SSHB 132 - MUNICIPAL TAXATION OF ALCOHOL Number 922 CHAIRMAN GREEN advised members they would next consider SSHB 132, "An Act relating to municipal taxation of alcoholic beverages." REPRESENTATIVE GARY DAVIS, Prime Sponsor, SSHB 132, advised members the bill would eliminate the restriction on municipalities as to what degree they could tax alcohol. He pointed out that the rationale for the proposed legislation was to allow municipalities to generate additional new revenues, if they saw fit, for the purpose to address mandates that had been created either by state law or federal law, as well as problems created by society. REPRESENTATIVE DAVIS expressed that the last time he addressed the committee on the bill he made a commitment to certain members that he would address the concern over what exactly the revenues would be used for. He advised members that it was the intent that any revenues derived from additional alcohol taxes be utilized for alcohol related services. Representative Davis stated that to the degree that was able to be accomplished, he felt went to some degree, to the debate members just addressed; how do dedicated funds relate to municipalities and their ordinances, statutes, bylaws, articles of incorporation, charters, or however municipalities were established. REPRESENTATIVE DAVIS advised members that some of the information in members bill packets was not definitive in how it addressed the question, noting that apparently there had been opinions on either side of the issue that the Constitution of Alaska could be interpreted that the restriction on dedicated funds to the state would also relate to municipalities. REPRESENTATIVE DAVIS advised members that he had provided an amendment for the committee's consideration that related to the question, the concern and the intent regarding whether municipalities should increase their alcohol tax, reduce the tax, or utilize their existing alcohol tax for alcohol related services. He stated that the amendment strengthened the intent of the bill, that it did not mandate that it be done, although it mandated that the ballot reflect the intent of the bill. REPRESENTATIVE DAVIS believed that the content of the bill was fairly straight forward and that the amendment might complicate things, but he would certainly accept the committee's recommendation. Number 1206 CHAIRMAN GREEN stated that if the bill should be enacted and a municipality were to invoke an increase in tax on alcohol and it was subsequently held that funds could not be dedicated if that would negate the vote of the municipality. REPRESENTATIVE DAVIS advised members he could not answer that question explicitly; however, felt that HB 132 would not address that, that it would have to be completely within the municipality's hands. He thought that through some discussion, and information that had been provided by Mr. Kevin Ritchie addressed a situation whereby that happened in Juneau. Representative Davis noted that it was up to the municipality to craft the wording on a ballot so that, hopefully, the voters would know what they were voting on. REPRESENTATIVE PORTER declared a point of order and asked what was before the committee. CHAIRMAN GREEN stated that members were considering SSHB 132 and that Representative Davis had explained a proposed amendment that addressed members concerns from a previous hearing. REPRESENTATIVE CROFT moved to adopt SSHB 132. There being no objection, SSHB 132 was adopted. REPRESENTATIVE JAMES moved to adopt Amendment 1, titled E.2 Ford, 3/28/97, page 1, following line 15, insert a new bill section to read; *Sec. 2. AS 04.21.010 is amended by adding a new subsection to read: (e) If a municipality imposes a tax on alcoholic beverages under (c) of this section and the tax imposed on alcoholic beverages is higher than the tax imposed on other sales, the municipality shall comply with the provisions of this subsection. A municipality, when holding an election to impose a tax on alcoholic beverage as described under this subsection, shall include a statement on the election ballot indicating that it is the intent of the governing body that revenues, if any, will be appropriated by the municipality for alcohol related services provided by the municipality. Renumber the following bill sections accordingly. Representatives Porter and Rokeberg objected. REPRESENTATIVE DAVIS advised members that he had spoken to Representative Porter and understood his objection to the proposed amendment. He thought there had been concern about the constitutionality of the amendment; however, he felt it was crafted in a manner that it addressed the problem of wanting to see stronger intent within the bill language. The intent was that any additional taxes would be spent on alcohol related services. REPRESENTATIVE PORTER pointed out that there were two or three levels of consideration within the bill, and often times what occurs was interpreted as how a member thought about the tax. He asked that members not interpret what he was about to say about how he personally felt about the tax. Representative Porter advised members that his objection to the amendment was purely on the philosophical position that he had stated to the committee before, that one could look at the statute as somewhat protectionist in the first place, and now, with the amendment, it was saying if you want to violate a protectionist statute, the legislature was going to direct how the money would be spent. He did not believe it was the job of the legislature to tell cities what to do with a resource of theirs. Representative Porter advised members he would hope the cities would spend those funds as intended by the bill, but philosophically he did not want to sit there and say, "thou shalt do this". Number 1502 REPRESENTATIVE ROKEBERG stated that he had provided two sample ballots to the committee aide to distribute to the members, which were in the municipality of Anchorage election in 1994 and 1995. He directed members attention to the language of the ballot in the 1994 sample, that stated: "The intent of this section is to levy a special alcohol sales tax on alcoholic beverages and, to the maximum extent allowed by law, to use the revenues derived to expand health, education, recreation and public safety within the Municipality of Anchorage." Representative Rokeberg felt there were some legal actions taken on that language. REPRESENTATIVE ROKEBERG stated that the following year, the same ballot was again before the voters; however, did not speak to that type of dedication. He pointed out that he supported the view expressed by Representative Porter, and that he was very much opposed to dedicated funds, philosophically. Representative Rokeberg felt that amendment 1 was another subterfuge that the legislature endeavored to use time after time to do that. He advised members he was concerned with and would not support the amendment. Representative Rokeberg also believed there was some case law that would shoot it down. Number 1584 REPRESENTATIVE CROFT advised members that it seemed to him that the amendment was constitutional and there was nothing wrong with the legislature making its intent clear, although there might be something philosophically improper with the amendment. He appreciated that example ballot distributed by Representative Rokeberg as to how the ballot might look. Representative Croft advised members that he did not know whether the statement on a proposition, "to be used for alcohol related services", was binding on a municipal government, or not. He believed that was a constitutional dedicated fund complicated by the difference of a municipality and a state. REPRESENTATIVE CROFT pointed out that placing language on a ballot had some political, if not constitutional or legal affect. He advised members that if the legislature stated that alcohol tax rates would be increased 1 percent above the normal sales tax rate and those funds would be used for alcohol services, and it got used for trips to Washington, D.C., he thought he would know what was going to happen. If there was no outcry about it, he thought that was the business of the municipality, its elected officials and the next re-election. Representative Croft was not as concerned about the pure constitutionality end of it. He reiterated that the amendment was constitutional; however, whether it was binding after the proposition was done he did not know, but he was comfortable leaving that up to the public process at the municipal level. REPRESENTATIVE JAMES expressed her agreement with both Representatives Porter and Rokeberg on the issue. She stated that hearing a request from the municipalities who wished to increase the tax on alcohol was something they wanted to do that existing laws did not allow for. Representative James advised members that there was a case in the Fairbanks area where they were only able to increase the rate on alcohol because the bed tax had been increased. She did not believe a municipality would be bound to expend the funds for alcohol related services, and if the legislation included intent language and the municipality did not spend those funds as indicated in the bill, would it result in the legislature having to amend the law to state that they could not increase the tax on alcohol unless they used the funds as specified in a new bill. Representative James pointed out that it was only intent language, not a mandate, and believed it was the same intent of the municipalities to spend the funds as intended by the bill. Representative James advised members that although she did not have a problem with dedicated funds, she did have a problem with designated funds because they did not go to the people for a vote. Representative James pointed out that the committee would be considering another bill, which she would not mention, that was on the same issue which she was violently opposed to. She advised members that she would support SSHB 132 because she knew the municipalities wanted it, and they could not do anything without the help of the legislature. Number 1862 REPRESENTATIVE DAVIS expressed that he could appreciate the policy concern and explained that the amendment proposed to address a concern brought forward by a committee member, and was not necessary for the intent of the bill, the intent of the makers or the intent of the sponsor. CHAIRMAN GREEN asked if the objections were maintained. Representative Porter maintained his objection, so a roll call vote was taken: In favor: Representative Croft. Opposed: Representatives Bunde, Porter, Rokeberg, James, Berkowitz and Chairman Green. Amendment 1, SSHB 132, failed adoption by a vote of 6 to 1. CHAIRMAN GREEN now accepted testimony via teleconference from Anchorage, and invited Don Grasse to address the committee. Number 2003 DON GRASSE, Executive Vice President, & General Manager of K & L Distributors, advised members they were a distributor of wine, beer and spirits. He noted that he was also the president of the Alaska Wine and Spirits Wholesalers Association. Mr. Grasse advised members that the association he represented opposed SSHB 132 because they felt that beverage alcohol products were already highly taxed, at both the federal and state level, and the proposed legislation would open up a third level of taxation for those products. Mr. Grasse pointed out that they felt that Alaskans were already taxed higher on alcohol than most other states, being the fifth highest state in the country taxed on spirits, and the 10th highest state in the country with the taxation on beer and the 15th highest state in the country with taxation on wine. MR. GRASSE advised members that the high cost of freight charges to Alaska, combined with the higher alcohol taxes, required Alaskans to pay more for alcoholic beverages than most other states in the country. He stated that the residents of Anchorage had been faced with an 8 percent alcohol tax increase in 1994 and 1995, and Alaskans voted that proposition down twice in a row in back to back elections. MR. GRASSE explained that sales of alcoholic beverages had not been healthy in the state since the 1990 federal excise tax increase. Beer sales and spirit sales had decreased over the past 4 to 6 year period, and they felt that the increase in taxes would further the sales decline, which would have an impact on businesses such as K & L, Alaska Distributors, as well as small bars, restaurants and stores that sell alcohol. He pointed out that passage of SSHB 132 would impact people's employment status. Mr. Grasse noted that while those jobs were not high profile like oil industry jobs, they were service positions that were the backbone of many of the communities in the state. MR. GRASSE advised members K & L also believed the bill singled out an industry and discriminated against it by putting the alcohol industry at a competitive disadvantage to other service and beverage industries. TAPE 97-55, SIDE A Number 000 REPRESENTATIVE ROKEBERG noted the mention of municipality elections by Mr. Grasse, and asked if he was speaking to the 1994 - 1995 elections. MR. GRASSE stated that was correct. REPRESENTATIVE ROKEBERG pointed out that the voters of the municipality of Anchorage turned down any increase in taxes at that time, and asked if that was correct. MR. GRASSE responded in the affirmative. REPRESENTATIVE ROKEBERG asked if Mr. Grasse recalled if any litigation had resulted, or if he knew anything else that he could pass on to the committee. MR. GRASSE advised members that he believed with the first election there was some potential litigation on whether those taxes could be dedicated or not. He did not believe the judge made a ruling because of the impending results of the vote, and when the issue failed, it killed the decision. REPRESENTATIVE ROKEBERG stated that that was why the ballot proposition did not include a provision as to where, or how the money was to be spent. MR. GRASSE stated that was correct. REPRESENTATIVE ROKEBERG asked Mr. Grasse if he had any idea how many people were employed in the beverage dispensary and restaurant business in the state of Alaska. MR. GRASSE stated that for Anchorage, alone, approximately 5000 people were employed in that area, so he would estimate statewide, it would be closer to 7500 to 10,000 positions. REPRESENTATIVE ROKEBERG stated that the fact that there would be an increase in taxation on any type of alcohol, spirits or wine, could have a major impact on the commerce and economy in the state of Alaska. MR. GRASSE advised members that was the opinion of K & L Distributors. REPRESENTATIVE ROKEBERG stated that notwithstanding the fact that people may have different opinions on the issue, there would be a definite economic impact of any increased taxation on alcoholic beverages. MR. GRASSE response was, "absolutely." CHAIRMAN GREEN invited Pat Poland to provide comments on SSHB 132. Number 189 PAT POLAND, Director, Municipal and Regional Assistance Division, Department of Community and Regional Affairs, advised members that the department was in support of the proposed legislation. He stated that they believed that it would provide municipalities an additional tool to deal with the issue of raising revenues for the purpose of delivering local services, and the fact that voter approval is required for any sales tax, that the bill contained adequate safeguards to preclude the abuse of taxation power. REPRESENTATIVE BUNDE asked if Mr. Poland felt the proposed legislation would mandate the municipality to raise alcohol taxes if the bill were enacted. MR. POLAND advised members that it would not, that it was the opinion of the department that it clearly gave the municipality the option of increasing the tax. REPRESENTATIVE BUNDE pointed out that the municipality of Anchorage had attempted to raise their alcohol tax many times and had failed each time, and asked Mr. Poland if he would agree with that. MR. POLAND advised members that would be a correct statement. JIM ELKINS, representing the Ketchikan Charr [Ph], advised members that over approximately 25 years while he had represented the Ketchikan Charr and State Charr as a lobbyist, and personally in Juneau, to his recollection it was never the intent of anyone in the original drafters of Title 4 to segregate the right to levy taxes on liquor to anybody, other than the state of Alaska except through a general sales tax. Mr. Elkins pointed out that he had been active in the re-write committee that re-wrote the bill back in the 1980s, and the provision was dropped and excluded municipalities. Mr. Elkins advised members that when Senator Eliason realized that provision had been dropped, it was again brought up the following year and put back in. Mr. Elkins stated that there were four communities in the state who had jumped on the band wagon, and they provided a six month window for other municipalities to come on board, which none did. MR. ELKINS stated that if the legislature began to subrogate their right to levy an excise tax on alcohol on the citizens of the state, as well as a tobacco tax, they would be giving up a power that should be exclusively a power of the legislature. He urged that members consider keeping that power where it belonged. MR. ELKINS reiterated that the Ketchikan Gateway Borough passed a resolution that stated that all taxes ought to be levied equally across the board, and not just on any special industry or to any group of people. REPRESENTATIVE CROFT advised members that Juneau had grandfathered in, and asked what other three communities had grandfathered in. MR. ELKINS stated that it was Craig, Juneau, and he could not remember the other two right off hand, but was fairly sure four communities had grandfathered in. Number 515 REPRESENTATIVE JAMES stated that if the bill did not pass, municipalities presently had the ability to tax alcohol providing they taxed everyone. MR. ELKINS stated that any municipality could levy a general sales tax on everything solely within the municipality. REPRESENTATIVE JAMES stated that the only reason they would want the legislation was because they wanted to tax alcohol only, or they wanted the alcohol tax to be higher than the other taxes. MR. ELKINS stated that would be true. REPRESENTATIVE ROKEBERG asked that Mr. Elkins revert to the period he was talking about when the statute was re-written and the grandfathering occurred. He noted that Mr. Elkins had indicated that he thought one of the main rationales was the preservation of the power of the state of Alaska to tax alcoholic beverages, and asked if he might expand on that. MR. ELKINS advised members that he was asked to travel to Juneau during the Hammond Administration to represent the industry and the re-write of Title 4. In the old Title, it had been pointed out more than once, that the state of Alaska reserve the right to tax certain things exclusive to the state, of which one was oil and one was alcohol. Mr. Elkins advised members they went through the whole process and when it came out of the print shop it passed the House and Senate and then realized it was not included, so Senator Eliason from Sitka was the first to notice that. He then brought it back before the body the next session and brought the amendment forward that restated that language. Number 665 REPRESENTATIVE BUNDE asked if Mr. Elkins was opposed to the legislation because he felt it would impact the alcohol dispensing industry and reduce the use of alcohol. MR. ELKINS advised members that he believed the state should hold the power to tax, and municipalities should not have the ability to levy any kind of special excise tax on liquor or any other substance. He pointed out that on behalf the Alaska Charr, during the last legislative session, they came forward and attempted to get the state to consider raising some sort of alcohol tax and were not able to get much support by the legislature. REPRESENTATIVE BUNDE expressed that the committee had just received testimony from a gentleman in Anchorage who stated that there were thousands of people employed in the Charr industry, and to allow a municipality to raise a tax would probably reduce the volume of business and negatively impact people employed in the industry. He asked if Mr. Elkins would agree with that. MR. ELKINS stated that he believed that would be the case, and referred to how sales had decreased since the federal excise tax was raised. He pointed out that he had less employees now than he did prior to that tax, and advised members that he was second generation in the business and could not believe the difference between today's consumption and the consumption during his father's day. REPRESENTATIVE BUNDE agreed that raising taxes did reduce use. MR. ELKINS advised members he had lobbied in Juneau for the two drink limit, for additional training courses for bartenders and also for lobbied in support of eliminating happy hours, as well as lobbied in support of DWI's. He believed that taxes had something to do with less consumption; however, individual responsibility had the most to do with it. REPRESENTATIVE BUNDE agreed with that statement. REPRESENTATIVE ROKEBERG asked if Mr. Elkins felt a 10 cent tax would have only a marginal affect on a person's decision to drink or not. MR. ELKINS advised members that alcoholics would drink regardless of the price, and where they drink and how they drink, if additional taxes were imposed. He felt bar sales might decrease and liquor store sales increase, and added that people who abuse alcohol were generally liquor store customers. CHAIRMAN GREEN noted that the meeting was running late, and there were yet four people to testify in Juneau. REPRESENTATIVE ROKEBERG advised members it was necessary for him to leave, and expressed that he had additional concerns with the bill. CHAIRMAN GREEN advised members he would hold the bill over for further comments. DON DAPCEVICH, Executive Director, State Advisory Board on Alcoholism and Drug Abuse, advised members the Board favored passage of the proposed legislation. He pointed out that it had the potential to help municipalities deal with the costs associated with the administration of their criminal justice system, hospitals and treatment facilities, and also would provide the opportunity to make their own self determinants on how much they want to put into that effort, and how much they want to spend. MR. DAPCEVICH reminded members that the treatment and prevention efforts had been quite successful if the amount of drinking in the state had reduced, as indicated by the testimony of the previous speaker. REPRESENTATIVE ROKEBERG asked Mr. Dapcevich what he felt the proposed legislation would accomplish; if it would provide for more revenues for the municipalities or was it more of a focus in the diminishment of consumption because of a higher cost. He believed it was a relatively marginal cost increase to a consumer. MR. DAPCEVICH did not think the cost issue would have a great affect, because the marginal increase was very small. He stated that if the cost were substantially increased, it would have some affect on the use of alcohol. Mr. Dapcevich stated, however, that every time the cost of alcohol was raised, even marginally, there had been some affect in consumption. He believed the last large increase in alcohol taxes occurred in 1980 which resulted in a significant drop in use of alcohol for a period of years after the increase. Mr. Dapcevich thought the affect was directly proportional to the margin or percentage of increase. GARRY PESKA, Alaska State Hospital and Nursing Home Association, advised members they were in support of the proposed legislation. He stated that while members had concerns about the health care aspect of the bill and the impact that alcohol abuse had on the health of Alaskans, their specific focus was on uncompensated costs that hospitals incur when public inebriates are picked up by the local police department and taken to the hospital. Mr. Peska advised members that state law require that those people receive a medical screening, and if they were incapacitated, they also need to receive additional medical treatment and no one pays for those costs. Mr. Peska advised members that most hospitals in the state of Alaska were owned by the municipalities, and the Association believed SSHB 132 would give a municipality the opportunity to help fund some of those costs for the facilities. LOREN JONES, Director, Division of Alcoholism and Drug Abuse, Department of Health and Social Services, advised members the department was in support of SSHB 132. He pointed out that it did provide a tool to municipalities for many reasons, of which most had already been testified to. Mr. Jones advised members he was also around when the law was changed, and reiterated that if passed, the legislation would restore something that was in statute previously, where municipalities could, separately and differentially tax alcohol. Mr. Jones pointed out that when that changed, the state had always left sales tax up to local communities, and SSHB 132 would allow the municipality to tax alcohol differentially. He believed that by doing so, it would provide the municipalities the opportunity to use those revenues as they chose. Number 1253 REPRESENTATIVE ROKEBERG asked Mr. Jones what was more important to his department, the reduction in consumption of alcohol, or the amount of revenues that might be generated through an additional tax on alcohol. MR. JONES advised members the department's interest was to decrease consumption of alcoholic beverages because they felt it did improve a person's health and would also assist in reducing the number of alcohol related problems as the population was consuming less. Mr. Jones pointed out that it was a known fact that it would never get to the point of zero consumption, and that there would always be problems, and the potential revenues available to a community that would vote to raise the tax would be beneficial even absent the change in consumption. MR. JONES stated that if taxes were raised on a particular product by three cents, no one would want to pay $3.33, so the drink may sell for $3.50, and there could be additional revenues for the business person as well. Number 1336 KEVIN RITCHIE, Alaska Municipal League (AML), and the Alaska Conference of Mayors advised members that SSHB 132 was considered a legislative priority for both the AML and Alaska Conference of Mayors. He pointed out that they consisted of 135 members and it was a unanimous decision to approve the objective. MR. RITCHIE stated with the question, "are you approving a tax", that that was obviously not the case. He noted that the bill spoke to an additional tax being imposed only with the approval of the majority of the voters of a community. Mr. Ritchie stated that the bill did provide a tool to create revenue. He stated that the employment impacts that had been discussed were only in the alcohol industry, and he pointed out that there was a whole lot of other employment built around the alcohol industry such as treating the effects of alcohol. Mr. Ritchie expressed that all of those jobs were in local and state government, and the problem presently was that they were not being compensated except from general funds and general taxes. MR. RITCHIE advised members that it was a significant local issue, and as property taxes increased in general, municipalities and municipal voters needed more tools to allocate that cost burden. Number 1430 CHAIRMAN GREEN advised members that would close public testimony on SSHB 132, and would now be before the committee for deliberations. REPRESENTATIVE PORTER asked if it was the Chairman's intent to move the bill. CHAIRMAN GREEN noted that Representative Rokeberg had requested the bill be held over for the purpose of additional comments. REPRESENTATIVE JAMES advised members that she had mixed feelings on the proposed legislation. She saw the legislation as an opportunity for a municipality to tax, if they so chose, and it also allowed the people of a municipality to vote for or against an increase. Representative James stated the smaller communities may receive more revenues from the source provided in the bill than they did from other sources, which might be to their advantage. She pointed out that she did not favor imposing more taxes on the people of the state; however, she felt if other people were, they should have the opportunity to vote on it. REPRESENTATIVE PORTER agreed with the remarks of Representative James, and asked that the committee move on the bill. CHAIRMAN GREEN felt it was only fair to express that Representative Rokeberg was very opposed to the bill. Having said that, if it was the will of the committee, Chairman Green would accept a motion to report SSHB 132 out of committee. REPRESENTATIVE BUNDE pointed out that he would not vote for the bill if it was mandatory, but because it was permissive, and as he attempted to point out through testimony received from Anchorage, the tax increase would only occur by a majority vote of the people. He did express that he was not excited about municipal revenue sharing. Representative Bunde advised members that the sooner the cost of government was at the local level, the quicker people would be able to decide what were appropriate levels of services. With that, Representative Bunde stated that he would vote for SSHB 132 to offer an option to the municipalities for additional revenue sources. REPRESENTATIVE BERKOWITZ moved to report SSHB 132 out of committee with individual recommendations and attached fiscal notes. There being no objection, SSHB 132 was reported out of committee.