knowledge of the seafood industry. Perhaps the commission members were not aware of the crisis in the fishing industry, which is the largest private employer in the state of Alaska. Mr. Lauber reiterated that neither processors nor fisherman can afford an increase in the current motor fuel tax. Number 1679 CHAIRMAN PORTER noted that the proposed bill is now tied to a constitutional amendment, which would allow the funds to be dedicated. He asked if, from Mr. Lauber's perspective, that would be an improvement. MR. LAUBER responded that, in the event a fisherman could not afford to go fishing, he would certainly need some place to tie up his boat. However, the crying need in the industry is not for ports and harbor improvements. He further stated that he has heard the statement, "the best thing a legislature can do is do no harm." Right now, the industry appreciates the thought of taxes to improve harbors, but the first priority at present is simply to stay in business. Number 1760 ROBERT BARTHOLOMEW, Assistant Director, Income & Excise Tax Division, Department of Revenue, stated that he would review the fiscal impact of the proposed bill. The current CSHB 443 does tie any potential tax increase to a dedicated fund. The bill would raise three taxes: the highway motor fuel tax, the off-highway motor vehicle tax (for heavy equipment), and the marine motor fuel tax. The highway motor fuel tax would increase 7 cents per gallon in FY 98 and 7 cents per gallon in FY 99, raising the total tax to 22 cents per gallon, which is the average of the 50 states. This motor fuel tax has not been raised in 55 years. The off-highway tax, which currently generates $3 to $4 million per year, is now 2 cents per gallon. The bill would raise the tax to 6 cents per gallon, over a two year period. The marine motor fuel tax is currently 5 cents per gallon. The proposed bill would raise it to 8 cents. Last year, the legislature passed a bill raising the marine motor fuel tax to 8 cents. The governor vetoed that bill, asking that it be looked at in the bigger context of other motor fuels and potential dedication. This bill is the result. Number 1927 REPRESENTATIVE TOOHEY asked if the legislation which passed last year included a dedicated fund. MR. BARTHOLOMEW responded that the bill would have put revenue into the general fund, and asked that it be shared back to the localities where the fuel tax was collected. This would have created administrative problems, because tax is collected at the retail, rather than wholesale, level. The fiscal note to HB 443 points out potential revenue increases, which are significant. In the second year, new revenue of about $53 million per year would be generated. Another portion of the bill repeals the gasohol tax exemption. This exemption was originally put in to encourage the use of Matanuska grown products as alternative gas. Current estimates are that the exemption for gasohol (or ethanol) fuel use- -which is now required by the EPA during certain months--will grow to a loss of $6 million per year in revenue in FY 96. This fuel is being sold not only during the four months required by the EPA, but year round. The department used to collect $23 million per year in highway fuel taxes; it projects collecting only $17 million for FY 96, due to this exemption. REPRESENTATIVE BUNDE asked if the department feels the bill should be amended to limit the time when ethanol fuel can be sold to the winter months. MR. BARTHOLOMEW responded that the Department of Environmental Conservation should probably address that issue. It would probably be best to tax ethanol fuel, rather than restrict its sale, since it is a clean burning fuel. Number 2119 CHAIRMAN PORTER noted that the original reason for the exemption was to promote an Alaskan business, which never came into being. So there is no longer any reason to continue the exemption. MR. BARTHOLOMEW concurred. He noted that HB 443 is trying to close the fiscal gap, and also to bring the tax in line with what is paid in other states. The department is also requesting funding for a position, to enhance monitoring of motor fuel compliance. CHAIRMAN PORTER announced that, there being no further witnesses, the public hearing on HB 443 was closed. REPRESENTATIVE TOOHEY made a motion to table HB 443. Number 2311 CHAIRMAN PORTER objected to the motion, for purposes of discussion. REPRESENTATIVE TOOHEY stated that the state's economy is such that the proposed bill is a bad idea. She further noted that she had promised her constituents she would not raise taxes, and the proposed tax would increase the burdens on industry. She stated that she thought increasing taxes at the present time was a poor policy. CHAIRMAN PORTER noted that representatives of the trucking industry had missed their opportunity to testify on HB 443, because of the length of the committee's deliberations on campaign finance reform. He commented that the Executive Director of the trucking association had indicated he would not oppose the bill, because of the provision tying it to a constitutional amendment, which would allow the public to vote on the tax. If the public voted for the tax, a dedicated fund would be created. For that reason, and that reason only, he opposed the motion. TAPE 96-43, SIDE A Number 0011 REPRESENTATIVE TOOHEY requested that Representative Vezey be located, so that a full vote of the committee could be taken. REPRESENTATIVE FINKELSTEIN stated that he supported Representative Toohey's motion, for a different reason. He asserted that the issue of a constitutional amendment, and the creation of a dedicated fund, should not be on the floor for a vote by the legislature. REPRESENTATIVE DAVIS asked what would prevent the committee from coming back on another day and moving the bill. CHAIRMAN PORTER replied that it was certainly possible for the committee to vote to rescind its action. The committee took a brief at-ease. Number 0237 CHAIRMAN PORTER announced that the committee would consider a motion to table CSHB 443, amended. REPRESENTATIVE BUNDE noted that other tax bills are also before the legislature. One, the tobacco tax, is supported by 75 percent of the people that he has heard from. He has not heard from anyone supporting HB 443. CHAIRMAN PORTER requested a roll call vote on the motion to table CSHB 443. Representatives Toohey, Davis, Finkelstein, Green, and Bunde voted yes. Chairman Porter voted no. The House Judiciary Committee tabled CSHB 443.