HJR 20 - REPEALING PROHIBITION ON DEDICATED FUNDS Number 0050 CHAIR McGUIRE announced that the first order of business would be HOUSE JOINT RESOLUTION NO. 20, Proposing amendments to the Constitution of the State of Alaska repealing the prohibition on dedicated funds. Number 0058 ERIC MUSSER, Staff to Representative Beverly Masek, Alaska State Legislature, on behalf of Representative Masek, sponsor, said that HJR 20 was introduced to ask the voting public to support a change in Article IX, Section 7, of the Alaska State Constitution. Specifically, if adopted by the legislature and passed by the electorate at the next general election, the amendment to the Alaska State Constitution would require all motor fuel taxes generated through the sale of motor fuels only to be placed in a constitutionally protected fund for the express purpose of maintaining Alaska's roads and highways. MR. MUSSER noted that the Alaska State Constitution prohibits dedicated funds except for the Alaska permanent fund, when required to receive federal funds, or for dedicated funds in existence prior to the adoption of the constitution. Amending Alaska's constitution should not be taken lightly, he remarked, and is considered with great trepidation. However, as state revenues continue to decline, the sponsor believes that Alaskans would be more amenable to contributing to the effort of maintaining the road and highway infrastructure if they had assurances that the motor fuel taxes levied were utilized for that express purpose, he relayed. MR. MUSSER said that motor fuel taxes in all states are dedicated in some fashion for road and highway maintenance. In Alaska, motor fuel taxes are currently deposited in a special highway-fuel-tax account within the general fund (GF). However, the legislature may appropriate these funds for other purposes, and the sponsor feels that such would happen with increased motor fuel taxes, he additionally relayed. He asked the committee to support the proposed committee substitute (CS). Number 0239 REPRESENTATIVE SAMUELS moved to adopt the proposed CS for HJR 20, Version 23-LS0889\D, Kurtz, 4/2/03, as amended by handwritten changes, as the work draft. There being no objection, Version D, as amended, was before the committee. CHAIR McGUIRE, after ascertaining that no one else wished to testify on HJR 20, closed public testimony. REPRESENTATIVE SAMUELS asked: "How much do we spend in road dollars now, as opposed to what we collect? Is it a moneymaker, above and beyond?" MR. MUSSER replied: Presently, no. Actually, there's serious deficiencies to the tune of ... $30 million, based on the Department of Transportation's annual maintenance needs versus what we fund currently. As submitted in the governor's bill ... increasing the ... fuels tax, the estimated revenue ... would generate about $69 million, about $9 million over what the department had estimated were the annual maintenance needs. And I understand an amendment was made in the House Finance Committee that reduced that ... anticipated revenue. CHAIR McGUIRE asked, "Philosophically, what would be the rational for dedicating funds in this area when we don't do it for many other well-deserving areas such as public safety or education?" MR. MUSSER replied: The sponsor feels that ... that is a very ... philosophical and difficult issue. Typically, motor fuel taxes are designed for that purpose. And in fact ..., currently, the revenue does go into a highway revenue fund within the GF and typically allocated to the department to meet our needs. But it's a substantial change; ... she feels that because it is more than a doubling of tax receipts ... for that, and because of the volume of traveling between the valley and Anchorage and the commuters and the amount that would be paid, that the public should have some assurances that that's what it's going to be used for, that the legislature would not come in and determine that other needs may exist and want to short fund our highway maintenance program. Number 0502 CHAIR McGUIRE asked why not do it for alcohol or tobacco taxes, so that those user fees are dedicated specifically for purposes of cessation or treatment of health problems that stem out of those substances? MR. MUSSER replied: That question was raised and even discussed, and that was ... an example. As you know, when the tobacco tax was substantially increased just a couple of years ago, during that debate and adoption of the increase, a percentage ... [of] about 20-22 percent or so was to be expressly utilized for tobacco-cessation programs, for ... youth education and efforts, and what have you. And, obviously, there are those within the anti- tobacco area that feel that the legislature is not living up to an agreement, which led to the support of that increase. And the same was said just last year with the alcohol tax increase, that levels of funding would be used. ... And that sort of gets, really, to the issue ... [of] this debate: ... should perhaps the legislature consider changing ... prior ... policy ... decisions and say, "Yes, we want to ensure that highway maintenance (indisc.) are met, and ... we're going to do this." And that really is the heart of the question. REPRESENTATIVE ANDERSON offered his belief that the Alaska State Constitution isn't so sacred that it can't be changed. He said he does not know why funds aren't dedicated; he indicated a desire to have dedicated funds, and relayed that he'd been opposed to the increase in alcohol tax because it goes into the "pot" and not to help related programs. MR. MUSSER, in response to questions, relayed that 39 states currently expressly dedicate motor fuel receipts to highway maintenance and operation, and that all 50 states have the intent to dedicate those funds. He noted that the delegates to the constitutional convention extensively debated the issue [of dedicated funds], and looked at Texas, which at the time had 90 percent of its revenue dedicated, as an example. The question is whether to begin dedicating funds, or to continue with what the framers of the constitution intended, that the legislature have the flexibility to "make the annualized policy calls." He relayed that the sponsor feels very strongly that the constitution should be amended for this particular purpose. Number 0825 REPRESENTATIVE SAMUELS, after noting that some departments don't generate revenue sufficient to meet their needs, asked Mr. Musser whether he thought that other departments should have their revenues dedicated. MR. MUSSER said he could not speak for the sponsor on that issue, which, he added, is at the heart of the debate. He remarked, however, that it appears as though, to date, the legislature has felt that funds should not be dedicated, that there is a greater diversity of needs that warrant allocation of funds. REPRESENTATIVE GARA said that this issue raises a concern: That there's some programs where there's a parallel tax, and we can say, "Okay, well let's put all of the revenue from that area into these programs." But there are some programs where there's no relevant tax - no relevant source of money. ... So, let's say we dedicate all motor fuel money to highways and all cigarette tax money to health care, ... but then we have all these other unfunded things like ... the hiring of social workers and foster care or the funding of schools. ... Should we not be concerned that if we start dedicating money to specific programs, not enough money will be left for the areas where we don't dedicate? I think that was largely the concern of the [framers] when they said, "Look, in Texas, 90 percent of their money is dedicated; with the ten percent of the money that's left, [they] don't have the discretion to fund all the things that aren't dedicated." ... What are your thoughts [on these points]? MR. MUSSER replied: Again, I can only come back to, "That's the heart of the debate." Our [framers] ... felt expressly that it would be poor public policy to hamstring the legislature's authority to allocate or appropriate funds deemed appropriate by the legislature. Dedicating this revenue takes that authority and decision-making ability away from this body. ... I can't speak to whether that's right or wrong; ... that is certainly up to the committee ... to look at that. Number 1100 REPRESENTATIVE GARA asked whether the funds HJR 20 proposes to dedicate would also be spent on road construction. MR. MUSSER said the funds would only be for "maintenance and operation." REPRESENTATIVE GARA, remarking that the legislature wouldn't want to dedicate more money than is spent for a particular purpose, asked whether any calculations have been done regarding the estimated revenues from the governor's proposed increase in motor fuel taxes and the estimated spending for operation and maintenance. MR. MUSSER reiterated that the estimate is $69 million in revenue and $60 million in operation and maintenance costs. He suggested that the legislature could decide to reduce the tax so as not to have a surplus in a dedicated fund. REPRESENTATIVE OGG asked about taxation of marine fuel and aviation fuel. MR. MUSSER said that including those taxes was considered, but [the sponsor] decided against doing so. He mentioned that the marine fuel tax account was meant to augment marine highway operations, but that the sponsor would be amenable to including "all consumptive fuel taxes ... except aviation." REPRESENTATIVE SAMUELS noted that there are a lot of federal guidelines regarding what can and cannot be done with aviation [fuel] taxes. In addition, if a local community taxes aviation fuel, the taxes must be spent on its municipal airport rather than a state-owned airport. On the issue of whether to take away the legislature's authority to appropriate funds from the motor fuel tax account, he indicated that if the oil revenues continue to decline, the legislature might have to choose between funding schools or fixing roads. He pondered whether creating a dedicated fund as proposed by HJR 20 would be good public policy. Number 1440 MR. MUSSER said that it is because of declining revenues that the sponsor feels it is important for the legislature to consider the express use of these funds for the operation and maintenance of highways and roads, which are used by all Alaskans. In response to a question, he indicated his understanding that the funds specified in HJR 20 would not used for capital costs. CHAIR McGUIRE suggested that such would be a detriment, and that there ought to at least be some leeway to spend funds for capital costs. Notwithstanding that point, she indicated that she would support advancing the legislation from committee Number 1522 REPRESENTATIVE ANDERSON moved to report the CS for HJR 20, Version 23-LS0889\D, Kurtz, 4/2/03, as amended by handwritten changes, out of committee with individual recommendations and the accompanying fiscal note. There being no objection, CSHJR 20(JUD) was reported from the House Judiciary Standing Committee.